Pound rises as Kwasi Kwarteng scraps 45p tax cut following market turmoil

It comes days after sterling fell to record low following chancellor’s so-called mini-Budget

Zoe Tidman
Monday 03 October 2022 10:44 BST
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Chancellor Kwasi Kwarteng admits tax cut on 45p rate was a 'huge distraction'

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Louise Thomas

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The pound has rallied as the chancellor announced a U-turn on abolishing the top rate of tax for the highest earners.

On Monday sterling rose to levels seen before the mini-Budget earlier this month, which sent markets into turmoil with the UK’s largest tax cuts in 50 years.

Kwasi Kwarteng confirmed the move to scrap the 45p tax rate was being abandoned, following more than a week of criticism.

The pound slumped to a record low in the days of market turmoil, sparking fears for the UK economy.

It bounced back overnight as rumours swirled the government was preparing to U-turn on the decision to scrap the higher income tax rate for those earning over £150,000.

Sterling surged to $1.13 at one stage, before dropping slightly to $1.12.

Mr Kwarteng announced the U-turn on Monday morning, saying it had 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,” he said. “We get it, and we have listened.”

Kwasi Kwarteng announced the tax-slashing measures in a mini-Budget
Kwasi Kwarteng announced the tax-slashing measures in a mini-Budget (Getty Images)

The previous day, Liz Truss said her government remained “absolutely committed” to getting rid of the top rate of income tax.

Mr Kwarteng had also retweeted a tweet on Sunday that appeared to be defending his tax cuts.

“Rather obsess over the ‘optics’, let’s focus on policies which strengthen the country,” the tweet by a fellow government minister said.

Other Tories had been revolting against the tax plans, with Grant Shapps and Michael Gove criticising the cuts.

The U-turn on the 45p will be seen as a massive blow to the authority of the new prime minister and chancellor.

Mr Kwarteng said he had “not at all” considered resigning after being forced to get rid of a key part of his mini-Budget.

He declined to directly apologise to the nation for the financial turmoil and rising mortgage rates and to Tory MPs who had been warned they could be kicked out of the parliamentary party for voting against the tax plans.

“There’s humiliation and contrition and I’m happy to own it,” he told BBC Radio 4’s Today programme on Monday.

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