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  • Brady LaRoe

U.K. Reverts Tax Plans to Ease Market Worries


Image: https://www.cnn.com/2022/09/07/investing/british-pound-low/index.html


U.K. Treasury Chief Jeremy Hunt recently announced the government would be rolling back nearly all of its proposed tax cuts this week. The news comes after a sharp selloff of the pound as investors feared the financial stability of the U.K. government.


Last month under new Prime Minister Liz Truss there was an announcement of large tax cuts in order to increase economic growth. The proposals would cut around $50 billion worth of tax revenue for the U.K. government. The plan would have been the largest round of tax cuts since the 1970s.


Investors worry about the impact on inflation and the finances of the U.K. government borrowing so much money. Immediately after the announcement the pound dropped 3% against the dollar, the largest single day selloff of the pound since 2020. British bond prices also went up a third of a percent, a major fluctuation in bond markets.


The market reaction led Prime Minister Truss to fire former Treasury Chief Kwasi Kwarteng just a few weeks into her taking office. It also led to a major reversal of said tax cuts, with only £12 billion of the original £45 billion remaining. The news cooled down markets as the value of the Pound reverted back near its price before the controversy began.


Sources:

https://www.wsj.com/articles/new-u-k-chancellor-to-release-new-public-spending-tax-policies-11665987080

https://www.wsj.com/articles/u-k-announces-package-of-sweeping-tax-cuts-11663926079?mod=article_inline

https://www.wsj.com/articles/u-k-prime-minister-expected-to-u-turn-on-parts-of-tax-plan-11665746046?mod=article_inline


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