There has been much head scratching over the apparent own goal of the government reducing tax for the richest, and the following U-turn, so why did they do it?
Ironically, this is the one part of their plan which could actually make sense, and the only part of the mini budget which may have increased the government’s tax take. There is evidence that at the top end reducing tax rates increases tax revenue. The policy may have encouraged high earners to bring forward income thus increasing the overall take. It should also be seen in conjunction with the announcement to lighten regulation of the city and scrap the bankers bonus tax. The City lost somewhere between 10,000 and 20,000 jobs due to Brexit, many of them high earning. Trying to attract these jobs back is by far the easiest thing the government can try to do to improve overall GDP of the UK in the short term. It is a much easier move than growing manufacturing or reforming farming. Bankers are highly mobile, they can and do move anywhere at the drop of a hat, and London is a more attractive place for them to live than Frankfurt or Luxembourg. Financial services are a major component of our exports and thus it would also help the balance of trade.
However, most of the jobs which moved to the EU did so not because of UK taxes or regulation, they moved because EU regulators required that EU trading activity be managed and processed, and therefore regulated within the EU. A financial trade services agreement with the EU would have a greater effect in attracting these jobs back to the UK, but is not going to happen. And as of Monday morning, neither is scrapping the higher rate of tax.