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UK government abolishes plan to cut tax on high earners in major U-turn

U.K. Chancellor Kwasi Kwarteng outside 10 Downing Street. Britain will cap the cost of electricity and gas for businesses.
Rob Pinney | Getty Images News | Getty Images

LONDON — The British pound rose sharply Monday morning following reports the U.K. government will reverse its planned scrapping of the top rate of income tax.

Sterling was 0.8% higher against the dollar at $1.252 shortly after 7 a.m. London time. It takes it back to the level it was at before Finance Minister Kwasi Kwarteng unveiled a raft of tax cuts on Sept. 23.

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The cuts were poorly received by financial markets and a scrapping of the 45% tax paid on incomes over ?150,000 ($166,770) was also seen as politically toxic as Brits deal with a cost-of-living crisis.

With the ruling Conservative Party plunging in opinion polls since the announcement, which was also criticized by the International Monetary Fund in a rare move, several of its own politicians have spoken out against the proposals.

Grant Shapps, the former transport secretary, said in a BBC interview Monday morning the reversal in the top rate tax cut was a “sensible response” because a tax cut for “the people who need them least … jarred for people in a way which was unsustainable.”

It represents a major and humiliating U-turn for new Prime Minister Liz Truss, who was insisting as recently as Sunday she was “absolutely committed” to the cut.

She also revealed the decision was taken by Kwarteng and had not been announced to her whole cabinet. The plan would have delivered an average ?10,000 annual benefit to the country’s 660,000 top earners, the Treasury had said.

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