The new Liz Truss-led UK government on Monday made an embarrassing U-turn on its central plank of tax cuts by withdrawing a controversial policy to abolish the topmost income tax slab for the wealthiest, following market turmoil and to avert a feared rebellion within the governing Conservative Party.
The decision, which marks a humiliating climbdown for Prime Minister Truss, comes after several Conservative MPs criticised the government's plan announced just 10 days ago.
Chancellor Kwasi Kwarteng declared that the announcement in his mini-budget of a proposed abolition of the 45 pence tax rate, which applied to the top tier of income taxpayers from next April, had become a “massive distraction” to an otherwise sound growth plan for the economy.
The plan to scrap the 45p rate, paid by people earning more than 150,000 pounds (USD 167,000) a year, was announced as part of a package of tax cuts on September 23.
It came after days of turmoil on the global financial markets spooked by the prospect of huge government borrowing costs and the pound tumbling against the dollar as the Bank of England had to step in to shore up the country’s pension funds.
"We get it, and we have listened," Kwarteng tweeted before taking to the airwaves to defend what has been dubbed a screeching U-turn by the newly appointed government.
Kwarteng told the BBC the proposal was "drowning out a strong package", including support for energy bills, and cuts to the basic rate of income tax and corporation tax.
Asked whether he owed people an apology, Kwarteng said: "We've listened to people. And yeah, there is humility and contrition in that. And I'm happy to own it."
Truss, who replaced Boris Johnson as prime minister after a hard-fought leadership battle with British Indian former Chancellor Rishi Sunak last month, soon referenced her Chancellor's tweet to add: "The abolition of the 45pc rate had become a huge distraction from our mission to get Britain moving.
"Our focus now is on building a high growth economy that funds world-class public services, boosts wages, and creates opportunities across the country."
It came just a day after she had insisted that her government remained committed to abolishing the top rate of tax for the highest earners in a BBC interview on Sunday, despite critics within her own party seeing it as sending out the wrong signal at a time when the majority of the country was struggling with a cost-of-living crisis and soaring household bills.
"It had become a massive distraction on what was a strong package. We just talked to people, we listened to people, I get it," Kwarteng told the BBC under intense questioning on Monday morning.
"We are 100 per cent focused on the growth plan. I have been in Parliament for 12 years, there have been lots of policies which, when the government listens to people, they have decided to change their minds," he insisted.
The Chancellor claimed he did not see the policy reversal as serious enough to consider his own position in the Cabinet and said the government remained focussed on his radical growth plan backed by lower taxes to “put more money that people earn in their pockets".
"We can always have a debate about when we could've made the decision, but the important thing is we've made the decision and we can now move forward with making the push for the growth plan," he said.
It is seen as a major blow to Truss pitching herself on the lines of former Tory Prime Minister Margaret Thatcher, who famously said the “lady’s not for turning” with reference to staying the course on unpopular policy decisions at a Conservative Party conference 42 years ago.
Incidentally, the Truss-led government’s U-turn comes as the Tories embark upon their annual party conference in Birmingham where the 47-year-old new leader will make her first address to the membership as Prime Minister. Truss assumed charge as UK Prime Minister on September 6.
The decision to backpedal on a key plank of her tax-cutting agenda came as it looked increasingly likely that the policy would be voted through in Parliament by her own backbench MPs and at a time when the Opposition Labour Party is racing ahead with a historic lead over the Tories in the opinion polls.
The proposed cuts of 45 billion pounds (USD 50.5 billion) would have been the biggest in 50 years.
But the cuts sent the pound plunging to historic lows against the US dollar, and sparked chaos in the market for UK debt because they will require a large increase in government borrowing.
A degree of order was only restored by an emergency intervention last Wednesday by the Bank of England, which said it would buy UK government bonds worth 65 billion pounds (USD 73 billion).