“We get it, and we have listened.” That was the message from Kwasi Kwarteng as he announced the cancellation of the massive tax cuts on high earners proposed in the recently designed mini-budget.
Mr. Kwarteng said the proposed tax cuts and the abolition of the 45p tax rate have “become a distraction” from the administration’s commitment to tackle the challenges facing the UK.
“As a result, I’m announcing we are not proceeding with the abolition of the 45p tax rate. We get it, and we have listened,” Kwasi Kwarteng said in a statement on Monday.
“This will allow us to focus on delivering the major parts of our growth package,” Kwarteng added.
The Chancellor of the Exchequer said the abolition would help the government focus on other parts of the plan, including the “Energy Price Guarantee,” to support households and businesses with their energy bills.
Prime Minister Liz Truss, while sharing the news, said: “The abolition of the 45pc rate had become a distraction from our mission to get Britain moving.”
“Our focus now is on building a high-growth economy that funds world-class public services, boosts wages, and creates opportunities across the country,” she added.
The new growth plan handed top earners in the UK a big tax cut amid an energy crisis that has made it difficult for low earners to pay for their energy and food bills. The controversial decision sent the British pound to an all-time low.
Last weekend, members of the conservative party criticized the planned giveaway, and there were fears that the Liz Truss government could see a revolt from members of parliament.
The mini-budget, the Chancellor’s mistake
On Sunday, Prime Minister Liz Truss admitted that the proposed giveaway was a mistake by her government but said it was the decision of the Finance Minister.
“I do accept we should have laid the ground better, and I’ve learned from that, and I’ll make sure I’ll do a better job of laying the ground in the future,” Truss told the BBC on Sunday.
The prime minister said she understood the issues raised but insisted that she “stand by the package we announced and I stand by the fact we announced it quickly.”
When asked if her cabinet accepted the proposed reforms, Ms. Truss said: “It was a decision the chancellor made.”
“We’re not living in a perfect world. We are living in a very difficult world, where governments around the world are taking tough decisions,” Truss stated.
“A catastrophic political debut”
There were high hopes when Liz Truss took the baton of leadership from Boris Johnson last month. How high are the hopes now? Brian Klaas, associate professor in global politics at the University College London, thinks the 47-year-old has lost the trust of many individuals and businesses over the controversial tax cut for the richest Britons.
“Truss now apparently going to U-turn on the massive tax cut for the richest in the UK,” Klass said. “The right move, but she’s absolutely torched her political capital and probably doomed her time in office.”
“One of the most incompetent, catastrophic debuts in political leadership I’ve seen,” he added.
The British pound reacted to the abolition of the tax cut package, moving a little higher against the US dollar. However, experts think the government would need to do more to reassure markets that its economic plans can be trusted.