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UK chancellor takes U-turn on tax cut plan day after PM Liz Truss admits mistakes on mini-budget

On Monday morning, in an embarrassing U-turn, new Prime Minister of the U.K. Liz Truss and her administration announced that it has abolished a plan to cut tax on high earners. Earlier on Sunday, U.K. Prime Minister Liz Truss acknowledged that her government had made mistakes while announcing the mini-budget. However, the PM had stood by the budget and blamed chancellor Kwasi Kwarteng for abolishing the 45p income tax rate for high earners. Markets had crashed, the pound fell and the Bank of England stepped in to buy £65 billion government bonds. After the Monday U-turn, the pound rose fractionally.

Chancellor Kwasi Kwarteng said in a statement that it was clear that the 45p tax rate (for high earners) had become a distraction from their mission to deal with economic challenges facing the country. So, he said that they were “not proceeding with the abolition of the 45p tax rate.” He said that they “get it” and that they had “listened.”

The mini-budget with tax cuts was announced a few days ago and led to a free fall of the British currency to levels not seen in decades. On BBC’s Sunday with Laura Kuenssberg, PM Truss said that she understood the worries of the people but she also said that she stood by the package and the fact that they announced it quickly. She added that she also accepted that they could have “laid the ground better” and they would do a better job in the future.

PM Truss had blamed chancellor Kwasi Kwarteng for the move to cut the top tax rate of 45p for those who earned over £150,000 per month. She said that the tax cut was a decision that was taken by the chancellor and it was not discussed with the Cabinet.

Although the government’s decision to subsidize energy bills for its citizens and businesses through borrowings was accepted by her Conservative party members, some of the Tories had publicly objected to the tax cuts for those who are in the high income category as the some of the borrowings will go to make up those tax losses.

The Conservative Party conference was held in Birmingham, on Sunday. Former Minister Michael Gove said that the 45p tax cut had showed “wrong values” and seemingly indicated that he would not vote for it. Other Conservative members including former deputy prime minister Damian Green also sounded a note of caution and said that the Tories could lose the next general election in the country if “we end up painting ourselves as the party of the rich.”

Labour’s shadow chancellor Rachel Reeves strongly criticized the Tory government and said that they had conducted a “mad experiment.” Reeves also described the market turmoil as a “crisis made in Downing Street.”

Prime Minister Liz Truss and Chancellor of the Exchequer (Finance Minister) Kwasi Kwarteng have averted a mini crisis within their own ranks in the Conservative Party, with the U-turn. The cut in the tax rate of those who needed it the least (45p) had struck a sour note across the nation, regardless of political affiliations.

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