Kwarteng 45p tax U-turn ‘won’t make substantial difference’, warns ex-deputy Bank of England governor

Sir Charlie Bean, said the chancellor’s U-turn will not be enough to calm down the financial markets

Chancellor Kwasi Kwarteng’s U-turn on abolishing the top rate of income tax for Britain’s highest earners will not “make any substantial difference”, said former deputy governor of the Bank of England.

In an interview with ITV’s Good Morning Britain, Sir Charlie Bean said Mr Kwarteng’s abrupt announcement ahead of his keynote speech at the Conservative party conference would not change the impact on the financial market.

On Monday, the chancellor said the 45p tax rate had become a “distraction” from the party’s mission and it would not proceed in order to focus on other parts of their growth package.

In his statement, he said: “From supporting British business to lowering the tax burden for the lowest paid, our Growth Plan sets out a new approach to build a more prosperous economy.

“However, it is clear that the abolition of the 45p tax rate has become a distraction from our overriding mission to tackle the challenges facing our country.

“As a result, I’m announcing we are not proceeding with the abolition of the 45p tax rate. We get it, and we have listened. This will allow us to focus on delivering the major parts of our growth package.”

Since the announcement, the pound has risen after hitting a record low following the chancellor’s mini-budget, but former Bank of England deputy governor Sir Bean said the U-turn was not enough.

He told Martin Lewis and Susanna Reid on Good Morning Britain that it will “not make any substantial difference” to calming the markets.

“This is a relatively small component of the overall package that was announced a week or so ago,” he said.

“The thing that spooked the markets wasn’t the energy price guarantee – which is very expensive but is temporary – it was the other stuff. Rolling back the national insurance increase, [not going through with] the planned increase in corporate income tax, cutting the basic rate.

Sir Charlie Bean said Mr Kwarteng’s next focus should be the November 23 financial statement (PA Archive)

“Layer these tax changes on top, there’s a hole in the public finances in the medium term of about £50 billion – that’s what spooked the market, this announcement doesn’t change that,” he added.

“The really crucial thing is how the chancellor is going to make the numbers add up on the November 23 statement. The question is can he get through until then without there being further, significant pressure from the markets?”

During his speech at the Conservative Party conference on Monday, Mr Kwarteng described the pressure his economic plans caused to the markets as merely a “little turbulence”.

He told delegates at the conference that the government will introduce “sensible” economic reforms over the coming days and weeks.