What Is The 45p Tax Rate And Why Has The Chancellor Reversed Its Abolition?

Kwasi Kwarteng leaving 11 Downing Street to announce his mini-budget // Credit: Twitter

The United Kingdom’s Chancellor of the Exchequer, Kwasi Kwarteng, made a reversal of his initially proposed tax cut. This specific tax cut in question is the 45p tax rate, which those who earn over £150,000 a year have to pay. In Kwasi Kwarteng’s ‘mini-budget’ (fiscal event), this tax rate was vehemently detailed to be cut as part of the new government’s ‘Growth Plan 2022’ (as pictured in the document the Chancellor is holding in the cover image above).

This was a measure which was met with rife controversy since his announcement of the mini-budget Friday 23 September 2022. It sent the financial markets into mass turmoil.  A couple of days later, on Monday 26 September 2022, saw the pound (GBP) fall to its lowest value ever in recent history against the dollar (USD), where the former was worth $1.03 to the latter. The IMF critiqued the Chancellor’s plan on ‘likely increasing inequalities’ and the Bank of England stepped in with £65 billion to buy government bonds in an attempt to try and reduce such chaos which began to hit the mortgage sector and saw the majority of mortgage products either being pulled from the market, or changes to interest rates - with mortgage interest rate figures jumping from 4.5% to 10.5%.

The main rhetoric from this was taking from the poor to help the rich in this tax rate cut which would reduce the public spending budget by £2 billion. Thus meaning that these missing billions for public services, like the NHS and schools, would have to be funded by government borrowing which the British public would have to pay back in years to come. However, even up until Sunday 2 October 2022 the Prime Minister, Liz Truss, in her interview with the BBC had an iron-fisted approach to keeping all of the measures in the September mini-budget.

However, less than 24 hours went by when The Chancellor finally succumbed to the chaos caused by the 45p tax rate cut. Kwasi Kwarteng made this announcement in a tweet saying he had listened to the public and is making a reversal on the plan to cut the 45p tax rate. Kwartend made this announcement at Conservative Party Conference 2022 in Birmingham, just before his inaugural speech as Chancellor to the Conservative Party in the afternoon. Tensions rise in the Tory party due to these controversial fiscal measures with former Cabinet ministers, Grant Shapps and Michael Gove, critiquing the 45p tax rate. So what lies ahead for the new Tory government which has been in leadership for just over three weeks, yet has caused such financial and political insecurity?

Credit: @KwasiKwarteng Twitter

By Saffron-Lucia Gilbert-Kaluba