Chancellor Kwasi Kwarteng has confirmed a U-turn over plans to abolition the top rate of income tax for the highest earners, claiming “we get it, and we have listened”.
Kwarteng announced the humiliating climb-down earlier this morning (October 3) over plans to axe the 45% rate for earnings over £150,000 and pay for it by borrowing elsewhere.
Minutes after stating the much-maligned plans had become a “distraction”, the pound jumped to a value of around $1.12, roughly the value it held before last week’s mini-budget announcements.
Kwarteng said: “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.”
Prime Minister Liz Truss tweeted: “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.”
Truss and Kwarteng had faced intense pressure to reverse the measure, initially announced in the mini-budget on September 23.
Even a £65 billion emergency intervention from the Bank of England and tough criticism from the International Monetary Fund (IMF) was not initially enough to force a grovelling U-turn, with Truss defending the plans on TV as recently as yesterday morning.
Responding to the U-turn, Shadow Chancellor Rachel Reeves tweeted: “The PM has been forced to abandon her unfunded tax cut for the richest 1%. But it comes too late for the families who will pay higher mortgages and higher prices for years. The Tories have destroyed their economic credibility and damaged trust in the British economy.”
She added: “There’s no plan to clear up the mess of 12 years of Tory government. They’re making it up as they go along. This is not over – it’s not just some distraction.”
It comes as Truss prepares for the start of her first ever Tory party conference as PM this morning.