The pound has risen today as the government reversed the decision to cut the tax rate of 45p.
Sterling hit US$1.125 from US$1.115 after the announcement, returning to levels seen before the mini-budget, falling to around US$1.121 by mid-morning before reaching US$1.126 by mid-morning.
The market turmoil following Kwasi Kwarteng’s mini-budget had caused the pound to fall to a record low of US$1.03.
This morning, following Mr Kwarteng’s announcement, the pound rose to around $1.12 – about the value it had before the September 23 Budget announcements.
But that’s still nearly 20% lower than the $1.35 level at the start of this year
Liz Truss and Kwasi Kwarteng today performed an extraordinary U-turn on plans to scrap the top tax rate to head off a massive Tory revolt.
The Prime Minister and Chancellor will no longer scrap the 45p rate for people earning more than £150,000 a year after it became clear that dozens of MPs would refuse to support the move in the Commons.
“We understand and we’ve been listening,” Mr Kwarteng wrote on Twitter. ‘It is clear that the abolition of the 45p rate has become a distraction from our overriding mission to tackle the challenges facing our country.’
In a round of interviews this morning, the chancellor said the row had ‘drowned out’ the details of a ‘strong package’ – but repeatedly refused to say it had been a mistake.
The pound rose this morning as it was revealed that the 45p tax rate would remain in place following a U-turn by the government
The Prime Minister and Chancellor will no longer scrap the 45p rate for people earning more than £150,000 a year after it became clear that dozens of MPs would refuse to support the move in the Commons. “We understand and we’ve been listening,” Mr Kwarteng wrote on Twitter.
Pressed on whether he had a crisis meeting with Ms Truss last night in which she instructed him to change course, Mr Kwarteng said: ‘We have been constantly talking about the budget… in terms of the 45p rate we were talking with many colleagues, we spoke with lots of people in the country.’
He refused to say the word ‘sorry’ but said: ‘There is humility and remorse… I’m happy to own it.’
Asked if he had considered resigning, Mr Kwarteng told BBC Breakfast: ‘Not at all. What I’m looking at is the growth plan.’
He also shied away when pressed on whether there could be more U-turns.
The pound rose almost a cent against the dollar to $1.12 on the news, although it drifted back down afterwards. That’s close to the level it was before the mini-budget was announced on September 23 – sending it to a record low of $1.03.
The huge shift came after Michael Gove and Grant Shapps put themselves at the forefront of the rebellion, warning the measure would be a ‘massive distraction’ and politically toxic for ordinary voters.
Only yesterday Ms Truss took to TV studios to defend the plan and deny there would be a reconsideration – although she was also accused of throwing Mr Kwarteng ‘under the bus’ by saying he had made the decision to to move on.
Chief Secretary Chris Philp was among the other ministers who had spoken enthusiastically about the proposal, insisting he would give the budget ‘9.5 out of 10’ despite the ensuing market turmoil.
Sir. Shapps had dismissed the idea as ‘politically tin-eared’, while sources claimed Mrs Truss ‘could be gone before Christmas’ unless she backs down to ‘vibrant’ MPs.
Mrs Truss tweeted this morning: ‘Abolishing the 45pc rate had become a distraction from our mission to get Britain moving.
‘Our focus is now on building a high-growth economy that funds world-class public services, boosts wages and creates opportunity across the country.’
Shapps said a 45p rate cut ‘could never have worked’. ‘I sensed things moved very quickly last night. Frankly, it was inevitable, he told BBC Radio 4’s Today programme.
“And I think you know the idea that you could whip everybody into line or postpone this until next spring and change the results, which was one of the proposals, a couple of the proposals yesterday, completely untrue. This could never have functioned.’
In a round of interviews this morning, Chancellor Kwasi Kwarteng said the row over scrapping the 45p rate had “drowned” the details of a “strong package”.
Mrs Truss tweeted to confirm the U-turn, less than 24 hours after she said she was fully committed to the policy
Liz Truss and Kwasi Kwarteng will today drop their proposal to scrap the 45p tax rate
A defiant Mr Kwarteng had briefed reporters that he would use his first conference speech as chancellor to promise to ‘stay the course’ with his plans.
He was to say that years of economic policy consensus have left Britain in a state of ‘slow, managed decline’ which must be reversed.
But last night there was already speculation that he and Mrs Truss would perform a U-turn and ditch the 45p policy – the price of shoring up Tory support for the rest of the mini-budget measures.
As many as 70 Tory MPs considered voting against the policy and are now pushing Mrs Truss to delay scrapping the 45p rate for a year, an insider claimed.
There was no reason for the government to hold a vote on the 45p rate before the financial statement, which was due on November 23, as abolition was not due until April.
Cabinet ministers told MailOnline they expected the key clash over the Finance Bill to take place in December or even January.
The parliamentary process means that a decision must be adopted within 10 meeting days, but it does not have to cover all fiscal measures in one package. The Finance Bill must then receive its second reading by MPs – a crunch vote – within 30 days.
However, Labor could have forced a vote on an opposition day, which the government might have struggled to ignore. Tory rebels had considered siding with Labour.
In a preemptive strike yesterday, Mr Gove said it was ‘not conservative’ to use ‘borrowed money’ to fund the abolition of the 45p rate of income tax. And Mr Shapps echoed his comments, saying the Government should not give “big gifts to those who need them least”.
Mr. Gove’s intervention has sparked controversial claims that he is acting as an outrider for Rishi Sunak, who he backed against Miss Truss in the Tory leadership race.
A number of other Sunak-supporting MPs spoke out against the Government’s plan to remove the top rate after Mr Gove described it as ‘a display of the wrong values’.
Shapps, who also backed Sunak, wrote in The Times today: “This politically motivated cut, not even a huge revenue boost and hardly a priority on the Prime Minister’s to-do list, has managed to alienate almost everyone, from a large section of the Tory parliamentary party surprised to the city traders who will actually benefit from it.’
Michael Gove (pictured) used a series of appearances at the Birmingham conference to stoke anger at Liz Truss and Kwasi Kwarteng’s plan to scrap the 45p top rate (file picture)
Last night, senior Tories warned that Mr Gove’s actions could further damage the party, which is already lagging heavily behind Labor in the polls.
A No 10 insider described the former minister as ‘deceived’.
Another ally said his decision to attend the conference, where he criticized the government’s programme, was “massively unhelpful but unfortunately not a surprise”.
Former Tory leader Sir Iain Duncan Smith accused Mr. Gove for serial disloyalty, citing his role in removing Boris Johnson from No 10.
He said: ‘It’s Sunday, the first day of conference for a new Tory leader, and Michael Gove is out there stabbing her in the back. Is it not enough for him to get rid of one prime minister?
“Someone has to confiscate his knives – he is a danger to people and to the party. He said he was leaving politics but it proved too good to be true and he is back again trying to destabilize a new Prime Minister.’
Mrs Truss had yesterday pointed out that the controversial tax cut was ‘part of an overall package to make our tax system simpler and lower’.
But she stressed it was a relatively small budget measure compared to the Energy Price Guarantee, which could end up costing £150bn.