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The government has announced a U-turn on its proposed abolition of the 45p additional rate of tax

   News / 03 Oct 2022

Published: 03 October 2022
Location: London, UK

By Suzanne Evans, Director, Political Insight

On the first day of Conservative Party Conference, the government has announced a U-turn on its proposed abolition of the 45p additional rate of tax announced 10 days ago in the mini-budget. “We get it, we have listened,” Chancellor Kwasi Kwarteng said on Twitter, having called the tax cut a “distraction from our overriding mission to tackle the challenges facing our country”. Prime Minister Liz Truss defended the policy just yesterday, insisting she would not abandon it, however she also told the BBC's Laura Kuenssberg that she should have "laid the ground better" after the announcements sparked days of market turmoil. She added that the decision to cut the top earner tax rate was a "decision that the chancellor made" and one that was not discussed with the whole cabinet beforehand. SomeConservative MPs - including former ministers Michael Gove and Grant Shapps - had voiced their opposition to the plan and suggested they could abstain or even vote with Labour against it. Kwarteng has since said this morning that he will not resign and has declined to admit the planned tax cut was a mistake, telling the BBC: “What I admit was that it was a massive distraction on what was a strong package”. The U-turn decision he said had been made “in a spirit of contrition and humility” and he insisted the government was “100% focused on the growth plan”.

On Friday, our advisory counsel Patrick O’Flynn wrote for the Express newspaper suggesting such a U-turn should be made. See: https://www.express.co.uk/comment/columnists/patrick-o-flynn/1676683/liz-truss-economy-inflation-margaret-thatcher-kwasi-budget-labour-poll

The pound edged higher following the announcement of the U-turn on the 45p top tax rate, jumping

by as much as a cent to over $1.126, its highest level in over a week. Last week it slumped to a record low around $1.035. The FTSE however has fallen again: at the time of writing the FTSE 100 is down some 65 points to stand at around 6827, a dip of 0.97%, while the FTSE 250 is down 1.07%.

Business Secretary Jacob Rees-Mogg has warned people that text messages or emails purporting to come from the UK Government saying the recipient is eligible for a discounted energy bill under the Energy Bills Support Scheme are fraudulent. The messages offer a link to make an application, but no applications are required, as the £400 in support is applied automatically to bills each month between October and next March. Sky News says that earlier this month, Action Fraud - the UK's national reporting centre for fraud and cybercrime - said nearly 1,600 reports had been made to the National Fraud Intelligence Bureau (NFIB) about scam emails purporting to be about energy rebates from regulator, Ofgem.

British consumers borrowed an additional £1.1bn last month, slightly below the £1.5bn borrowed in July. Figures from the Bank of England (BoE) show £700m was put on credit cards and £400m through other forms of credit, such as personal loans or car finance. The annual growth for all consumer credit was unchanged at 7.0%, the highest since March 2019, when it was 7.2%. The annual growth rate for credit card borrowing was also unchanged at 12.9%, the highest since October 2005. The BoE has also said that mortgage approvals climbed to 74,340 in August, up from 63,740 in the previous month, and exceeding the 73,075 seen in August of last year. Individuals’ net borrowing of mortgage debt increased to £6.1bn, up from £5.1bn in July.

The Unite union has warned that the strike at the Port of Felixstowe, UK's busiest container port, has warned there could be further industrial action. Workers walked out on 27th September for eight days after the union rejected an imposed pay deal. Some 1,900 union members also took action in August. Unite is asking for an inflation-matching pay rise. The port says it is offering a 7% pay increase which is “very fair".

Chinese industrial firm Jingye Group, which bought British Steel out of insolvency in 2020, is said to be seeking an urgent package of financial support from taxpayers, Sky News says. The group is Britain's second-biggest steel producer and is believed to have told ministers that the company's two blast furnaces are unlikely to be viable without government aid, meaning thousands of industrial jobs in the north of England could be at risk. British Steel, which is headquartered in Scunthorpe, north Lincolnshire, employs about 4,000 people, with thousands more jobs in its supply chain dependent upon the company. The precise scale of the support being sought was unclear at the weekend, but insiders suggested that it would need "hundreds of millions of pounds" to keep the Scunthorpe blast furnaces operational. One insider said that Jingye was prepared to make thousands of people redundant if ministers rejected its request, and that it would then plan to import steel from China to roll at British Steel's UK sites.

Despite narrowing pre-tax losses in the period to 30th June to $364.9m (£327.07m) from $576.4m (£516.64m), Cineworld said on Friday that it expects sales to take at least two years to return to pre-Covid levels, partly because of a “lower volume of theatrical releases in 2023 and 2024” as productions switch to streaming platforms. The struggling cinema chain’s cash reserves shrank by almost two-thirds over the first half of the year, as revenue in the three months to September was “below expectations.”Cineworld stock has lost 90% in the year-to-date. It has filed for Chapter 11 bankruptcy in the USA to help it restructure $9bn (£8.07bn) of debt.

Lawrence Stroll, the CEO of luxury carmaker Aston Martin welcomed Chinese automotive giant Geely and the Saudi sovereign wealth fund(known as the Public Investment Fund) as new shareholders. Both took part in its latest financing round, for £654m, which successfully completed on Friday, Sharecast News says. The latter now holds an 18.7% stake in the sportscar brand.

British bank Barclays has agreed to pay $361m (£323.57m) to settle a probe by US regulator the Securities and Exchange Commission (SEC) into a "staggering" trading error. It emerged in March that Barclays had sold $17.7bn worth of structured financial products that it was not permitted to trade. Barclays’ second-quarter profits fell 48% year-on-year after it took a £1.3bn charge relating to the over-issuance of securities, including £165m to cover any SEC penalty, while admitting it would cost £450m to compensate investors for the error. The SEC said Barclays - which has not admitted or denied its findings - had agreed to pay a $200m (£179.26m) civil penalty alongside disgorgement and prejudgement interest of more than $161m (£144.32m). It also agreed to cease and desist with violating the charged provisions, Sharecast News reports. Barclays has yet to comment on the SEC's order.

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