Liz Truss and Kwasi Kwarteng U-turn on scrapping 45p tax rate

With the ink hardly dry on his mini-Budget ten days ago, the Chancellor abandoned the ditching of the top rate of tax.

He also did not rule out another U-turn over his decision to lift the cap on bankers’ bonuses.

Mr Kwarteng was forced into the humiliating tax retreat after a Tory revolt led by former Cabinet ministers Michael Gove and Grant Shapps.

Tory MPs had threatened to torpedo the tax cut in a Commons vote given it was being done in the middle of a cost-of-living crisis and amid speculation that the Government is planning to slash billions off benefits.

Mr Kwarteng tweeted shortly before 7.30am: “It’s 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.”

The Pound rose shortly after his announcement of the U-turn.

Former Transport secretary Grant Shapps said the Chancellor’s U-turn on the top rate was a “sensible decision” and that he was “pleased” the Government had moved quickly, adding it was a policy that “jarred”.

Asked how damaged Prime Minister Liz Truss was over the embarrassing reversal, he said:  “I want the Prime Minister to survive. I want the Conservatives to win the next election. I think the Prime Minister herself has acknowledged that this was rushed into, that the communications behind it were nowhere near good enough.

“There was a belief if you like, that as long as the policy worked out, to hell with everything else, that is not the real world because in the real world, the perception of the values the core beliefs of a government are important.”

Mr Kwarteng said he “took responsibility” for the tax debacle which has damaged his and Prime Minister Liz Truss’ reputation.

Only on Sunday was she insisting that she was determined to press ahead with the tax cut.

Ms Truss tweeted at 7.50am, while the Chancellor was doing a media round with broadcasters in Birmingham: “We get it and we have listened.

“The abolition of the 45pc rate had become a distraction from our mission to get Britain moving.

“Our focus now is on building a high growth economy that funds world-class public services, boosts wages, and creates opportunities across the country.”

Appearing on Sunday with Laura Kuenssberg, Ms Truss had seemed to blame Mr Kwarteng for the decision to axe the 45p rate.

Speaking on BBC Breakfast on Monday, Mr Kwarteng said: “I’m pleased that we have decided not to proceed with that.”

However, the retreat damaged the new Goverment’s political standing and left open questions over how they would get through other controversial reforms such as a shake-up of planning rules which are likely to be opposed by some Tory MPs.

It also undermined Ms Truss’ apparent attempts to emulate Margaret Thatcher as a “Lady not for turning”, and left a question mark over Mr Kwarteng’s future as Chancellor.

Shadow chancellor Rachel Reeves said: “The Prime Minister has been forced to abandon her unfunded tax cut for the richest one per cent – but it comes too late for the families who will pay higher mortgages and higher prices for years to come.

“The Tories have destroyed their economic credibility and damaged trust in the British economy.

“Their kamikaze Budget needs reversing now.”

Liberal Democrat leader Sir Ed Davey added: “This humiliating U-turn comes too late for the millions seeing their mortgage rates soar because of this botched budget.

“The corporation tax cut and the bankers bonus rise need to be scrapped and we need a clear plan to help mortgage borrowers cope with eye-watering interest rate rises.”

Tory MPs backed the Chancellor’s U-turn but some called on him to go further.

“Reversal on 45p rate welcome,” tweeted Mel Stride, chairman of the Commons Treasury Committee.

“Fairer but also shows pragmatism by a government that has to date felt far too doctrinaire. Further big change needed is to bring forward  @OBR_UK forecast so markets can be reassured at earliest opportunity. Would take pressure off interest rate rises.”

Tobias Ellwood, chair of the Defence Committee said on Twitter: “Abolition of the 45p tax rate: Good call. Thank you for listening.”

Director-general of The Confederation of British Industry Tony Danker welcomed the Chancellor’s decision to U-turn on cutting the 45p tax rate, saying it had become a “distraction” from his other economic reforms which he thinks will “make a real difference to growth”.

He told BBC Radio 4’s Today programme: “Here was a package with some really strong economic reforms that businesses have been waiting for for years in fact and clearly, politically the 45p had become a distraction, and probably more importantly businesses up and down the country want the markets to stabilise, that is an absolute pre-condition to investment and growth.”

Scotland’s First Minister Nicola Sturgeon tweeted: “UK gov u-turns on top tax rate abolition because it’s a ‘distraction’.

“Morally wrong and hugely costly for millions is a better description. Utter ineptitude.”