UK Prime Minister Liz Truss is to execute a humiliating U-turn by scrapping her plan to axe the UK’s 45% top rate of tax, after facing a growing revolt from Tory MPs led by former cabinet ministers Michael Gove and Grant Shapps.
After insisting earlier on Sunday that the controversial plan would go ahead, Ms Truss concluded after talks with her senior team that the plan stood no chance of getting through the House of Commons.
Kwasi Kwarteng, her chancellor, confirmed on Monday he is abandoning the plan to cut the taxes of Britain’s richest 1 per cent; the 45 per cent rate applies to earnings of over £150,000.
The chancellor acknowledged that their desire to axe the rate in a move to be paid for by borrowing had become a “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 pound rallied on the news. Sterling jumped by as much as a cent to over $1.126 – its highest level in over a week, just seven days after it slumped to a record low around $1.035.
The move is a crushing blow to the authority of the prime minister and chancellor, who misread the mood of their party and country and believed they could push through tax cuts for the rich during a cost of living crisis.
The retreat came on the day Mr Kwarteng will address the Conservative conference in Birmingham and will add to Tory concerns that he and Ms Truss have lost a grip on the government and the economy.
Mr Kwarteng had been preparing to tell the Conservative Party conference in Birmingham that they must “stay the course” and back their tax plans.
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”.
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.
On Sunday, Mr 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.
Mr 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 Mr Kwarteng if his speech on Monday went badly.
Andrew Bowie, who was parliamentary private secretary to Theresa May when she was in Number 10, agreed with Mr Gove that unfunded tax cuts are not Conservative.
Former minister Maria Caulfield said: “I can’t support the 45p tax removal when nurses are struggling to pay their bills.”
Ms Truss had been warned that she faced defeat in the House of Commons if she persisted with the abolition of the 45p rate, the most controversial element of a debt-funded £45 billion (€48.7 billion) package of tax cuts.
Although scrapping the 45p rate would only have cost between £2 billion-£3 billion a year, it was seen by Tory MPs as totemic of a government that appeared to be losing touch with voters. — Copyright The Financial Times Limited 2022/Guardian/PA