UK Scraps Plan To Cut Tax On High Earners

The UK government on Monday, Oct. 3, 2022, reversed a plan to scrap the top rate of income tax, after a public backlash and major market turbulence, Jenni Reid reported for CNBC.

Photo Insert: In the days following their announcement, the pound dropped to an all-time low, mortgage deals were pulled from the market and UK government bonds began to sell off at a historic rate, causing the Bank of England (BOE) to begin a temporary purchase program to calm volatility.

The new government had announced a swathe of tax cuts just weeks into its tenure, but they were poorly received by financial markets. Taking the top rate of tax paid on incomes over £150,000 ($166,770) from 45% to 40% was seen as particularly politically toxic as Brits deal with a cost-of-living crisis.

In the days following their announcement, the pound dropped to an all-time low, mortgage deals were pulled from the market and UK government bonds began to sell off at a historic rate, causing the Bank of England (BOE) to begin a temporary purchase program to calm volatility.

On Monday, Finance Minister Kwasi Kwarteng confirmed that the government would be scrapping its plans to cut tax for the country’s highest earners.

“It is clear that the abolition of the 45p tax rate has become a distraction from our overriding mission to tackle the challenges facing our economy,” Kwarteng said in a statement.

“As a result, I’m announcing we are not proceeding with the abolition of the 45p tax rate. We get it, and we have listened.”

The British pound rose sharply Monday morning on reports that the UK government was set to announce a U-turn. Sterling was 0.8% higher against the dollar at one stage but dipped to $1.1212 by 7:30 a.m. London time after the news was confirmed.

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