Liz Truss and Kwasi Kwarteng have abandoned a plan to abolish the top rate of income tax for the highest earners in an astonishing U-turn.
The Chancellor acknowledged that their desire to axe the 45% rate on earnings over £150,000 in a move to be paid for by borrowing had become a “distraction” amid widespread criticism.
He issued a statement, hours before he had been due to defend the plans at the Conservative Party conference, saying: “We are not proceeding with the abolition of the 45p tax rate.”
“We get it, and we have listened,” he added.
Distraction from overriding mission’
Ms Truss and Mr Kwarteng had been under pressure, including from senior Tory MPs, to back down on the measure announced in the mini-budget on September 23.
In a statement posted on his Twitter account this morning, he said: “From supporting British business to lowering the tax burden for the lowest paid, our Growth Plan sets out a new approach to build a more prosperous economy.
“However, it is clear that the abolition of the 45p tax rate has become a distraction from our overriding mission to tackle the challenges facing our country.
“As a result, I’m announcing we are not proceeding with the abolition of the 45p tax rate. We get it, and we have listened. This will allow us to focus on delivering the major parts of our growth package.
“First, our Energy Price Guarantee, which will support households and businesses with their energy bills.
“Second, cutting taxes to put money back in the pockets of 30 million hard-working people and grow our economy.
“Third, driving supply side reforms – including accelerating major infrastructure projects – to get Britain moving.”
Value of pound on the move
The pound surged higher in overnight trading on Monday as reports emerged that the Government would U-turn on the decision to axe the 45p tax rate.
Sterling hit 1.125 US dollars at one stage, recovering back to levels seen before the mini-budget, though it pared back some of the gains in early morning trading to stand at 1.119.
The market turmoil following Kwasi Kwarteng’s mini-budget had seen the pound fall to an all-time low of 1.03 US dollars.
Mounting criticism
Overnight, Grant Shapps joined his former Cabinet minister colleague Michael Gove in a growing rebellion to criticise the plans during a cost-of-living crisis.
Speaking to BBC Radio 4’s Today programme before the Chancellor officially announced the Government’s U-turn but with the announcement expected imminently, Mr Shapps said: “I felt that the Chancellor got it.
“I think he understood that this 45p looked like grossly insensitive timing, and that although they had wanted to throw the kitchen sink at that mini-budget and do everything at once, that there was a recognition that if you try and do too much that you almost end up with a blockage, and you can’t get the policies that are needed through the distraction of things like the 45p thing.
“And sensibly they changed their minds.”
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