UK Government Cancels Massive Tax Cut

Wednesday, 19 October 2022

UK Government Cancels Massive Tax Cut

JAKARTA. The UK government refused to provide relief in the form of cutting the income tax rate (PPh) on a large scale in response to price increases that triggered high inflation.

Interestingly, the cancellation was announced by the UK Treasury Secretary Jeremy Hunt. While previously, the plan for cuts was proposed by British Prime Minister Liz Truss.

Citing, previously, in addition to cutting the lowest layer of the income tax rate, the UK government will also refund VAT for tourists. All these incentives are worth around 32 billion pounds or around IDR 588 trillion per year.

Read: Russian Invasion, Inflation, and Dilemma of Booming Oil Prices 

Triggering Turmoil

The provision of tax facilities is part of a policy called Trussonomics, which emphasizes massive spending accompanied by tax cuts to boost economic growth. However, the policy plan put the UK economy on edge. Because, triggering financial market conditions and the stock market in the UK is volatile.

In fact, the yield on 10-year British government bonds rose to a level above 4% or the highest since the global economic crisis in 2008. Meanwhile, the pound sterling exchange rate weakened to GBP 1,069, the weakest since 1985.

The turmoil subsides

Meanwhile, after the announcement of the cancellation of the tax cut, the turmoil in the market began to subside. Pound sterling strengthened above 1% against the United States Dollar.

Likewise, the yield on 10-year government bonds also fell sharply by 35 basis points to 3.974%.


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