After heavy criticism their economic plans the British government has made a massive about-face. Finance Minister Kwasi Kwarteng announced on Monday morning in Birmingham that the top tax rate of 45 percent for top earners would not be abolished after all. The project distracts from the actual plans for overcoming the current challenges. Therefore, the top tax rate will not be abolished. “We understood, we listened,” wrote the conservative politician in one statement published on Twitter.
Previously, prominent members of the Tory party such as ex-ministers Michael Gove and Grant Shapps had sharply criticized the tax breaks and the enormous national debt and indicated that they intended to vote against them in parliament. The government feared a rebellion within its own party. Just over a week ago, Kwarteng announced the tax cuts, which are primarily intended to benefit the richest in society. The new government of Prime Minister Liz Truss wanted to boost economic growth.
After the announcement of debt-financed plans the pound rate had plummeted. The British central bank felt compelled to step in and purchase government bonds with long maturities – without a ceiling. Kwarteng intends to stick to other, equally controversial parts of the economic plan – including tax cuts for other income groups despite the enormously high inflation in Great Britain.
In polls, cutting the top tax rate was the most unpopular measure from the government’s package. Coupled with the planned removal of a cap on bank employee bonuses, many Brits were left with the impression that the Conservatives only care about the well-being of the wealthy. The Tories’ poll numbers were 33 percentage points behind those of the Social Democrat Labor Party after the plans were announced last week.
According to the Bloomberg news agency, the reversal in such a central political issue is also perceived as embarrassing in Truss’ own Tory party – and as a bad sign from Liz Truss right at the beginning of her term in office.