A pro-fiscal rectitude rebellion brewing within the ruling Conservative Party was probably the proximate reason
Barely a month in office, UK Prime Minister Liz Truss’s government has already had to do a U-turn on a big economic move. On Monday, her government said it won’t proceed with its plan to axe the 45% top income tax rate. “We get it, and we have listened," chancellor Kwasi Kwarteng tweeted, noting that it had become a “distraction" from other challenges. Up until just hours before that, Kwarteng had been defending the tax cut. Together with a big outlay for energy subsidies, any such tax sop was a fiscal gamble in times of soaring UK inflation, demanding both a monetary and fiscal rein-in. It had rattled financial markets aware of its risks of instability and left unimpressed by its chances of a stimulus-effect upside, pushing up London’s cost of borrowing instead of cheering Truss’s stroke from the Reaganomics playbook of small government. So, was it a jumpy bond market that fabled envy of US leaders, which glared down the UK tax cut? Or the forex market, where speculators caught the pound exposed in 1992? Neither suggests the way it was rolled back. A pro-fiscal rectitude rebellion brewing within the ruling Conservative Party was probably the proximate reason.