Liz Truss and Kwasi Kwarteng have abandoned a plan to abolish the 45p rate of income tax for top earners in a policy u-turn.
The Chancellor has climbed down over the plan to axe the 45% rate for earnings over £150,000 and pay for it by borrowing.
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.
“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 £30m hard-working people and grow our economy; third, driving supply side reforms - including accelerating major infrastructure projects - to get Britain moving.”
Kwarteng and Liz Truss had been under pressure, including from senior Tory MPs, to back down on the measure announced in the mini-budget on 23 September.
But instead they doubled down on it despite the financial turmoil triggered by the package, with the Prime Minister defending it as recently as Sunday.
They had even resisted backing down in the face of criticism from the International Monetary Fund and a £65bn emergency intervention by the Bank of England to restore order.
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 u-turn, but with the announcement expected imminently, 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.”
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, Truss was criticised for singling 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.
Spending around £2bn 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.
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, 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.
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.
Damian Green, a former deputy prime minister, warned that the Tories will lose the next election if “we end up painting ourselves as the party of the rich”.
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.
Andrew Bowie, who was parliamentary private secretary to Theresa May when she was in No 10, agreed with Gove that unfunded tax cuts are not Conservative.
The Telegraph reported that a vote on the 45% measure would not be held until after the 23 November financial statement, which will set out how the party aims to bring the public finances under control.
Reacting to the news on Twitter, Nicola Sturgeon said those who called on her government to replicate the tax cut should be reflecting this morning.
“UK gov u-turns on top tax rate abolition because it’s a ‘distraction’,” the First Minister wrote. “Morally wrong and hugely costly for millions is a better description.”
But speaking to the BBC in the hours after the tax cut was scrapped, Scottish Tory chairman Craig Hoy said the Scottish Government should pass on the cut to the basic rate of tax - which will still go ahead - and reforms of the Scottish equivalent of stamp duty.
When asked if the Scottish Government should go ahead with the cut to the top rate of tax regardless of Monday’s climbdown, Hoy said that was “not an objective of the (UK) Government”.
“The question now for Nicola Sturgeon and the SNP is are they going to continue with a tax system in Scotland that is less competitive than the rest of the UK,” he said. “They should be doing something on Land and Buildings Transaction Tax to make sure our housing market is as competitive as the rest of the UK.
“And they should be doing something on the (basic rate) of tax, because ultimately, 2.3 million Scots could benefit from a tax cut and that would lead to a huge boost in the economy.
“I look forward to Nicola Sturgeon explaining how she is going to put growth into the Scottish economy.”
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