UK walks back controversial plan to cut top tax rate

In a statement posted online Monday, finance minister Kwasi Kwarteng said the plan “had become a distraction.”

“We get it, and we have listened,” he said.

The announcement marks a major climb-down for new Prime Minister Liz Truss, whose government has been roiled by the reaction to its sweeping proposed tax cuts, which included slashing the top rate of income tax to 40% from 45%.

The proposed cuts of £45 billion would have been the biggest in 50 years. But they sent the pound plunging to historic lows against the US dollar, and sparked chaos in the market for UK government debt because they will require a large increase in government borrowing. Mortgage rates soared, and some pension funds struggled to remain solvent.

A degree of order was only restored by an emergency intervention last Wednesday by the Bank of England, which said it would buy UK government bonds worth £65 billion.

The government’s decision to hand top earners a big tax cut while millions are struggling to pay their energy and food bills was the most politically controversial element of the plan laid out just over a week ago.

Senior former ministerial colleagues of Truss and Kwarteng lined up over the weekend to criticize the planned giveaway, and there were signs of a wider revolt within the prime minister’s Conservative Party.

News that the abolition of the top rate of income tax was being reversed sent the pound ticking higher in early trading on Monday. But it will likely only reduce the overall size of the tax-cutting package by £2 billion, leaving the government yet to reassure markets that it has a solid plan to fund the rest.