Truss Faces Prospect of Major Revision to UK PM's Tax Cut Plan... Pound and UK Bonds Surge

Liz Truss, Prime Minister of the United Kingdom
Photo by AP Yonhap News

[Asia Economy Reporter Park Byung-hee] Major foreign media reported on the 13th that UK Prime Minister Liz Truss is preparing a complete revision of the ?43 billion tax cut plan announced on the 23rd of last month (local time).

Although the Truss government has not officially announced a revision of the tax cut plan, UK media outlets have repeatedly reported, citing anonymous government officials, that the Truss administration will make additional modifications to the tax cut plan.

One official said that up to ?24 billion of the ?43 billion tax cut plan will be scrapped. The Truss government has already withdrawn the plan to reduce the top income tax rate, revising ?2 billion. The official added that the ?18 billion tax cut related to the planned corporate tax rate increase would be included in the ?24 billion to be scrapped.

When announcing the tax cut plan last month, the Truss government nullified the corporate tax rate increase plan prepared by the previous Boris Johnson administration. The Johnson government had planned to raise the UK corporate tax rate from 19% to 25% starting April next year. However, the Truss government announced last month that it would maintain the corporate tax rate at 19%. Chancellor of the Exchequer Kwasi Kwarteng said that abandoning the corporate tax rate increase plan would reduce government revenue by ?18 billion by 2026. However, it is now reported that the Truss government is discussing raising the corporate tax rate as previously planned by the former government.

Another government official said that all other tax cuts except for the ?13 billion reduction in public insurance fiscal spending and the temporary stamp duty reduction plan will be subject to discussion.

The turmoil in the UK financial market continues, with the pound and government bond prices plunging (government bond yields soaring) after the tax cut announcement, putting Truss's leadership as prime minister in a major crisis. Foreign Secretary James Cleverly said in a broadcast that removing Prime Minister Truss just 37 days after her inauguration would be a dangerous and bad idea. However, some Conservative Party members are reportedly predicting that Truss will have difficulty maintaining her position as prime minister until next year, according to foreign media.

Conservative MP Paul Goodman said that MPs are reviewing alternatives to Prime Minister Truss. It is known that Truss received strong criticism regarding economic policy during a meeting with Conservative backbenchers the previous night. One MP criticized Truss, saying she had ruined the Conservative Party's decade-long policies designed to help workers, BBC reported.

Chancellor Kwasi Kwarteng, who is visiting the United States to attend the World Bank and International Monetary Fund (IMF) annual meetings, is expected to return to the UK on the 15th. Kwarteng said in Washington that he would stick to his tax cut plan in the medium-term budget plan to be announced on the 31st. He also dismissed the possibility of his dismissal, saying, "I am not going anywhere."

As prospects emerged that the Truss government might completely revise the controversial tax cut plan, the pound and UK government bonds surged.

The pound rose about 2%, with the pound-dollar exchange rate trading around $1.13 per pound. The 30-year UK government bond yield fell by 0.26 percentage points from the previous day to 4.55%, and the 10-year government bond yield also dropped by 0.23 percentage points to 4.19%.

This content was produced with the assistance of AI translation services.