British finance minister Kwarteng has partially withdrawn the announced tax reform and has declared that the top tax rate will remain at 45 percent. The reform would have relieved high earners in particular. This brought him and PM Truss massive criticism, the British pound plummeted.
After severe criticism of its economic plans, the British government has made a massive about-face. Finance Minister Kwasi Kwarteng announced in Birmingham that he would not lower the top tax rate of 45 percent for top earners after all. “We understood, we listened,” wrote the conservative politician in a statement published on Twitter.
Previously, prominent members of the Tory party such as ex-ministers Michael Gove and Grant Shapps had sharply criticized the tax breaks and the enormous national debt and indicated that they intended to vote against them in parliament. The government feared a rebellion within its own party.
The pound rose sharply after the announcement. The UK currency climbed back to pre-budget levels. According to the analysts, the pound could trade in a range between $1.1000-$1.1350 and the euro below 0.8700. The pound is currently trading at $1.1186 after hitting a high of 1.1280. The euro costs 0.8757 pounds.
Just over a week ago, Kwarteng announced the tax cuts, which should primarily benefit the richest in society. The new government of Prime Minister Liz Truss wanted to boost economic growth. After the announcement of the debt-financed plans, the pound rate plummeted. The British central bank felt compelled to step in and purchase government bonds with long maturities – without a ceiling.
Kwarteng wants to stick to other, equally controversial parts of the economic plan – including tax cuts for other income groups despite enormously high inflation.
