LONDON (AP) — British Prime Minister Liz Truss on Monday abandoned her flagship plan to cut taxes for the country’s top earners after it sparked market turbulence and widespread domestic protest.
Truss, who has been in the job for less than a month, has proposed scrapping the top tier of income tax, which means savings for people earning more than 150,000 pounds ($168,000) a year, as part of a set of unfunded economic reforms that caused the pound to fall to record lows and damaged Britain’s economic position globally.
The dramatic change comes just hours after Truss defiantly defended tax cuts and her broader radical economic agenda to activists from the ruling Conservative Party, saying it was necessary to solve the country’s long-term economic problems. Facing a growing political rebellion after days of economic chaos, the government said Monday morning that it was abandoning the plan.
“We understand and have heard,” Truss and his embattled finance minister, Kwasi Kwarteng, said on Twitter.
The pound rose after the announcement to around $1.12, roughly what it was before the September 23 budget announcements.
The abrupt change of course comes as the Conservatives meet in Birmingham for an annual conference, normally a morale-boosting event for campaigners, to discuss the party’s priorities for the coming year.
Instead, the party is in an embarrassing retreat with a resurgent centre-left opposition Labor Party holding a 20% lead in opinion polls. With the country already facing a bleak winter of soaring energy bills and food prices, critics accused Truss of missing priorities and intensifying the pain for many.
Rachel Reeves, Labor Finance Spokesperson said: “The Conservatives have destroyed their economic credibility and damaged confidence in the British economy.”
Even as Truss defended the policy over the weekend, a growing number of senior lawmakers from her party signaled they would vote against it in the House of Commons.
The plan to cut taxes for the wealthy was part of a broader “mini-budget” announced shortly after the new administration took office. Aimed at boosting economic growth, he proposed broader tax cuts and regulations in a £45bn ($50bn) package that was unfunded, leaving Britons wondering what already overstretched public services could be cut to save money.
The move drew a rare rebuke from the International Monetary Fund, which has urged the government to “re-evaluate” a plan that may fuel already rising inflation and increase economic inequality.
The plan to borrow more to finance unpopular tax cuts was roundly rejected by economists as the value of the pound plummeted and the cost to the UK of borrowing on international markets soared.
Britain’s central bank, the Bank of England, which is independent of the government, stepped in with a 65 billion pound ($73 billion) package to prevent a market panic.
Despite the reversal, homeowners and prospective buyers appear set for a rough ride as interest rates are likely to continue to rise, driving up mortgage rates for millions. Banks have already removed dozens of mortgage offers and raised their monthly rates.
Kwarteng said the government would stick to its other fiscal policies, including a cut next year in the base income tax rate.
Last week, Truss underwent a memorable round of interviews with local radio stations, in which he hesitantly attempted to defend the measures.
A BBC presenter in Nottingham described reducing income tax to the top rate as a ‘reverse Robin Hood’ policy, asking Truss: “Why don’t you put your hands up and say, ‘This is a disaster, we messed up and you’re going to do something different?'”
Days later the government is, although it may be too late to avoid long-term political and economic consequences.
Associated Press contributed.