In dramatic reversal, U.K. scraps plan to cut taxes for rich that sent pound crashing

LONDON — British Prime Minister Liz Truss on Monday ditched her signature plan to cut taxes for the country's top earners after it triggered market turmoil and a huge domestic outcry.

Truss, who is less than a month into the job, proposed removing the top tier of income tax — meaning a saving for people who earn more than 150,000 pounds ($168,000) a year — as part of a set of unfunded economic reforms that caused the pound to fall to historic lows and damaged Britain's economic standing globally.

The dramatic reversal comes just hours after Truss defiantly defended the tax cut and her broader radical economic agenda to ruling Conservative Party activists, saying it was necessary to solve the country’s long-term economic woes. Faced with a growing political rebellion after days of economic chaos, the government said early Monday it was abandoning the plan.

"We get it and we have listened," Truss and her embattled finance minister Kwasi Kwarteng said on Twitter.

The pound rose after the announcement to around $1.12 — about the value it held before the Sept. 23 budget announcements.

The abrupt about-face comes as the Conservatives gather in Birmingham for an annual conference, normally a morale-boosting event for activists to hear about the party's priorities for the year ahead.

Instead, the party finds itself in embarrassing retreat with a resurgent opposition center-left Labour Party about 20% ahead in opinion polls. With the country already facing a grim winter of soaring energy bills and food prices, critics accused Truss of having misplaced priorities and intensifying the pain for many.

Labour's finance spokesperson Rachel Reeves said: "The Tories have destroyed their economic credibility and damaged trust in the British economy."

Even as Truss defended the policy over the weekend, a growing number of senior lawmakers in her party signaled they would vote against it in the House of Commons.

The plan to cut taxes for the wealthy was part of a broader "mini-budget" announced soon after the new administration took office. Aimed at fueling economic growth, it proposed broader tax and regulation cuts in a £45 billion ($50 billion) package that was unfunded, leaving Britons wondering which already-strained public services might be cut to save money.

The move earned a rare rebuke from the International Monetary Fund, which urged the government to “re-evaluate” a plan that may fuel already-soaring inflation and increase economic inequality.

The plan to borrow more to fund unpopular tax cuts was roundly rejected as unsound by economists, with the value of the pound plummeting and the cost for the U.K. to borrow on international markets soaring.

The British central bank, the Bank of England which is independent of government, intervened with a 65 billion pound ($73 billion) package to stave off market panic.

Despite the reversal, homeowners and prospective buyers look set for a rough ride as interest rates are still likely to rise, pushing mortgage rates higher for millions. Banks have already removed dozens of mortgage deals and pushed their monthly fees higher.

Kwarteng said the government was sticking to its other tax policies, including a cut next year in the basic rate of income tax.

Last week Truss suffered a memorably bruising round of interviews with local radio stations, in which she falteringly attempted to defend the measures.

A BBC Nottingham presenter described the top rate income tax cut as a "reverse Robin Hood" policy and asked Truss: “Why don’t you just hold your hands up and say, ‘This is a mess, we got it wrong and we’re going to do something different?'"

Days later the government is, though it may be too late to avoid long-term political and economic consequences.