UK rolls back tax cut for the rich that sparked market turmoil

The British government on Monday abandoned plans to cut income tax for top earners, part of an unfunded package of cuts unveiled just days ago that sparked financial market turmoil and sent the pound to record highs.

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In a dramatic about-face, Treasury chief Kwasi Kwarteng has abandoned plans to scrap the top 45% rate of income tax paid on income above 150,000 pounds ($167,000) a year.

He and Prime Minister Liz Truss have spent the past 10 days advocating for the cut in the face of market chaos and growing alarm within the ruling Conservative Party .

“We understand and we have listened,” Kwarteng said in a statement. He said "it is clear that the abolition of the 45p tax rate has become a distraction from our overarching mission to address the challenges facing our country."

The pound rose after the Kwarteng's announcement at around $1.12 - about the value he held before the Sept. 23 budget announcements.

The U-turn came after a growing number of conservative lawmakers, including former ministers with wide influence have turned against the government's tax plans.

< p>"I cannot support the 45p tax cut while nurses are struggling to paying their bills," said Tory lawmaker Maria Caulfield.

It also came hours after the Tories published in advance excerpts from a speech Kwarteng is due to give more late Monday at the party's annual conference in the city of Birmingham in central England. He had to say, “We have to stay the course. I'm confident our plan is the right one."

Truss defended the measures on Sunday but said she could have "done a better job laying the groundwork" for the announcements.

Truss took office less than a month ago, promising to radically reshape Britain's economy to end years of sluggish growth, but the government's announcement of a £45 billion stimulus package pounds ($50 billion) of tax cuts, to be paid for by public borrowing, drove the pound to a record low against the dollar.

The Bank of England was forced to intervene to support the bond market, and fears that the bank will soon raise interest rates have caused mortgage lenders to withdraw their cheapest offers, causing turmoil for homebuyers.

The package proved unpopular, even among Tories. us and the removal of the cap on bankers' bonuses as millions face a cost-of-living crisis caused by soaring energy bills has been widely seen as politically toxic.

Truss and Kwarteng insist their plan will provide a growing economy and eventually generate more tax revenue, offsetting the cost of borrowing to fund the current cuts. But they also signaled that government spending will need to be cut to keep public debt under control.

Kwarteng has promised to present a medium-term fiscal plan on November 23, alongside the Independent Office for Budget Responsibility's economic forecast.

Focusing the corporate tax rate high earners would have cost around £2billion, a small part of the government's overall tax cut plan. Kwarteng said on Monday the government was sticking to its other tax policies, including a cut in the basic income tax rate next year and a reversal of a corporate tax hike. planned by the previous government.

Tony Danker, who heads the Confederation of British Industry business group, said he hoped the government's U-turn would bring stability to markets.< /p>

"None of this growth plan will work if we don't have stability. Hopefully this is just the beginning," he told LBC TV.

Opposition parties have said the government should scrap its entire economic plan.

“The UK government is waiving the highest tax abolition rate because c It's a 'distraction,'" Scottish First Minister Nicola Sturgeon of the Scottish National Party wrote on Twitter. "Morally reprehensible and extremely costly to millions is a better description. Complete nonsense."