The UK scraps a tax cut for the rich that caused market turmoil

BIRMINGHAM, England — The British government on Monday scrapped plans to cut income tax for top earners, part of a package of unfunded cuts unveiled days ago that rattled financial markets and sent the pound to record lows.

In a dramatic appearance, Finance Minister Kwasi Kwarteng abandoned plans to scrap the top 45 percent rate of income tax paid on earnings above 150,000 pounds ($167,000) a year.

He and Prime Minister Liz Truss have spent the past 10 days defending the cut in the face of market chaos and growing concern among the ruling Conservative Party.

Read more: What you need to know about Liz Truss, the new Prime Minister of Britain

“We understand and have listened,” Kwarteng said in a statement. He said that “it is clear that the abolition of the tax rate of 45 p.m. it has become a distraction from our primary mission of addressing the challenges facing our country.”

The pound rose after Kwarteng’s announcement to about $1.12 — about the value it was before the Sept. 23 budget announcements.

The shift came after a growing number of Tory lawmakers, including influential former ministers, turned on the government’s tax plans.

“I cannot support scrapping the 45p tax when nurses are struggling to pay their bills,” Tory MP Maria Caulfield said.

It also came hours after the Conservatives released advance excerpts of a speech Kwarteng is due to give later on Monday at the party’s annual conference in the central English city of Birmingham. He had to say, “We have to stay the course. I am confident that our plan is the right one.”

Truss defended the measures on Sunday, but said she could have “done a better job laying the groundwork” for the announcements.

Truss took office less than a month ago, promising to radically reshape the British economy to end years of sluggish growth. But the government’s announcement of a stimulus package that includes 45 billion pounds ($50 billion) in tax cuts, to be paid for by government borrowing, sent the pound to a record low against the dollar.

Read more: Queen Elizabeth II’s death has slowed action in an already troubled British economy

The Bank of England has been forced to step in to prop up the bond market and fears that the bank will soon raise interest rates have forced mortgage lenders to withdraw their cheapest deals, sending homebuyers into a frenzy.

The package proved unpopular, even among the Conservatives. Cutting taxes on top earners and scrapping the cap on bankers’ bonuses, while millions face a cost-of-living crisis due to rising energy bills, was widely seen as politically toxic.

Truss and Kwarteng insist their plan will deliver a growing economy and ultimately bring in more tax revenue, offsetting the cost of borrowing to finance the current cuts. But they have also signaled that public spending will need to be cut to keep public debt under control.

Kwarteng promised to produce a medium-term budget plan on November 23, alongside an economic forecast from the independent Office for Budget Responsibility.

The tax rate cut for the top earners would cost around £2bn, a small share of the government’s overall tax cut plan. Kwarteng said on Monday that the government is sticking to its other tax policies, including lowering the basic income tax rate next year and reversing the corporate tax increase planned by the previous government.

Tony Danker, who heads the Confederation of British Industry business group, said he hoped the government reversal would bring stability to markets.

“None of this development plan will work if we don’t have stability. Hopefully this is the start,” he told broadcaster LBC.

Opposition parties said the government should scrap its entire economic plan.

“The UK government is turning away top tax rates because it’s a ‘distraction’,” Scottish First Minister Nicola Sturgeon of the Scottish National Party tweeted. “Ethically wrong and extremely costly to millions is a better description. Utter incompetence.”

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