Liz Truss’s government has abandoned its plan to abolish the 45% top rate of income tax, following a turbulent reaction from international markets, and a mounting Conservative revolt over the policy.
The decision came on the second day of the Tory conference in Birmingham, which had been dominated by dissent from Conservative MPs about both a tax cut for the wealthiest, and the wider idea of increased borrowing to finance tax reductions.
The abolition of the top tax rate, a marginal tax applying to incomes of £150,000 and above, was announced 10 days ago by Kwarteng as part of a mini-budget, which also included promised reductions to corporation tax, national insurance and the basic rate of income tax.
It 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”.
The Tory ex-chancellor George Osborne said it was “touch and go whether the chancellor can survive” the fallout, telling the Andrew Neil Show it would be “curtains” for Kwarteng if his speech on Monday went badly.
The former minister Maria Caulfield said: “I can’t support the 45p tax removal when nurses are struggling to pay their bills.”
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.
