Ten days after the UK government announced a massive tax cut that wreaked havoc on financial markets, it withdrew its plan to abolish the top rate of income tax.
UK Treasury Secretary Quasi Kwateng posted a statement on Twitter on the 3rd (local time), the second day of the ruling Conservative Party’s annual general meeting, that he would not push for the abolition of the top 45% income tax rate, AFP and reported Associated Press.
“Our growth initiatives, including supporting businesses and reducing tax cuts for low-income families, were a new approach to a more prosperous economy,” said Quateng, “but removing the 45% rate has clearly been a hindrance to n top priority. to address the challenges the UK is facing,” he said.
“Our focus now is to build a high-growth economy that funds world-class public services, raises wages, and creates opportunities across the country,” said Prime Minister Liz Truss, sharing Kwateng’s statement on Twitter, ” he said.
In the UK, the tax rate of 45% applies to only 500,000 people, or 1% of the adult population, but they have such a high income that their revenue reaches £6 billion.
Reuters reported that the reduction in tax revenue as a result of the removal of the top income tax rate accounts for around £2 billion of the £45 billion tax cut announced by the British government on the 23rd of last month, Reuters reported .
Minister Quateng is expected to speak at the Conservative Party plenary on the same day, but before the statement was released, his speech revealed: “We must stick to this line.
I’m sure our plan is correct.”
Prime Minister Truss was blunt about the policy itself, although he admitted there was a communication problem in the process of announcing the tax cuts in an interview with the media a few hours before Kwateng issued a statement.
Representative Rachel Reeve, who oversees fiscal policy for the main opposition Labor Party, said the government’s confusion had “damaged the UK’s economic credibility” and that “all economic policy that relies on an unbelievable trickle-down effect must be. turned over.”
Among the large-scale tax cuts promoted by the new Truss administration, voices were particularly loud within the Conservative Party as well as the opposition parties against abolishing the 45% income tax rate.
Former housing minister Michael Gove said the day before that the 45% tax break represented “wrong values” and expressed concern that it would be unconservative for the Conservatives to increase government borrowing to finance the tax cuts.
The British government announced on the 23rd of last month a policy to push for the biggest tax cut in 50 years, but did not reveal how it would make up for the shortfall in tax revenue.
After the government’s announcement, the value of the pound against the US dollar reached its lowest level ever on the 26th of last month, and the interest rate on British government bonds increased, causing chaos in the financial market.
In response, the Bank of England (BOE), the UK’s central bank, had to pull a ‘surprise’ card on the 28th of last month to buy long-term government bonds by October 14th to stabilize the financial market.
Following the announcement of the withdrawal of the top tax rate, the exchange rate of the pound against the US dollar was 1.12 dollars this morning, showing a small increase from the previous day.
Bloomberg News quoted options traders as saying that the UK government’s withdrawal from the top tax rate was not enough to quell concerns that the pound could depreciate further.
/happy news
