Katy Balls Katy Balls

Why Truss U-turned on the 45p tax cut

The biggest issue was how it landed with Tory MPs

Liz Truss (Credit: Getty images)

Twenty four hours is a long time in politics. Just yesterday, Liz Truss appeared on the BBC for her official set piece Tory conference interview to declare that she stood by all the measures in her Chancellor’s not-so-mini Budget – including, she said, her controversial plan to cut the top 45p rate of tax for the highest earners. After just one day into conference, Truss has decided to change course.

This morning, Chancellor Kwasi Kwarteng has made a statement reversing plans to scrap the 45p rate of income tax – just 10 days after he announced it. ‘We get it, and we have listened,’ he said. In an interview with Radio 4, Kwarteng tried to play down the significance of the measure – suggesting it was distracting from wider help the government was offering and this had become clearer after conversations with lots of people. He also appeared to row back from comments last week about more tax cuts to come – telling Robinson the government had published its growth plan when pressed on whether there would be further measures.

To have to change tack on a flagship policy this early on is a clear sign of trouble ahead

What’s behind the climbdown? As soon as the measure was announced Labour were quick to weaponise it – arguing that it showed the Tories were prioritising the rich during a cost-of-living crisis. It’s also one of a few factors believed to have spooked the markets and thereby contributed to the economic turmoil that followed Kwarteng’s fiscal event. Here’s how the pound has reacted so far:-

But this wasn’t really about economics. The cost of the 45p tax cut was just £2bn, vs £60bn for her fuel bill subsidies – yet the far-smaller tax cut was getting much more attention.

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