The British pound is marching higher today (October 13) on media reports that the government
in the United Kingdom is considering scrapping parts of its proposed tax cut package.
The pound sterling rose against the U.S. dollar following multiple media reports that newly
installed British Prime Minister Liz Truss is planning to backtrack on the tax cuts her government
announced on September 23.
The British pound is up 1.5% at $1.1269 U.S. in London trading on reports of the tax cut
reversal.
The Conservative government led by Prime Minister Truss announced sweeping tax cuts to help
stimulate economic growth amid persistent inflation and rising interest rates. The proposed tax
cuts included:
? Canceling a planned rise in corporate taxes to 25%, and instead keeping them at 19%, the lowest rate among G20 nations.
? A reduction in the basic income tax rate from 20 pence to 19 pence.
? Scrapping the 45% tax paid on incomes over £150,000 ($166,770 U.S,), taking the top rate to 40%.
? Significant cuts to taxes paid on home purchases.
? Eliminating a proposed increase to taxes on alcohol sales.
The British government estimated that the tax cuts would cost a total £45 billion by 2026-27.
Economists and market analysts criticized the tax cut measures, noting that they come as the
United Kingdom is widely expected to enter a recession by year’s end.
Many economists questioned how the Truss government would finance the tax cuts at a time of
rampant inflation and slowing economic growth.
The British currency fell to a 37-year low against the U.S. dollar immediately after the tax cuts
were announced, and the pound sterling has continued to trend lower in recent weeks.
The proposed tax cuts also led to volatility in the British bond market, requiring the Bank of
England to intervene.
But now, the British currency has turned positive on media reports that Prime Minister Truss is
planning to reverse course on the government’s fiscal plan and planned tax cuts.
An official announcement by Prime Minister Truss on canceling the proposed tax cuts has not
yet been made.
