Government abandons plans to scrap 45p tax rate

Liz Truss and Kwasi Kwarteng have abandoned a plan to abolish the top rate of income tax for the highest earners in an astonishing U-turn.

The Chancellor acknowledged that their desire to axe the 45% rate on earnings over £150,000 in a move to be paid for by borrowing had become a “terrible distraction” amid widespread criticism.

He issued a statement, hours before he had been due to defend the plans at the Conservative Party conference, saying: “We are not proceeding with the abolition of the 45p tax rate. We get it, and we have listened”.

The U-turn will be seen as a massive blow to their authority, coming a little over a week after the tax cut was announced in the mini-budget and just a month into Truss’s premiership as Prime Minister.

Kwarteng told BBC Breakfast he had “not at all” considered resigning despite scrapping a key part of the financial plans he set out on 23 September. The Chancellor suggested he had told Truss they needed to back down amid signs of a growing rebellion from Conservative MPs, with senior figures publicly attacking their plans.

“The conversation about the 45p rate was this terrible distraction really from what was a very, very strong plan and I’m very pleased that we’ve decided not to proceed with that because it was drowning out the elements of an excellent plan,” he added.

Shadow chancellor Rachel Reeves called for them to reverse “their whole economic, discredited trickle-down strategy” as she said the U-turn had come “too late for the families who will pay higher mortgages and higher prices for years to come”.

The pound surged higher in overnight trading on Monday as reports emerged that the Government was preparing to U-turn.