UK government drops plans for tax cut on wealthy that prompted turmoil on financial markets

UK PM Liz Truss scrapped a plan to cut taxes on high earners that make above 150,000 pounds ($167,000) a year

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The British government has scrapped plans of cutting taxes on the wealthy, a move that prompted turmoil in financial markets and led to record lows for the pound.

Treasury chief Kwasi Kwarteng said Monday he would no longer pursue plans to eliminate the top 45% rate of income tax paid on earnings above 150,000 pounds, or $167,000 a year.

“We get it, and we have listened,” he said in a statement, adding that “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.”

The reversal comes after a number of lawmakers from the governing Conservative Party turned on government tax plans revealed 10 days ago, and just hours after the Conservatives released advance extracts of a speech Kwarteng is scheduled to deliver later on Monday, when he was expected to say, “We must stay the course. I am confident our plan is the right one.”

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Liz Truss, the new PM of the UK

The British government has scrapped plans of cutting taxes on the wealthy, a move that prompted turmoil in financial markets. (Aaron Chown/PA Images via Getty Images / Getty Images)

Prime Minister Liz Truss defended the plans on Sunday but admitted she could have “done a better job laying the ground” for the announcements.

Truss, who took office last month, promised to reshape Britain’s economy and put an end to years of slow growth. But the announcement of a stimulus package on September 23 that features 45 billion pounds, or $50 billion, in tax cuts that would have been funded by government borrowing, dropped the pound down to a record low against the dollar.

Kwasi Kwarteng holding a blue notebook as he walks down the street

Treasury chief Kwasi Kwarteng said Monday he would no longer pursue plans to eliminate the top 45% rate of income tax paid on earnings above 150,000 pounds, or $167,000 a year. (AP Newsroom)

The Bank of England had to intervene to support the bond market. Concerns that the bank will increase interest rates led mortgage lenders to withdraw their cheapest deals, resulting in turmoil for homebuyers.

Even Conservatives were not supportive of the tax cuts, but Truss and Kwarteng maintain that their plan will deliver a growing economy and ultimately bring in more tax revenue that will offset the cost of borrowing to support the current cuts. The two also indicated that government spending will need to be cut.

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Prime Minister Liz Truss holding a black notebook

Truss and Kwarteng maintain that their plan will deliver a growing economy and ultimately bring in more tax revenue that will offset the cost of borrowing to support the current cuts.  (AP Photo/Kirsty Wigglesworth / AP Newsroom)

Kwarteng said the government was still following through with its other tax policies, including a cut next year in the basic rate of income tax and a reversal of a corporation tax increase planned by the previous government.

After Kwarteng's announcement, the value of the pound rose to around $1.12, which is about where it was before the budget announcements on September 23.

The Associated Press contributed to this report.

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