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British Prime Minister Liz Truss cancels tax cut plan that caused pound to crash

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LONDON — British Prime Minister Liz Truss on Monday scrapped her signature plan to cut taxes on the country’s top earners after it sparked market turmoil and huge domestic outcry.

Truss, who has been out of work for less than a month, proposed scrapping the top income tax — saving those earning more than £150,000 ($168,000) a year — as part of a series of unfunded economic reforms that the pound fell to historic lows and damaged Britain’s economic position worldwide.

The dramatic turnaround comes just hours after Truss defiantly defended the tax cut and her broader radical economic agenda against ruling conservative party activists, saying it was necessary to solve the country’s long-term economic problems. Facing a growing political uprising after days of economic chaos, the government said Monday it was abandoning the plan.

“We get it and we’ve listened,” Truss and her embattled finance minister Kwasi Kwarteng said on Twitter.

The pound rose to about $1.12 after the announcement – roughly the value it had before the Sept. 23 budget announcement.

The abrupt turnaround comes when the Conservatives gather in Birmingham for an annual conference, normally a morale-boosting event for activists to hear about the party’s priorities for the year ahead.

Instead, the party finds itself in an embarrassing retreat with a resurgent centre-left opposition Labor party, ahead about 20% in opinion polls. With the country already experiencing a grim winter of rising energy bills and food prices, critics accused Truss of having misplaced priorities and intensifying the pain for many.

Labor’s financial spokesman Rachel Reeves said“The Tories have destroyed their economic credibility and damaged confidence in the British economy.”

Even as Truss defended the policy this weekend, a growing number of senior lawmakers in her party indicated they would vote against in the House of Commons.

The plan to cut taxes on the rich was part of a broader “mini-budget” announced shortly after the new government took office. Aimed at boosting economic growth, it proposed broader tax and regulatory cuts in a £45bn ($50bn) package that had gone unfunded, leaving Britons to wonder what already pressured public services could be cut back to to save money.

The move received a rare rebuke from the International Monetary Fund, which urged the government to “rethink” a plan that could fuel already soaring inflation and widen economic inequality.

The plan to borrow more to fund unpopular tax cuts has been roundly rejected by economists as flawed, with the value of the pound plummeting and the cost for the UK of borrowing in international markets skyrocketing.

Britain’s central bank, the Bank of England, which is independent from the government, intervened with a £65bn ($73bn) package to avert market panic.

Despite the turnaround, homeowners and would-be buyers appear to be in for a rough ride as interest rates are likely to rise further, driving mortgage rates up for millions. Banks have already removed dozens of mortgage deals and increased their monthly fees.

Kwarteng said the government is sticking to its other tax policies, including a reduction in the base income tax rate next year.

Truss had a memorable round of interviews with local radio stations last week, falteringly trying to defend the measures.

A BBC Nottingham presenter described the income tax cut as a ‘reverse Robin Hood’ policy and asked Truss: ‘Why don’t you just raise your hands and say ‘This is a mess, we’re wrong and we’ are you going to do something else?'”

Days later the government is there, although it may be too late to avoid long-term political and economic consequences.

Associated Press contributed.


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