Prime Minister Liz Truss said on Monday, in a major turnaround for the British government That proposed scrapping of 45 percent for those earning more than 150,000 pounds ($168,000) has become a “distraction.”
In response to the news, the pound rebounded on Monday morning against the US dollar, returning to where it was before the announcement of the “mini-budget” which drove it to crash.
But the decline is a major blow to the authority of the young Truss government, which has been in office for less than a month. Its plans to offer a higher-paying tax cut — at a time when millions are facing financial stress from the cost-of-living crisis — fell like a lead balloon.
Investors, fearing the moves would exacerbate inflation, ditched the pound and government bonds. In a very unusual move, the Bank of England intervened last week to stop a revolution in the financial market. Some conservative politicians have accused their government of being deaf.
We got it and we listened.
Elimination of the 45 per cent rate has become a distraction from our task of moving Britain.
Our focus now is on building a high-growth economy that finances world-class public services, boosts wages, and creates opportunity across the country. https://t.co/ee4ZFc7Aes
– Liz Truss (@trussliz) October 3, 2022
Mojtaba Rahman, an analyst at Eurasia Group, said the dramatic shift leaves the government significantly weak and exposes a lack of support for gears from its back seats. In a brief note, he said her critics were “now cursing weakness”.
On Sunday morning, Truss was defending her economic plans, saying she was committed to the tax cuts. In comments made to reporters last night, Kwasi Quarting, the new finance minister or finance minister, was expected to defend the tax cuts in his address to the annual Conservative Party conference later on Monday.
Instead, on Monday morning, he released a statement saying, “We got it, and we listened.”
The Truss government unveiled its highly controversial economic plan in a “mini-budget” on September 23 that would have the country borrow billions to pay tax cuts and spending to insulate consumers from higher energy bills. Giving up the highest tax rate was just £2 billion of the £45 billion of promised cuts, but it was by far the most controversial measure.
Not only did this cause stormy financial weather, but the Conservative Party’s popularity plummeted as well. In one stunning YouGov poll, the Conservatives trailed by 33 points behind the opposition Labor Party, a gap not seen since the 1990s.
The government faced a growing backlash from within its ranks as well, with many conservative lawmakers coming out publicly to express their opposition. “I can’t support repealing the 45p tax when nurses are struggling to pay their bills,” tweeted Conservative MP Maria Caulfield, who served as Secretary of State for Health in the previous government. Michael Gove, a senior conservative, said the unfunded tax cuts “are not conservative.”
The plans have yet to be passed by Parliament and some commentators have questioned whether they will make it through.
Asked by the BBC if he scrapped the plans because they would not get support in Parliament, Quarting said: “It’s not a question of getting it, it’s a question of getting people behind the action. It’s not about Parliament games or voting in Parliament. Common.
“It’s about listening to people, listening to voters, who have expressed very strong views on this, and overall, I think it was the right thing not to move forward,” he said.
In interviews, Kwarteng has said he is not considering resigning, but many say he is not yet out of the woods and that his Monday afternoon speech to Conservative Party faithful will be watched closely.
Truss will also address the party convention this week. In her first address to the conference as prime minister, on Wednesday morning, Truss will seek to placate those who were angry with the performance of her government in its early days in power.
Analyst Rahman said there could be new revolutions looming over plans to raise maximum bonuses for bankers and the very real possibility of the sharp spending cuts necessary to deal with the massive loss of revenue and the promise of help with energy bills.
Abdul Rahman said the chaos of the past 10 days will bolster the voices of those calling for a change in the Conservative Party’s leadership rules so that lawmakers, rather than 160,000 grassroots members, make the final decision on who becomes the leader.
Truss became prime minister after gaining support Conservative Party members across the country while the majority of lawmakers supported her rival Rishi Sunak.
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