Posted Oct 3, 2022, 8:54 AMUpdated Oct 3, 2022, 6:03 PM
The “iron lady” finally folded. After ten days of controversy, its Minister of Finance, Kwasi Kwarteng, announced that it was backtracking on part of its tax plan, which caused panic in the markets. More specifically, the government has given up implementing the abolition of the 45% tax bracket for income above 150,000 euros. A particularly controversial measure in times of purchasing power crisis.
“It is clear that the removal of the 45% tax rate has overshadowed our mission to tackle the difficulties in our country. Therefore, I am announcing that we are not going to prosecute her,” Kwasi Kwarteng tweeted.
Asked about the BBC, Kwasi Kwarteng struggled to explain why he and Liz Truss maintained their positions in the face of criticism for ten days, finally giving up. “We talk to people all over the country, we’ve seen the reactions and we understand,” he said.
His speech in the afternoon at the party convention did not arouse the enthusiasm usually associated with this annual gathering of Conservatives. Greeted by polite applause from activists, the minister reiterated that he “has a plan” to revive growth, prompting some laughter from the assembly by acknowledging that this plan “has created some turbulence”.
Threat of downvote
This reversal seems all the more clumsy as Liz Truss, the day before, had again ruled out amending its project, in his interview with the BBC at the opening of the Congress. No doubt she had no other choice, even if this change of direction seriously undermines her credibility. The party meeting in Birmingham was an opportunity for some heavyweights to come out of the woodwork to criticize its measures.
Michael Gove, a former member of the Johnson cabinet, said the abolition of the top 45% tax bracket amid the purchasing power crisis reflected “bad values” and that he would vote against it.
Ex-Transport Minister Grant Shapps has warned that Liz Truss could face an unfavorable vote in the House of Commons. At a round table, the former Secretary of State for Financial Services, John Glen, hollowly criticized the government’s plan: “We must recognize that the current period promises to be very difficult for the poorest. No new vulnerabilities should be created. »
Return to calm on the markets?
The income tax cut for the top bracket, which would have been reduced from 45% to 40%, represents only 2 billion pounds of the 45 billion tax cuts planned for 2026, among which is also the cancellation of an increase in social security contributions and that which was planned for corporation tax in 2023.
His withdrawal has a strong symbolism on the political level, insofar as the government was accused of favoring the wealthiest in a period of inflation which will first affect the most modest.
In the absence of forecasts from the OBR, the office in charge of budget forecasts, the plan as a whole, including a cap on energy prices, estimated between 100 and 200 billion pounds by economists, does not has not been encrypted. Hence the concern of the markets about its financing.
This reversal was greeted with relief by the markets, as shown by the slight rebound in the pound sterling on Monday morning. If he can bring political respite to Liz Truss and Kwasi Kwarteng in the middle of the Conservative Party Congress, the question of the credibility of the tandem at the head of the finances of the United Kingdom remains posed, especially since Liz Truss had made firmness in the face of difficult decisions his hallmark. Asked on the BBC about his possible resignation, Kwasi Kwarteng firmly dismissed the possibility.