After abandoning plans to abolish the top rate of income tax on October 3, the British government made another major policy change on October 14 under sustained pressure. Britain's Prime Minister, Elizabeth Truss, said the previous government would retain a rise in corporation tax that would bring in 18 billion pounds ($1.118) a year.
The scale and speed of the massive tax cuts announced by the British government in September exceeded market expectations and the current government must strengthen fiscal discipline to reassure the market, Truss said at a press conference on Thursday. The government will do what is necessary to ensure that debt falls in the medium term, but public spending will grow more slowly than previously planned.
Ms. Truss said a low-tax, high-wage, high-growth British economy would remain her goal, and that her focus would be on economic stability. The new chancellor, Jeremy Hunt, will unveil his medium-term fiscal plan at the end of this month and continue to push through the government's previously announced energy price protection measures for households and businesses.
The UK government announced in early 2021 that the lucrative large corporation tax rate would rise from 19% to 25% from April 2023, the first increase in corporation tax in the UK since 1974. In September, the government announced massive tax cuts, including scrapping a planned rise in corporation tax, to encourage investment.
The British pound hit a record low against the dollar as financial markets were rocked by the country's massive tax cuts. In the face of intense market volatility and doubts, the UK Treasury announced yesterday that it was abandoning plans to scrap the 45 per cent top rate of income tax. On October 10, the Ministry of Finance announced that it would advance the release date of its medium-term fiscal plan and other information from November 23 to October 31.
In an effort to stabilize the bond market, the Bank of England on September 28 announced temporary purchases of long-term British government bonds from now until October 14. On the 10th, the Bank of England announced that it would raise the limit of its daily bond purchases. On the 11th, the Bank of England upgraded its measures again, including inflation-linked gilts in its bond-buying programme. However, outside concerns, 14 central bank intervention measures after the bond market chaos will continue.
Thorsten Bell, chief executive of the Resolution Foundation, a think-tank, said nearly half of the initial £45bn tax cuts had been withdrawn so far, but the remaining cuts and the gloomier economic outlook would still create difficulties for the government to finance itself. The recent market turmoil shows that economic policymaking is not a game.
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