Kwasi Kwarteng has abandoned his plan to axe the 45p tax rate for top-earners after a Tory revolt, in a humiliating U-turn at the Conservative conference.
Just 24 hours after Liz Truss insisted the cut – for Britain’s richest people, earning more than £150,000 – would go ahead, the chancellor has backtracked under fierce pressure.
“We get it and we have listened,” Mr Kwarteng said, calling the 45p rate cut “a distraction from our overriding mission to tackle the challenges facing the country”.
The U-turn comes after Conservative big-hitters Michael Gove and Grant Shapps spoke out against handing huge rewards to the rich while benefits are set to be cut in real terms.
There was a growing likelihood that the plan would be defeated in the Commons, as the Tory revolt grew – despite the vote being delayed until as late as next year.
The climbdown will raise fresh questions about Mr Kwarteng’s future, after Ms Truss told the BBC that the 45p rate cut was his idea alone.
Liberal Democrat leader Sir Ed Davey called on him to resign, saying he had “lost all credibility”.
The government will also hope to calm the turmoil in the financial markets, although the £2bn cost of removing the 45p rate was only a small part of the huge increase in government borrowing.
The bigger problem was political – the criticism of many Tories that it spelt electoral doom for the party and was drowning out the welcome freeze on energy bills.
On Sunday, Mr Gove warned the 45p cut showed “the wrong values”, saying he would not vote for it, while Mr Shapps called it “an unforced error that is harming the government’s economic credibility”.
Following the U-turn, Gove said he was now able to back the mini-Budget package, but indicated he might oppose any attempt to back away from former PM Boris Johnson’s pledge of an inflation-matching rise in working-age benefits of around 10 per cent next April. Ms Truss has confirmed the rise is under review, amid reports she is considering linking it to wages at about 6 per cent.
Asked if he would vote against the government if benefits don’t rise with inflation, Mr Gove told Times Radios: “I will wait to see what the whole package is... My overall belief is Boris’s argument was right, I would need a lot of persuading to move away from that.”
Mr Shapps said he was pleased to see Mr Kwarteng “acknowledging that they understood it was the wrong move and fixing that problem”.
Mr Kwarteng will also be required to rewrite his conference speech, later on Monday, after the Treasury briefed that he would “stay the course” over his policies.
He still faces further revolts over the looming benefit and spending cuts – to help fund wider tax cuts – and his refusal to reveal the verdict of the Office for Budget Responsibility on his plans.
The chancellor attempted to shrug off a question about whether his own credibility is now shot, claiming: “We are 100 per cent focused on the growth plan.
He told the BBC: “There have been lots of policies where the government listens to the people and decided to change their mind.”
Mr Kwarteng added: “The prime minister decided not to proceed with the abolition of the rate,” – before backtracking to say “we decided together, we’re in agreement”.
Mr Shapps welcomed the “inevitable” U-turn, saying: “It was a policy that jarred. This is a sensible response and I’m pleased the government has moved quickly.”
On Sunday, Ms Truss was asked if she was “absolutely committed to abolishing the 45p tax rate for the wealthiest people”, replying: “Yes. It is part of an overall package of making our tax system simpler and lower.”
In an early morning tweet, the prime minister echoed her chancellor in saying the government “have listened”, adding: “Our focus now is on building a high growth economy that funds world-class public services, boosts wages, and creates opportunities across the country.”
