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UK reverses plan to cut taxes on high earners after market backlash

Yahoo Finance Live anchors discuss the U.K. reversing its plan to scrap a 45% tax rate.

Video transcript

- Let's also talk about the British government though. They walked back on plans to scrap the top income tax rate for high earners. Now, this comes after public backlash and market volatility following the announcement of the plan. Now, the plan was to take the top right from 45% to 40%. Following the announcement, though, the British pound fell to an all-time low. UK government bonds were sold off at historic rates here.

And from what has been heard from some of the leaders, at least right now, it seems like Kwasi Kwarteng has been saying that this is just a result of them listening to the people, understanding that the public was very upset about this, and potentially looking at the top income or the top earners and being able to-- or just announcing some of the cuts for that particular part of the society.

- Yeah. I mean, initially-- that's the UK chancellor exchequer Kwasi Kwarteng, who is Liz Truss's lieutenant and who has worked with her a lot on this plan. When they first came out with the plan, it hit like a lead balloon. Not just the cut on that top tax rate, right, but the plan overall. And the argument from economists and central bankers around the world was this is the time for austerity, for you to be pulling back on spending, not for you to introduce this big spending package into the UK economy.

Although, to be fair, it was designed because costs in the UK economy are skyrocketing, especially for things like energy. So that's what it was aimed at initially. This part of the plan, to your point, got a lot of public backlash in particular. But it was the whole plan that got the backlash from the markets and even led the Bank of England to effectively try to manage around it by saying they were going to do more QE instead of doing QT, which is what they otherwise might have done in this situation. So it's effectively a big embarrassment on the part of the Truss government here and Kwarteng specifically that they would have to pull back on this part of the plan.

- Well, this maneuver is essentially what sent the markets, really, I would say into a tailspin a week and a half ago. You would think maybe because it won't happen the markets will rebound. Maybe that's why we're seeing some of the positive pre-market action. But I love watching this situation from the perspective of the UK online newspapers.

- They don't mince words.

- No. They're taking Truss to task. And I'm looking at The Guardian here. This morning and they're citing an interview with Damian Green-- that was the first secretary of state under Theresa May-- saying that Liz Truss needs 6 to 12 months of hard work to persuade the public. She is competent. So I love following this stuff. And they're on the pulse of it.

- I think also within this, though, too, there was even more indication about what the future for some of the tax cuts that they had been positioning, or at least pitching, seemingly at this point to the public would be. And within this, the BBC reporting here, saying that there was more to come on tax, that that still stood, and that there would be no tax cuts, however, ahead of the next budget in the spring.

And so that particularly kind of gives us a little bit more insight about where they move forward from here. But it's a larger question of where those tax dollars actually need to be leveraged too, especially from the highest income earners, while the economy is in the UK going through as much as what some of the other countries are globally here, but especially in the UK, considering the pound deceleration or the devaluing of it, considering how much of the economic turmoil that they are also navigating through at this time where those dollars would actually get-- or the pounds would actually get put.

- Brexit plus energy crisis, not good for the UK economy.