Liz Truss and Kwasi Kwarteng have abandoned plan to scrap the 45p rate of income tax for top earners in a dramatic U-turn.
Following growing opposition from both within and outside of the Conservative Party, Chancellor Kwasi Kwarteng has ditched the plans unveiled only 10 days ago as a centrepiece of his 'mini-Budget.' In a statement released this morning, he said that “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”.
Former Cabinet Ministers Michael Gove and Grant Shapps had been among those opposing the plans and the new Conservative leadership was facing an embarrassing defeat only a few weeks into the new administration. Just hours before he had been due to defend the plans at the Conservative Party conference, he issued a statement saying: “We are not proceeding with the abolition of the 45p tax rate. We get it, and we have listened.”
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Cutting the 45% rate for earnings over £150,000 and paying for it by borrowing had been a major part of the Chancellor's plan for growth, with the Prime Minister defending it as recently as Sunday. She and Mr Kwarteng 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 to the financial markets.
Mr Kwarteng had been preparing to tell the Conservative Party conference in Birmingham that they must “stay the course” and back their tax plans. But 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.
Now, in a statement posted on his Twitter account, Mr Kwarteng 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.”
Former Cabinet minister Grant Shapps said cutting the 45p tax rate “could never have worked”. He said: “I sensed that things were moving very rapidly last night. Frankly, it was inevitable.
“And I think you know the idea that you could whip everybody into line or delay this until next spring and change the outcomes, which was one of the suggestions, a couple of the suggestions yesterday, completely untrue. This could never have worked.”
Asked where the U-turn had left his credibility, Mr Kwarteng said: “We are 100% focused on the growth plan.” The Chancellor told BBC Breakfast: “I have been in Parliament for 12 years, there have been lots of policies which, when Government listens to people, they have decided to change their minds.”
Asked if it had considered resigning, he said: “Not at all. What I am looking at is the growth plan and delivering what is a radical plan to drive growth in this country, to reduce taxes, to put more money that people earn in their pockets.”
Pressed on whether the 45p abolition had been a mistake, he said: “What I admit was it was a massive distraction on what was a strong package.”
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."
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