[csusbpeace] U.K. PM Liz Truss scraps tax cut plan that sent pound crashing
- From: "raccoon" <dmarc-noreply@xxxxxxxxxxxxx> ("bigraccoon1")
- To: "CSUSBPEACE@xxxxxxxxxxxxx" <CSUSBPEACE@xxxxxxxxxxxxx>
- Date: Mon, 3 Oct 2022 07:02:36 -0700
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U.K. scraps tax cut for the rich that sparked market chaos and political
backlash
“We get it and we have listened," Prime Minister Liz Truss said, reversing a
policy that sent the pound plummeting alongside the government's polling
numbers.
Oct. 3, 2022
LONDON — British Prime Minister Liz Truss
<https://www.nbcnews.com/news/world/uk-pm-truss-british-pound-falls-radio-call-shows-economy-turmoil-rcna49928>
on Monday ditched her signature plan to cut taxes for the country's top
earners after it triggered market turmoil
<https://www.nbcnews.com/news/world/bank-england-uk-pound-crash-tax-cuts-rcna49549>
and a huge domestic outcry.
Truss, who is less than a month
<https://www.nbcnews.com/news/world/britain-uk-liz-truss-prime-minister-margaret-thatcher-boris-joshnson-rcna45838>
into the job, proposed removing the top tier of income tax — meaning a
saving for people who earn more than 150,000 pounds ($168,000) a year — as
part of a set of unfunded economic reforms that caused the pound to fall to
historic lows and damaged Britain's economic standing globally.
The pound rose after the announcement to around $1.12 — about the value it
held before the Sept. 23 budget announcements.
The dramatic reversal comes just hours after Truss defiantly defended the tax
cut and her broader radical economic agenda, saying it was necessary to solve
the country’s long-term economic woes. Faced with a growing political
rebellion after days of economic chaos, the government said early Monday it
was abandoning the plan.
The embattled finance minister, Kwasi Kwarteng, was due to defend the plan in
an address to the ruling Conservative Party’s annual conference. “We must
stay the course. I am confident our plan is the right one,” he was due to
say, according to released advance extracts of the speech.
Instead, he announced the plan was being scrapped in an early morning tweet.
"We get it and we have listened," he said, followed by a similar message from
Truss.
The abrupt about-face comes as the Conservatives gather in the central
English city of Birmingham for an annual conference, normally a morale
boosting event for activists to hear about the party's priorities for the
year ahead.
Instead, the party finds itself in embarrassing retreat with a resurgent
opposition center-left Labour Party about 20% ahead in opinion polls. With
the country already facing a grim winter of soaring energy bills and food
prices, critics accused Truss of having misplaced priorities and intensifying
the pain for many.
Labour's finance spokesperson Rachel Reeves said
<https://twitter.com/RachelReevesMP/status/1576829769781456896>: "The Tories
have destroyed their economic credibility and damaged trust in the British
economy."
For some political commentators, the reversal is too little, too late.
"The damage has been done," said Simon Usherwood, a politics professor at the
Open University. "It has still created an image of a government that thought
this was a good idea."
Truss has long sought to emulate Britain's divisive former leader Margaret
Thatcher, who in 1980 famously said "the lady is not for turning" in response
to opposition to her own economic liberalization plans. Now, as many critics
eagerly pointed out, Truss has turned.
"This just shows it's a government that can be swayed," Usherwood said. "She
was fully behind this plan in interviews on Sunday and is now going back on
it. The question is whether there is anything she can do to revitalize her
project and her brand."
Even as Truss defended the policy over the weekend, a growing number of
senior lawmakers in her party signaled they would vote against it in the
House of Commons.
The plan to cut taxes for the wealthy was part of a broader "mini-budget"
announced soon after the new administration took office. Aimed at fueling
economic growth, it proposed broader tax and regulation cuts in a 45 billion
pounds ($50 billion) package that was unfunded, leaving Britons wondering
which already strained public services might be cut to save money.
Finance minister Kwasi Kwarteng and British Prime Minister Liz Truss attend
the annual Conservative Party conference on Sunday in Birmingham, England.
Leon Neal / Getty Images
The plan to borrow more to fund the tax cuts was roundly rejected as unsound
by economists, with the value of the pound plummeting and the cost for the
U.K. to borrow on international markets soaring.
The move earned a rare rebuke from the International Monetary Fund, which
urged the government to “re-evaluate” a plan that may fuel already-soaring
inflation and increase economic inequality.
The British central bank, the Bank of England, also intervened with a 65
billion pound ($73 billion) package to stave off market panic.
Despite Monday's reversal, Kwarteng said the government was sticking to its
other tax policies, including a cut next year in the basic rate of income tax.
Homeowners and prospective buyers still look set for a rough ride as interest
rates are still likely to rise, pushing mortgage rates higher for millions.
Banks have already removed dozens of mortgage deals and pushed their monthly
fees higher.
Last week Truss suffered a memorably bruising round of interviews
<https://www.nbcnews.com/news/world/uk-pm-truss-british-pound-falls-radio-call-shows-economy-turmoil-rcna49928>
with local radio stations, in which she falteringly attempted to defend the
measures.
A BBC Nottingham presenter described the top rate income tax cut as a
"reverse Robin Hood" policy and asked Truss: “Why don’t you just hold your
hands up and say, ‘This is a mess, we got it wrong and we’re going to do
something different'?"
Days later the government has done just this, though it may be too late to
avoid long-term political and economic consequences.
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