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British Chancellor Kwasi Kwarteng has scrapped his plan to cut taxes for high earners after a backlash from financial markets and Conservative Party colleagues plunged his country into economic crisis.
“We understand and we have listened,” Kwarteng said as he announced the dramatic turnaround on Twitter on Monday.
A cut in the top tax rate from 45p to 40p in the pound was the main surprise of his and Prime Minister Liz Truss’ mini budget announcement last month, which went significantly wrong.
The benefit for people earning over £150,000 a year had been widely criticized as unfair and tone deaf at a time when the cost of living was rising.
The measure has become “a distraction from our overriding mission to address the challenges facing our country,” Kwarteng admitted in his statement Monday morning.
Kwarteng told BBC Breakfast the 45p measure ‘drowned out a strong package’ which also included support for energy bills and a host of other tax cuts.
When asked if he had considered quitting, he replied: “Not at all”.
The scale of opposition from Kwarteng’s Tory colleagues had threatened his ability to implement the policy as the pound crashed and government borrowing costs soared, forcing the Bank of England to intervene to prevent the collapse of British pension funds. A rebellion was brewing among Tory MPs, with even prominent figures such as former Cabinet minister Michael Gove speaking out against the move.
By Sunday night, more than a dozen Tory rebels had publicly voiced their concerns, casting doubt on the government’s ability to pass the tax cut.
Writing for The Times, former Transport Secretary Grant Shapps called it a “politically insane cut, not even a huge revenue boost and barely a priority on the Prime Minister’s to-do list” which has “succeeded in alienating almost everyone”.
Truss herself had stuck to the plans in a Sunday morning interview with the BBC, as party leaders were keen to talk tough throughout the day. Conservative Speaker Jake Berry has suggested the mini-budget will be treated as a vote of confidence in parliament, meaning MPs who do not support it could lose the whip and therefore potentially their jobs in the next election.
It sparked defiance in some quarters, with backbench MP Maria Caulfield Tweeter that if they “don’t want this working class MP, that’s fine”.
Hasty crisis talks ensued with angry rebels, and the flip-flop was agreed so late on Sunday evening that many MPs only learned of it by reading news articles on Monday morning – in many cases after spending the previous week trying to defend the policy to others.
The move comes on the second day of the Tory Conference in Birmingham, traditionally an opportunity for the party to come together in a show of unity. Kwarteng is due to address party activists on Monday afternoon and Truss will deliver his opening speech on Wednesday.
The pound jumped on news of the U-turn, rising more than a penny against the dollar to $1.1263, before falling back. Traders began to underestimate the chances of hitting 6% interest rates next year.
However, it is not yet clear whether Kwarteng’s retirement will save his own career or the credibility of his boss, Truss, who is facing dire polls after serving as prime minister for just a month.
A Tory minister highlighted the danger to Truss ahead of her descent, saying backtracking could make her “look weak – in power, but not in power”.
Labour’s Shadow Chancellor Rachel Reeves claimed the Tories had already ‘destroyed’ their economic credibility and warned the change in tactics ‘comes too late for families who will be paying higher mortgages and higher prices in the years to come”.