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Thursday, March 30, 2023

Britain reverses part of controversial tax policy that sent pound plunging

In a major U-turn for the British government, Prime Minister Liz Truss said on Monday that the proposed scrapping of the 45% rate for those earning more than £150 000 pounds (R3 million) had become a “distraction”.

Kwasi Kwarteng, the new chancellor of the Exchequer or finance minister, issued a similar statement, saying: “We get it, and we have listened.”

Truss’s government unveiled its hugely controversial economic plan in a “mini-budget” on September 23. It would see the UK borrowing billions to pay for tax cuts and spending to insulate consumers from soaring energy bills.

The reaction to the plans was swift. Investors, fearing the moves would worsen inflation, dumped the pound and government bonds. In a highly unusual move, the Bank of England intervened last week to stop a financial market revolt.

The Conservative Party’s popularity has plummeted as well. In one breathtaking survey by YouGov, the Conservatives lagged 33 percentage points behind the opposition Labour Party, a gap not seen since the 1990s.

The U-turn is a huge blow to the authority of Truss, who has been in office for just under a month. As recently as Sunday morning, she said she was committed to the policy and would stick with the tax cuts. Kwarteng had been expected to defend the measures in his address to the Conservative Party’s annual conference later on Monday.

But the government faced a growing backlash from within its own ranks, with several Conservative lawmakers coming out publicly to voice their opposition to plans that offered the best paid a tax cut, while millions are facing a financial squeeze from the cost-of-living crisis.

The plans still have to be passed by Parliament and some commentators have questioned whether they would have made it through.

“I can’t support the 45p tax removal when nurses are struggling to pay their bills,” tweeted Conservative lawmaker Maria Caulfield, who served as minister of state for health in the previous government.

Michael Gove, a senior Conservative, said that unfunded tax cuts were “not Conservative”.

Asked by the BBC if he was scrapping the plans because they wouldn’t get support in Parliament, Kwarteng said: “It’s not a question of getting it through, it’s a question of actually getting people behind the measure. It’s not about parliamentary games or votes in the House of Commons.

“It’s about listening to people, listening to constituents who have expressed very strong views about this, and on balance I thought it was the right thing not to proceed,” he said.


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