UK Govt Abandons Plan To Scrap 45% Tax Rate After Facing Criticism

uk dec18 03oct22 lt

The UK government decided to abandon its plan to scrap the 45 percent tax rate, which was announced just 10 days before, after coming under severe criticism for such a relaxation for the high earners at the time of rising living costs.

"...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 country," Chancellor of the Exchequer Kwasi 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."

"This will allow us to focus on delivering the major parts of our growth package," Kwarteng added.

The plan to scrap the high tax rate for those earning above GBP 150,000 a year was announced in the mini-budget on September 23.

Kwarteng had also announced an energy price guarantee to support households and businesses as energy prices soar.

The new UK government, led by Prime Minister Liz Truss, came under criticism for its economic policy from within the Conservative Party.

Markets and observers had criticized the move to scrap the high tax rate as unfair. The pound hit a record low in the days following the mini-budget and the UK debt yields surged.

In what was seen as a rare move, the International Monetary Fund urged the UK government to reassess its debt funded tax cuts and said it "does not recommend large and untargeted fiscal packages at this juncture."

Rating agency Moody's warned the UK of a rating downgrade and S&P assigned a 'negative outlook' to the country's credit rating.

The Bank of England was forced to intervene in the gilt market last week to restore stability to stem the risk of contagion to the real economy.

The central bank was widely expected to announced an out-of-schedule interest rate hike following the turmoil in the currency and bond markets.

After the pound hit a record low a week ago, the BoE Governor Andrew Bailey said the central bank is ready to alter its interest rates by as much as needed to bring the inflation back to the 2 percent target.

The bank decided to undertake temporary purchases of long-term government bonds from September 28.

The temporary and targeted purchases will be carried out on whatever scale that is necessary to restore orderly market conditions, the central bank added.

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