Tax U-turn of Truss

Britain’s Prime Minister Liz Truss’s government, barely a month in power, has already had to make a U-turn on a major economic move. On Monday, his government said it would not go ahead with its plan to eliminate the 45% top income tax rate. Chancellor Quasi Quarteng tweeted: “We’ve got it and we’ve heard.” Until a few hours before that, Quarteng was defending the tax cut. With a large outlay for energy subsidies, any such tax exemption was a financial gamble in the UK in times of rising inflation, which sought to rein in both monetary and fiscal constraints. It had exposed financial markets to its risks of volatility and, unaffected by the prospects of a stimulus-effect, raised London’s borrowing costs instead of appeasing the stroke of truce from the small government’s Reaganomics playbook. So, was it a jumpy bond market that caused the envy of US leaders to slash UK tax cuts? Or the forex market, where speculators caught the pound uncovered in 1992? Nor does it explain how it was brought back. An ongoing pro-fiscal rebellion within the ruling Conservative Party was perhaps the closest cause.