PM Truss Reverses Course on Controversial Policy

The policy reversal comes a day after Prime Minister Liz Truss defended the original policy, which caused the value of the pound to fall to record lows and caused turmoil in financial markets.

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The UK government has announced that it is scrapping plans to scrap the highest rate of income tax for high earners. This is a embarrassing u-turn for Prime Minister Liz Truss, who had come under fire for the policy from both the public and the international community. The decision is likely to please markets and the pound, which had both reacted negatively to the news of the proposed tax cut.

Britain's Prime Minister Liz Truss and Chancellor of the Exchequer Kwasi Kwarteng at the annual ... [+] Conservative Party conference in 2022.Getty Images
The conservative party is in full swing as Liz Truss and Kwasi Kwarteng take the stage at the annual conference in 2022. The party is looking to build on its recent successes and continue its plans for a bright future. The economy is strong and the country is stable, thanks to the hard work of the government.

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The reversal of the tax cut for the wealthy 1% is a humiliating climbdown for the Truss government. This tax cut would have been one of many financial policies announced by Kwarteng that also included removing caps on bankers' bonuses and plans to control energy costs. These announcements came as a shock to many, including members of Truss' cabinet, and no mention of them was made during her lengthy campaign for party leadership. The policies have spooked investors, prompted the pound to sink to record lows against the dollar, and stoked turmoil in the markets. The Bank of England has intervened to calm markets after the International Monetary Fund issued a rare critique of the government's policy and urged it to reconsider.

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The government's policies have caused widespread negative reactions and stoked rebellion among Conservative lawmakers. Despite having a majority in the House of Commons, fears are mounting that the new government will lose a vote if the matter is put to a vote. The policy, alongside recent scandals from the previous government, has damaged the Conservative's standing among the public.

Crucial Quote: "The best way to find out what we really need is to get rid of what we don't."

Kwarteng told the BBC that he and Truss made the decision to cut income tax together—contrasting with Truss’ statement on Sunday that the finance chief acted alone—and similarly made the decision to walk it back together.

What To Watch For

The government's plans to reduce taxes and spur economic growth may require further spending cuts, according to Liz Truss. This could mean more austerity measures for the UK public, which has already seen significant spending cuts in recent years.

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