Liz Truss and Kwasi Kwarteng have abandoned a plan to abolish the 45p rate of income tax for top earners in a dramatic U-turn.
Chancellor Kwasi Kwarteng said the abolition of the 45p tax rate had become a distraction as he announced the U-turn.
Chancellor of the Exchequer Kwasi Kwarteng, and Prime Minister Liz Truss during a tribute to the late Queen Elizabeth II at the start of the Conservative Party annual conference at the International Convention Centre in Birmingham. Picture date: Sunday October 2, 2022. Stefan Rousseau
In a statement posted on his Twitter account, 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.
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. https://t.co/ee4ZFc7Aes
“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.”
Labour pressed for Liz Truss and Kwasi Kwarteng to back down on the rest of their tax-cutting mini-budget despite their massive U-turn.
Shadow chancellor Rachel Reeves said the reversal “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,” she added.
“This is not over – it’s not just some distraction.
“The Tories need to reverse their whole economic, discredited trickle down strategy.
“Their kamikaze Budget needs reversing now. As the party of fiscal responsibility and social justice, it will come to the Labour Party to repair the damage this Tory government has done.”
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. Perhaps those who slammed @scotgov for not immediately following suit should also be reflecting this morning…
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.
“Perhaps those who slammed @scotgov for not immediately following suit should also be reflecting this morning…”
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.
Mr Kwarteng had been preparing to tell the Conservative Party conference in Birmingham that they must “stay the course” and back their tax plans.
And he had been set to insist in a speech now likely to be overhauled that his measures are vital to boost growth and avoid a “slow, managed decline”.
In a possible hint of what was to come, Ms Truss was criticised for singling Mr Kwarteng out as responsible for the tax cut on Sunday, saying “it was a decision the Chancellor made” rather than one debated by the entire Cabinet.
Backbench MP Michael Gove takes part in a fringe event, 'In conversation with Michael Gove' at the Conservative Party annual conference at the International Convention Centre in Birmingham. Picture date: Sunday October 2, 2022. Stefan Rousseau
Spending around £2 billion annually on a tax cut for top earners while scrapping the cap on bankers’ bonuses was seen as politically toxic while millions face the squeeze of the cost-of-living crisis.
Ms Truss has also refused to commit to plans to increase benefits payments in line with inflation, in what would deliver the nation’s poorest a real-terms cuts.
On Sunday, Mr Gove toured fringe events at the conference to give his criticism of the plan, calling it “not Conservative” and hinting he could vote against the measure in the Commons.
Mr Shapps, a former transport secretary, used a Times column 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.