U-turn on income tax policy embarrassing for government – Quilter

by | Oct 3, 2022

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After the news earlier that Kwarteng has reversed his decision to scrap the top rate of income tax, Rachael Griffin, tax and financial planning expert at Quilter has commented.

She said: “Scrapping the top rate of income tax would have benefited the few – around 1% – who are very well paid and would have cost the exchequer around £2 billion.

“The optics looked difficult from the start, as scrapping the top rate was seen by many in the general public as some sort of reverse of the Robinhood narrative by giving to the rich and taking from the poor. However it is really the market reaction that has spooked the new government as the pound is got hammered and gilt yields spiked. Borrowing became more expensive and the Bank of England signalled it will have to go much higher on interest rates to defend the currency.

“The line from government that its fiscal policies will culminate to stimulate economic growth hasn’t proved to be convincing enough, crucially even within their own party with outspoken heavyweights like Michael Gove critical of the policy. The market reaction means it was hard to see the move as pro-business either, with the concern that consumers may simply bank the savings rather than spend and invest amid the global economic uncertainty.

“This is an embarrassing U-turn for the government and only time will tell if this has damaged the reputation of both Truss and Kwarteng irreparably. Interest rate rises were already going to spell huge pain for the public, but the announcements like the scrapping of the top rate of tax only served to potentially push them higher and it was key that the government tried to distance themselves from their action causing this reaction. Kwarteng must do a better job of instilling confidence and giving people certainty around the tax rules so they can plan efficiently at the November budget.”

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