The government has said it will reverse plans to cut the top 45p income tax rate after a storm of criticism.
The move follows the line from prime minister Liz Truss yesterday (2 October) who said the government would not change course.
In an interview on the BBC with Laura Kuenssberg, the prime minister said the tax cuts announced in the mini budget aim to boost economic growth.
She also said chancellor Kwasi Kwarteng was the one who decided to make the cut in the top rate of tax.
But in a statement released this morning (3 October), Kwarteng said the government would reverse the plan.
He said “we get it” and it has “become a distraction” from the government’s main economic policies.
Speaking on Radio 4 this morning Kwarteng added: “We talked to many of our colleagues and found the top rate was a distraction to many good measures such as the energy price cap and reversal in National Insurance contributions [in the mini budget].
“There was a whole range of tax cuts and the reduction of the top rate was part of a whole range of comprehensive measures. A forthcoming fiscal plan will be available in the next few weeks to show how the spending side of the ledger looks.”
The pound jumped in reaction to the announcement and Hargreaves Lansdown senior investment and markets analyst Susannah Streeter said: ‘‘The great Truss retreat on tax saw the pound surge briefly in value, jumping above $1.12, up by round 1% in a matter of minutes just after rumours swirled about the move.
“It’s lost some of its bounce though as the financial markets digest the latest political turmoil to beset the UK. The prime minister was hoping to carve out a reputation as the new Iron Lady, instead she will be seen as highly malleable.
“She has been manipulated into this U-turn after senior conservatives yesterday coming out in open revolt at the Treasury’s decision to scrap the 45p tax band for the wealthy while refusing to rule out cuts to welfare for the poorest.”
She added: “Kwasi Kwarteng is set to cut a lonely figure on stage at the Conservative party conference later, given that his prime minister put the blame for the fiscal bombshell at the door of no.11.
“This effort at deflection could be an insurance policy, leaving Liz Truss with the option of changing tack and chancellor in one fell swoop, a strategy which is more likely to be employed if the pound’s volatility continues in the weeks and months to come.’’