December 9, 2022

British Chancellor Kwasi Quarting backtracks on 45% tax rate cut

British Chancellor Kwasi Quarting backtracks on 45% tax rate cut

LONDON – The new British government said “we got it” as it abandoned plans to scrap the highest rate of income tax, a key part of its pivotal economic policy that scared markets and drove Britons out. Pound to all-time low against the US dollar.

On Monday, Prime Minister Liz Truss said in a major transformation The proposal to scrap the 45 per cent rate for people earning more than £150,000 ($168,000) has become a “distraction”.

In reaction to the news of the reversal, the pound rebounded on Monday morning against the US dollar, back to where it was before the government’s tax and borrowing scheme drove it lower.

The pound fell to an all-time low against the dollar after tax cuts

But this retreat is a major blow to the authority of the young Truss government, which has been in power for less than a month.

This leaves the government significantly weak and reveals the lack of support for Truss from her conservative party’s MPs in parliament, said Mojtaba Rahman, an analyst at Eurasia Group. In a brief note, he said her critics were “now swearing at weakness”.

The Conservative Party had hoped that a new prime minister by their annual conference this week would help weather the many scandals of former Prime Minister Boris Johnson and begin to revive confidence among voters.

But the Truss government’s first big policy move – announcing a plan to grow the economy by offering big tax cuts primarily to the wealthy – created a different kind of chaos.

Investors fear tax cuts and associated borrowing will exacerbate inflation, dumping the pound and government bonds. In a very unusual movement, the Bank of England intervention Last week to put down a revolution in the financial markets.

The Conservative Party’s popularity has also declined. In one of the amazing polls by YouGov, conservatives lag behind 33 points Behind the opposition Labor Party is a gap not seen since the 1990s. a separate surveyPublished on Monday by Savanta Comres, Labor had a 25-point lead over the Conservatives.

Some Conservative politicians have accused their party leaders of being deaf amid the cost of living crisis.

‘I can’t support a 45-pence tax repeal when nurses struggle to pay their bills’ chirp Conservative legislator 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.”

However, on Sunday morning, Truss was defending the 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 speech to the Conservative Party conference later on Monday.

Instead, Monday morning, Karting said in a statement, “We understood that, and we listened to it.”

In his keynote address to the party conference in Birmingham, he admitted that his economic plans had caused “a little bit of a big disruption”. But he said he would push forward with plans to develop the economy and added that the government would “soon” publish its financial plans.

Abandoning the highest tax rate of just 2 billion pounds ($2.2 billion) of the 45 billion pounds ($50.3 billion) cuts promised by the government, but it was by far the most controversial measure.

The plan as a whole reflects the established views of Quarting, an economic historian who has worked for investment banks and hedge funds. writing “Britannia UntetheredHe argues that Britain has become a ‘bloated country’ with ‘high taxes’ and ‘excessive regulation’ and that only a free market and libertarian stance would rock the country and lead to strong economic growth.

Kwasi Quarting and the ideology behind the collapse of the British pound

Analysts said the Truss government hoped Quarting’s radical ideas would help turn the party around, which has a comfortable 75-seat majority in parliament but has been lagging in opinion polls all year. The idea was to have big goals and hopefully reap the rewards before the next general election, which should be held by January 2025 at the latest.

“Doing so in a shock and awe way led to the crystallization of resistance,” said Jonathan Portes, professor of economics and public policy at King’s College London. He said one of the mistakes the government made was not to seek an independent assessment from the Office of Budget Responsibility (OBR), the financial watchdog.

“The flaw with this strategy is that people in the financial markets are not stupid,” he said. “So, if you say to the Office of Budget Affairs, ‘Don’t give us forecasts, because you might show our numbers don’t stack up,’ then obviously the markets will conclude that their numbers don’t stack up, making things much worse than even if the forecasts are bad. That level of stupidity. Honestly, it’s hard to explain.”

The plans would also have to be passed by Parliament, and some commentators questioned whether they would get them done.

When asked by the BBC if he scrapped part of the plan due to a lack of parliamentary support, Quarting said it was not about “voting in the House of Commons”, but about “listening to the people, hearing the voters, who have expressed very strong opinions about this.” command.”

In interviews, Kwarteng has said he did not consider quitting – though he bears much of the blame. On Sunday, Truss told the BBC that Quarting’s idea was to get rid of the highest income tax rate and that he had not informed the full Cabinet.

Truss will also address the party convention this week. She is scheduled to speak on Wednesday morning, presumably as she will seek to placate those who were angry with the performance of her government in her early days in office.

Analyst Rahman said there could be new upheavals looming over plans to raise the bankers’ bonus cap and the very real possibility of 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 will become 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.