The UK government is scrapping plans to cut tax on high earners in a major upheaval

“It is clear that the removal of the 45p tax rate has become a distraction from our primary mission of addressing the challenges facing our economy,” Finance Minister Kwasi Kwarteng said in a statement.

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LONDON — The U.K. government on Monday reversed a planned scrapping of the top rate of income tax, following a public backlash and major market jitters.

“It is clear that the removal of the 45p tax rate has become a distraction from our primary mission of addressing the challenges facing our economy,” Finance Minister Kwasi Kwarteng said in a statement.

“As a result, I am announcing that we are not moving forward with the removal of the 45p tax rate. We have understood and heard that.”

The cuts were badly received by financial markets and the scrapping of the 45% tax paid on incomes above 150,000 pounds ($166,770) was seen as politically toxic as Britons grapple with a cost-of-living crisis.

In the days after their announcement, the pound fell to an all-time low, mortgage deals were pulled from the market and UK government bonds began selling off at a record pace, prompting the Bank of England to launch a program temporary markets. calm instability.

The pound jumps for a while

The British pound rose sharply on Monday morning after reports that the British government would announce a reversal. Sterling was 0.8% higher against the dollar at one stage, but fell to $1.1212 at 7:30am. London time after the official announcement. It brings it back to the level it was before Kwarteng unveiled a raft of tax cuts on 23 September.

With the ruling Conservative Party sinking in the polls after the so-called “mini budget”, which was also criticized by the International Monetary Fund in a rare move, several of its politicians have come out against the proposals.

Big reversal

Grant Shapps, the former transport secretary, said in an interview with the BBC on Monday morning that reversing the top tax cut was a “sensible response” because the tax cut for “the people who need it least … suffered for people in a way. that was unsustainable.”

It represents a significant and humiliating U-turn for new Prime Minister Liz Truss, who insisted as recently as Sunday that she was “absolutely committed” to the cut.

He also revealed that the decision was taken by Kwarteng and had not been communicated to the entire cabinet. The scheme would have an average annual benefit of £10,000 to the country’s top 660,000 earners, the Treasury said.

Truss tweeted on Monday: “Removing the 45% rate has become a distraction from our mission to mobilize Britain.”

“Our focus now is on building a high-growth economy that funds world-class public services, raises wages and creates opportunity across the country.”

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