Liz Truss’s government has abandoned its plan to abolish the 45% top rate of income tax in a humiliating U-turn, following a mounting Conservative revolt over the policy and a turbulent reaction from markets.
In a tweet, Kwasi Kwarteng confirmed the change, saying: “We get it, and we have listened.”
The chancellor said the decision to cut tax for people on incomes of £150,000 or more “has become a distraction from our overriding mission to tackle the challenges facing our country”.
He continued: “As a result, I’m announcing we are not proceeding with the abolition of the 45p tax rate.”
The U-turn comes hours before Kwarteng addresses the Conservative conference in Birmingham. Extracts of his speech briefed overnight showed the chancellor had been planning to hold firm on the tax package, saying: “We must stay the course. I am confident our plan is the right one.”
On Sunday, the prime minister had told the BBC in a pre-conference interview that while she could have “laid the ground better” for the mini-budget 10 days ago that put in £45bn of largely unfunded tax cuts, she was not about to change course.
The sudden change of course followed a realisation within Downing Street that so many Conservative MPs objected to the policy that it might be voted down in parliament.
But interviewed on BBC1’s Breakfast, Kwarteng refused to concede the abolition of the 45p tax rate was a mistake, saying it was taking attention away from policies such as the intervention to limit energy bills.
“What I admit is it was a massive distraction on a strong package,” he said.
The overall package of unfunded tax cuts in the mini-budget triggered turmoil in the City, and was criticised by the International Monetary Fund. After a steep rise in the cost of government debt, the Bank of England made a a £65bn emergency intervention to restore order.
At the conference, the former cabinet ministers Michael Gove and Grant Shapps had taken aim at the plan to cut the top income tax rate, with speculation the wider programme of tax cuts could be financed in part by cutting benefits.
Gove toured fringe events at the party conference in Birmingham to give his verdict on the plan, which he called “not Conservative”, hinting that he could vote against the measure in the Commons.
Shapps, the former transport secretary, used a column in the Times to say “this is not the time to be making big giveaways to those who need them least” because “when pain is around, pain must be shared”.
“This bolt-from-the-blue abolition of the higher rate, compounded by the lack in communication that the PM acknowledges, is an unforced error that is harming the government’s economic credibility,” he said.
Damian Green, a former deputy prime minister, warned the Tories would lose the next election if “we end up painting ourselves as the party of the rich”.
Truss has failed to rule out cuts in public spending to help balance the books, and the possibility of benefits facing a real-terms cut as earners on more than £150,000 have their taxes slashed.
