The Brief: Kwasi Kwarteng tweeted: “We get it, and we have listened.” In response to the market upheaval that happened last week, the chancellor has announced that he is scrapping the abolition of the 45 per cent tax rate because it has become a “distraction” to government plans. He also added that there will be no additional austerity measures to be implemented. The gilt market opened stronger upon the news of Kwarteng’s plan withdrawal.
Why It Matters: Kwarteng’s U-turn is a far cry from his mini-budget speech where he emphasised his plans for more tax cuts in the coming months. Just yesterday, he insisted on pursuing his plans saying that it is “the right one.” However, his admission today that it was the PM’s decision to scrap the plan all along surprised the public. Truss, in an interview with the BBC, also revealed that the 45p tax rate change was Kwarteng’s decision and was not discussed in cabinet.
Finanze® Foresights: This reversal was not due to the market turbulence that erupted last week, but as a result of a looming rebellion from within their own party ranks due to the mini-budget. Critics argue that the U-turn has already damaged the government’s credibility. Had Kwarteng been more transparent with how he was funding the tax cuts then all of this might have been avoided due to the market better understanding his means to pay for the cuts themselves.
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