The new chancellor Kwasi Kwarteng has confirmed that the government has cancelled plans to abolish the 45p rate of income tax on those earning over £150,000.
Speaking on the BBC Radio 4 ‘Today’ programme, Mr Kwarteng said, “On the 45p rate, it is very simple, we talked to a lot of people around the country, we talked to lots of MP colleagues, our voters, our constituents, crucially people in the country, and I felt that the 45p rate was a huge distraction on what was a very strong set of measures”.
Asked whether he owed people an apology of his original plans, Kwarteng said, “There is humility and contrition in that, and I am prepared to own it”.
Mr Kwarteng’s comments come as reports suggested that as many as 50 Conservative MPs may have been prepared to oppose the government’s proposals in a Commons vote.
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The former Cabinet minister, Grant Shapps had yesterday suggested the government would not get the proposed measure through parliament, warning the government not to have ‘tin ear’s on voters concerns.
However, Mr Kwarteng dismissed the Commons threat as a factor for his U-Turn. He said, “It is not a question of getting it through, it is not about parliamentary games or votes in the House of Commons, it is about listening to constituents who express very strong views about this”.
Only yesterday, the prime minister told the BBC she was absolutely committed to the abolition of the 45p rate as part of a package to make the tax system “simpler” and boost growth.
Speaking earlier on BBC TV, Mr Kwarteng signalled that he hoped the U-Turn would draw a line under the current controversy saying, “We have made the right decision and we can now move forward”. He claimed that he hadn’t considered resigning due to the U-Turn policy on BBC TV and Radio 4.
Although plans for the 45p rate have attracted significant media and public attention from Mr Kwarteng’s mini budget, they have not been the only source of controversy.
Kwarteng did not comment on other aspects of his plan. Kwarteng said that the government would not receive additional support this year due to rising inflation, which is putting pressure on pre-allocated budgets.
“We are sticking to the comprehensive spending review for 2021, and we are very committed to that. And that is all I am prepared to say about spending”.
While trying to downplay the suggestion that pressure on UK interest rates may have been linked to his financial statements last week, Mr Kwarteng was keen for the American central bank to influence the direction of markets.
“High interest rates have been driven by the Federal Reserve all year. In terms of raising interest rates, the Federal Reserve has been ahead every other central bank. What that has meant is that there has been a strong dollar, and also other banks are going to have to put up other interest rates to follow”.
“What happened last week is that we had strong moves from the Fed, we had a strong sell off of US Treasury 10 year money, and that was a strong direction in terms of interest rates. The dollar at the beginning of last week had a 20 year high against the euro, it had a 50 year high against the yen, and the Bank of Japan had to intervene”.
Today marks the beginning of the second day for the Conservative conference at Birmingham. Kwarteng will speak this afternoon.
Following the government’s U-Turn, the pound jumped on the news, rising by more than a cent against the dollar to $1.1263.
