Liz Truss has executed a major U-turn by scrapping plans to abolish the 45p top rate of tax after facing a growing revolt from Tory MPs led by former cabinet ministers Michael Gove and Grant Shapps.
Investors bought sterling and UK government bonds in response to the policy reversal. By Monday afternoon the pound was back at the level it was before the government announced its tax cut plan last month.
Insisting on Sunday that the controversial plan to eliminate the 45p rate would go ahead, Truss had concluded after talks with his senior team had no chance of getting through the House of Commons.
Monday morning quasi quartengo, his chancellor confirmed he is abandoning the plan set out in his “mini” budget 10 days ago to cut taxes for Britain’s richest 1 percent; The 45p rate applies to income over £150,000. In a statement, he said: “We got it, and we’ve listened.”
The chancellor added: “It is clear that the abolition of the 45p tax rate has become a distraction from our core mission to address the challenges facing our country.”
The pound was up 0.5 percent against the dollar to over $1.12 by afternoon trading on Monday. comparison of RealThis is a record low against the US currency a week ago after Kwarteng announced a debt-funded £45bn package of tax cuts on 23 September.
The price of UK government debt rose after Monday’s announcement, reducing yields. The 10-year gilt yield fell 0.17 percentage points to 3.92 per cent, having hit a high of around 4.6 per cent during last week’s market slump.
The retreat comes on a day when Quarteng addresses the Conservative conference in Birmingham and will add to Tory concerns that he and the Truss have lost grip on the government and the economy.
Although eliminating the top tax rate would cost between £2bn and £3bn annually, some Tory lawmakers saw it as the totem of a government that seemed to be losing touch with the electorate.
A cabinet minister close to the truce said: “It is a very painful decision but in the end we had no choice. There was no way we were going to get the budget.”
Truss and Quarteng held emergency talks in Birmingham on Sunday, according to government insiders, after facing a growing rebellion from Tory MPs who publicly said they would vote against the 45p measure.
Another senior minister said: “Its politics was terrible and I am surprised the idea lasted as long as it was.”
On Sunday, Gove, a former cabinet minister, put himself at the forefront of a Tory rebellion over tax cuts, saying it was wrong at a time when “people are suffering”.
Shapps, a former transport secretary, also denounced the plan, saying it would not survive a parliamentary vote.
Another Tory MP, representing a working class seat, described the idea of cutting taxes for the wealthy as “neurotic” when planning cuts to benefits and public services.
Quarteng told bbc breakfast On Monday that the government had scrapped the measure to focus on completing its development plan.
“Talking to a lot of people up and down the country, talking to MPs, talking to voters, talking to constituents it was clear that the 45p rate was distracting from a very strong plan,” he said. .
Quarteng said he has been in parliament for 12 years and it is normal for the government to listen to the people and change their mind. He insisted he had no plans to resign.
“We were talking to a whole range of stakeholders and we realized that the 45p issue . . . was sinking energy for the people in general, a strong intervention on tax cuts.
Former chief whip Julian Smith said he welcomed the U-turn. “Kwasi Quarteng and Liz Truss have listened. Proper taxation is important because the government does its job,” he said.
After withdrawing from the 45p tax rate plan, Quarteng and Truss may now come under pressure to reverse other proposed non-financial tax cuts that have blown a hole in public finances.
These include a £13bn reduction in national insurance, which gives the biggest benefits to better-off voters, and a £17bn plan to reverse a corporation tax hike – a policy business leaders have said is not a priority. .
Rachel Reeves, the shadow chancellor, said the Tories had “destroyed their economic credibility” and damaged confidence in the British economy.
“The prime minister has been forced to give up his nonfinancial tax cut for the richest 1 percent – but it’s too late for families who will pay higher mortgages and higher prices for years to come.”
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