BIRMINGHAM, England (AP) 鈥� The U.K. government on Monday dropped plans to cut income tax for top earners, part of a package of unfunded cuts unveiled only days ago that and sent the pound to record lows.
In a dramatic about-face, Treasury chief Kwasi Kwarteng abandoned plans to scrap the top 45% rate of income tax paid on earnings above 150,000 pounds ($167,000) a year, a policy that had drawn near-universal opposition. The pound rose after the government U-turn, trading at $1.13 鈥� just over the value it held before the government鈥檚 calamitous budget announcement on Sept. 23.
But Kwarteng said the government would push ahead with the rest of its tax-cutting stimulus package. Kwarteng and have spent the last 10 days defending the plan in the face of market mayhem and increasing alarm among the governing Conservative Party.
In a speech to the party's annual conference, Kwarteng acknowledged the plan had 鈥渃aused a little turbulence."
鈥淚 get it. We are listening and have listened, and now I want to focus on delivering the major parts of our growth package,鈥� he said, trying to draw a line under 10 days of turmoil.
鈥淲e need to move forward. No more distractions. We have a plan and we need to get on and deliver it."
The turnaround came after a growing number of Conservative lawmakers, including former ministers with broad influence, .
鈥淚 can鈥檛 support the 45p tax removal when nurses are struggling to pay their bills,鈥� Tory lawmaker Maria Caulfield said.
The backlash has cast a shadow over the Conservative conference in the central England city of Birmingham, where many delegates express fears that the party, in power since 2010, is headed for defeat in the next election. It's not due until 2024, but the opposition Labour Party has taken a substantial lead in opinion polls.
Truss defended the economic plan on Sunday but said she could have 鈥渄one a better job laying the ground鈥� for the announcements.
She also said the decision to abolish the top tax rate had been taken by Kwarteng alone. On Monday, Truss' spokesman said the prime minister still had confidence in her embattled Treasury chief.
Truss took office less than a month ago, promising to radically reshape Britain鈥檚 economy to end years of sluggish growth. But the government鈥檚 announcement of a stimulus package that includes 45 billion pounds ($50 billion) in tax cuts, to be paid for by government borrowing, sent .
The Bank of England was forced to intervene to prop up the bond market, and fears that the bank will soon caused mortgage lenders to withdraw their cheapest deals, causing turmoil for homebuyers.
The package proved unpopular, even among Conservatives. Reducing taxes for top earners and scrapping a cap on bankers鈥� bonuses while millions face a was widely seen as politically toxic.
Truss and Kwarteng insist that their plan will deliver a growing economy and eventually bring in more tax revenue, offsetting the cost of borrowing to fund the current cuts. But they also have signaled that public spending will need to be slashed to keep government debt under control.
Monday鈥檚 change of direction lifts some of the political pressure on the government from inside the Conservative Party, but it still faces skepticism from markets and economists and mounting public opposition to the worsening cost-of-living squeeze.
Paul Johnson, director of the Institute for Fiscal Studies think tank, said that unless Kwarteng 鈥渁lso U-turns on some of his other, much larger tax announcements, he will have no option but to consider cuts to public spending: to social security, investment projects or public services.鈥�
Kwarteng has promised to set out a medium-term fiscal plan on Nov. 23, alongside an from the independent Office for Budget Responsibility.
Axing the top-earners tax rate would have cost about 2 billion pounds, a small share of the government鈥檚 overall tax-cutting plan. Kwarteng said Monday that the government was sticking to its other tax policies, including a cut next year in the basic rate of income tax and a reversal of a corporation tax hike planned by the previous government.
鈥淥ur growth plan set out 10 days ago will ensure we focus relentlessly on economic growth,鈥� Kwarteng said. 鈥淏ecause we must face up to the fact that for too long, our economy has not grown enough.
鈥淭he path ahead of us was one of slow, managed decline. But I refuse to accept that it is somehow Britain鈥檚 destiny to fall back into middle league status or that the tax burden reaching a 70-year high is somehow inevitable. It isn鈥檛 and it shouldn鈥檛 be.鈥�
Tony Danker, who heads business group the Confederation of British Industry, said he hoped the government U-turn would bring stability to the markets.
鈥淣one of this growth plan will work unless we have stability. Let鈥檚 hope this is the beginning of it," he told broadcaster LBC.
Opposition parties said the government should scrap its whole economic plan.
鈥淭his is an economic crisis made in Downing Street, paid for by working people," Labour economy spokeswoman Rachel Reeves said. 鈥淭he Tories have damaged the U.K.鈥檚 reputation on the global stage and left us all worse off."
Jill Lawless, The Associated Press
