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Liz Truss trusts Kwasi Kwarteng despite 45p tax rate

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from the farm standing next to the chancellor Kwasi Kwarteng after they scrapped their plan to scrap the top rate of income tax for top earners in a surprising U-turn.

Downing Street said prime minister continues to trust Mr Quarteng despite the humiliating move to prevent a Tory rebellion over their widely criticized strategy.

The chancellor admitted their desire to borrow billions to reduce the 45% rate on incomes over £150,000 was a “terrible distraction” amid widespread criticism.

A few hours before, he had to say Conservative Party conference they should “stay the course” on the plans, he issued a statement saying: “We are not going ahead with the scrapping of the 45p tax rate.”

“We understand that and we’ve been listening,” he added, echoing the prime minister’s tweet less than 24 hours after she said she remained absolutely committed to cuts.

The reversal will be seen as a major blow to their credibility, coming just over a week after tax cuts were announced in the mini-budget and just a month after Ms Truss became premier.

Mr Kwarteng said he was “not thinking at all” about resigning, despite the scrapping of a key part of the financial plans he outlined on September 23.

When asked whether Ms. Truss trusts her chancellor, the prime minister’s official representative told reporters: “Yes.”

Business Secretary Jacob Rees-Mogg, a day after defending the policy, also backed Mr Kwarteng, saying “certainly he should not resign” and insisting it was not a “handbrake turn”.

“It was a political reality. Sometimes what we want to do doesn’t get the approval of the nation that we hope for,” he told the Telegraph conference.

“There is no point in stubbornly holding on to them if there is simply no desire and appetite to engage in them. We live in a democratic state, and politicians must respond sensitively to the democratic will.”

Mr Rees-Mogg said the descent was “sound and fury that meant nothing”, arguing that the tax cuts would have lost the least amount of money to the Treasury.

Paul Johnson, director of the Institute for Fiscal Studies think tank, said scrapping the policy, which would cost £2 billion a year, was just a “rounding error in the context of public finances”.

With around £43 billion of unfunded tax cuts left, Mr Johnson warned: “The Chancellor has a lot of work to do if he is to demonstrate a credible commitment to fiscal sustainability.

“Unless he also reverses some of the other, much larger tax announcements, he will have no choice but to consider cutting public spending: on social security, investment projects or public services.”

The chances of a House of Commons rebellion have diminished with a former Cabinet minister Michael Gove suggesting he may now support the package, while fellow would-be rebel Grant Shapps welcomes the reversal.

Asked whether he would now vote for the rest of the package, Mr Gove told Times Radio: “Well, yes, I think so, based on everything I know.”

Mr Shapps, a former transport minister and well-known strategist, told BBC Breakfast: “I’m very pleased to see him admit that they realized it was the wrong move and fix the problem.”

The chancellor refused to directly apologize to the nation for the financial turmoil and rising mortgage rates, and to Tory MPs who have been warned they could be kicked out of the parliamentary party for voting against the tax plans.

Instead, he told BBC Radio 4’s Today programme: “There is humility and remorse and I’m happy to have that.”

Mr Kwarteng suggested he told Ms Truss they should back down amid signs of a growing rebellion from Tory MPs.

“The talk of the 45p rate really distracted from what was a very, very strong plan and I’m very pleased that we decided not to go ahead with it because it drowned out elements of an excellent plan,” he told BBC Breakfast.

Ms Truss and Mr Kwarteng were due to make a joint visit in connection with the Tory conference on Monday, but it was abandoned amid the chaos.

Shadow chancellor Rachel Reeves urged them to reverse “their whole economic, discredited trickle-down strategy” as she said the reversal came “too late for families who will be paying higher mortgages and higher prices for years to come”.

The pound rose in overnight trading on Monday on reports that the government was preparing for a U-turn.

Sterling touched US$1.125 at one stage, returning to levels seen before the mini-budget, although it pared some gains in morning trade to settle at 1.119.

Mr Kwarteng did not rule out a new era of austerity to pay for the £43 billion left over from tax cuts in his mini-budget, nor did he say whether benefits would suffer real cuts as inflation rises.

The Chancellor and Ms Truss doubled down on their plans despite the financial turmoil caused by the package, with the Prime Minister defending the tax cuts as recently as Sunday.

They even resisted giving up in the face of criticism from the International Monetary Fund and a £65 billion emergency intervention from the Bank of England to restore order.

Mr Quarteng was preparing to tell the Birmingham conference that they should “stay the course” and back their tax plans.

And he was to insist in his speech, which is now likely to be revised, that his measures were vital to stimulate growth and avoid a “slow, manageable recession”.

In a possible hint of what was to come, Ms Truss was criticized for placing Mr Quarteng in charge of the tax cuts on Sunday, saying “it was a decision the chancellor made” and not a decision which was discussed by the entire cabinet.

Spending around £2 billion a year on tax cuts for the highest earners while lifting the cap on bankers’ bonuses was seen as politically toxic, while millions face the pressures of a cost-of-living crisis.

Ms Truss has also refused to go ahead with plans to increase benefits in line with inflation, which would have cut the country’s poorest in real terms.

On Sunday, Mr Gove attended the fringes of the conference to criticize the plan, calling it “unconservative” and hinting he may vote against the measure in the House of Commons.

Mr Shapps then used a Times column to say “this is not the time to give big gifts to those who need them least”, because “when pain is around, pain must be shared”.

“This sudden reversal of the higher rate, compounded by a lack of communication that the Prime Minister acknowledges, is an unforced error that damages economic confidence in the government,” he said.

Damian Green, the former deputy prime minister, warned that the Tories would lose the next election if “we end up painting ourselves as the party of the rich”.

Deciding on benefit levels could be the next battleground for Ms Truss and Mr Quarteng.

Mr Gove told Times Radio that he would “need a lot of persuading” to back the government, which has reneged on a pledge to raise benefits in line with inflation.

And in a sign of wider anger in the party, former culture secretary Nadine Dorries suggested Ms Truss should call an election if she deviated from the plans set out by Boris Johnson’s government.

“There is widespread concern that the three-year work is effectively on hold,” she said.

“If Liz wants a whole new mandate, she should go to the country.”

https://www.standard.co.uk/business/business-news/liz-truss-has-confidence-in-kwasi-kwarteng-despite-45p-tax-rate-uturn-b1029794.html