U-turn from UK government on tax cut for highest earners

U-turn does nothing to address market concerns about unfunded budget.

03 October 2022

Is this the start of many U-turns from this new Tory government? Optically out of touch is never a good position to be in politically and Prime Minister Liz Truss and Chancellor Kwasi Kwarteng seemed to be in full blown retreat ever since this ill-fated “mini-budget” was announced 10 days ago. But reneging on the promise to abolish the top 45% income tax rate is unlikely to calm the crisis in the short term. Sterling remains under pressure – this 45% tax rate brought in only a modest GBP 2 billion of tax revenue which is small change in the overall GBP700+ billion tax revenue for last year and it does nothing to address market concerns of this unfunded budget – billions of pounds will still need to be borrowed. When market trust has been shattered, as we saw last week, the uphill task of restoring credibility is extremely hard and even harder when the government seemingly shifts strategy to appease optically. I have little faith that Liz Truss and Kwasi Kwarteng are really up to the job of restoring any credibility in the short term and this puts further renewed pressure on UK risk assets.