Earlier this week, British Prime Minister Liz Truss was forced to do a U-turn on Monday after Chancellor Kwasi Kwarteng's budget was met with a shattering market response. Kwarteng announced £45 billion in tax cuts. Sterling (£) dropped to its lowest level against the dollar ($) at $1.0327.
Truss, who is less than one month into her job as Prime Minister, has now governed over one of the worst market turmoils in decades. She has officially reversed the 45p income tax cut for high earners.
The dramatic reversal comes just hours after Truss defended the tax cut and her broader radical economic agenda, saying it was necessary to solve the country's long-term economic woes. Faced with a growing political rebellion after days of economic chaos, the government said it was abandoning the plan early Monday.
A fellow conservative member of parliament (MP) described Kwarteng's budget as 'A-Level Economics.' Labour, the official Centre-Left opposition party, has a 33% lead in the polls against the conservatives.
Shadow Chancellor Rachel Reeves said, "The Tories have destroyed their economic credibility and damaged trust in the British economy."
Previously, the embattled chancellor continued to defend his budget as the Growth Plan. Instead, he announced the plan was being scrapped in an early morning tweet. "We get it and we have listened," he said, followed by a similar message from Truss.
The International Monetary Fund (IMF) released a stinging rebate to the budget, stating that it will lead to increased inequality. As winter approaches, Britain faces several crises of soaring energy bills, increases in food prices, and a strain on the National Health Service (NHS).
The British central bank, the Bank of England, also intervened with a 65 billion pound package to stave off market panic.
Despite Monday's reversal, Kwarteng said the government was sticking to its other tax policies, including cutting the basic income tax rate next year.
Homeowners and prospective buyers still look set for a rough ride as interest rates are likely to rise, pushing mortgage rates higher for millions. Banks have already removed dozens of mortgage deals and pushed their monthly fees higher.
In addition to concerns about the 45p tax rate, the government has also received criticism for not publishing an economic forecast by the independent spending watchdog, the Office for Budget Responsibility.
There remains a fear that the government's proposed tax cuts are non-funded. Many believe this will mean a return to austerity and a reduction in spending on public services. When pressed to comment on whether or not the government will cut back on public spending, Kwarteng refereed to confirm.
For many politicians on the Left, the government's budget, specifically the initial 45p tax cuts for high earners, was a policy of trickle-down economics, an economic theory that lower taxation for high earners will create more prosperity and growth, which will then trickle down to low earners.
It seems that even Kwarteng acknowledges that only so much in reality trickles down.
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