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Kwarteng acknowledges ‘tough’ day after U-turn over tax cut for rich

Chancellor of the Exchequer Kwasi Kwarteng speaking ahead of the Conservative Party annual conference (Aaron Chown/PA)
Chancellor of the Exchequer Kwasi Kwarteng speaking ahead of the Conservative Party annual conference (Aaron Chown/PA)

Kwasi Kwarteng urged Tories to “focus on the task in hand” as he battled to restore his authority as Chancellor after a dramatic U-turn over tax cuts for the rich.

Just hours before his set piece speech at the Conservative Party conference Mr Kwarteng abandoned his plan to scrap the 45p income tax rate for people earning more than £150,000 to stave off a mounting Tory revolt.

Addressing the audience in Birmingham he acknowledged it had been a “tough” day but promised there would be no more distractions.

Downing Street said Prime Minister Liz Truss – who was in the audience for the speech – continues to have confidence in Mr Kwarteng, despite the humiliating decision to drop the tax cut.

Mr Kwarteng told activists: “What a day. It has been tough but we need to focus on the job in hand.

“We need to move forward, no more distractions, we have a plan and we need to get on and deliver it.”

He acknowledged “the plan put forward only 10 days ago has caused a little turbulence” – comments which led to some laughter in the audience.

The Chancellor’s mini-budget triggered turmoil in the City, was criticised by the International Monetary Fund and resulted in a £65 billion emergency intervention by the Bank of England to restore order.

But it was the 45p rate which attracted the biggest political backlash, with the Tories viewed as offering help to the rich while the country faced a cost-of-living crisis.

“I get it. I get it,” Mr Kwarteng said.

“We are listening and have listened, and now I want to focus on delivering the major parts of our growth package.”

Mr Kwarteng used his speech to defend the Government’s plan to cut taxes in the search for economic growth.

Despite the U-turn on the 45p rate, Mr Kwarteng is still committed to taking 1p off the basic rate of income tax, reversing April’s increase in national insurance and scrapping the planned increase in corporation tax.

The Chancellor told the conference: “While we all believe in growth, we as Conservatives also believe that it is an important principle that people should keep more of the money they earn.

“I don’t need to tell you that. That isn’t radical, that isn’t irresponsible. It is a deeply held belief that we all share as Conservatives.

“We were faced with a 70-year high tax burden. We were confronted with low growth and the path we were on was clearly unsustainable. So that’s why we’re cutting taxes for working people.”

He earlier acknowledged that the Government’s desire to borrow billions to axe the 45p rate on earnings over £150,000 had become a “terrible distraction” amid widespread criticism.

Shortly before he had been due to tell the conference they must “stay the course” on the plans, he issued a statement saying: “We are not proceeding with the abolition of the 45p tax rate.”

“We get it, and we have listened,” he added, in language echoed in a tweet from the Prime Minister less than 24 hours after she said she remained absolutely committed to the cut.

The U-turn will be seen as a massive blow to their standing, a little over a week after the tax cut was announced in the mini-budget and just a month into Ms Truss’s premiership.

Mr Kwarteng said he had “not at all” considered resigning despite scrapping a key part of the financial plans he set out on September 23.

Asked if Ms Truss has confidence in her Chancellor, the Prime Minister’s official spokesman told reporters: “Yes.”

Conservative Party Conference 2022
Chancellor of the Exchequer Kwasi Kwarteng at the Tory conference (Stefan Rousseau/PA)

Business Secretary Jacob Rees-Mogg, a day after defending the policy, also stood by Mr Kwarteng, saying “of course he shouldn’t resign” and said it was not a “handbrake turn”.

“It was a political reality. Sometimes things we want to do don’t receive the approbation of the nation that you would hope for,” he told a Telegraph event at the conference.

Paul Johnson, the director of the Institute for Fiscal Studies think tank, said the reversal of the policy that would have cost £2 billion a year was only a “rounding error in the context of public finances”.

With about £43 billion of unfunded tax cuts remaining, Mr Johnson said: “The Chancellor still has a lot of work to do if he is to display a credible commitment to fiscal sustainability.

“Unless he also U-turns on some of his other, much larger tax announcements, he will have no option but to consider cuts to public spending: to social security, investment projects, or public services.”

The chances of a Commons revolt diminished, with former Cabinet minister Michael Gove suggesting he could now support the package and fellow potential rebel Grant Shapps welcoming the U-turn.

Shadow chancellor Rachel Reeves called for Mr Kwarteng and Ms Truss to reverse “their whole economic, discredited trickle-down strategy” as she said the U-turn had come “too late for the families who will pay higher mortgages and higher prices for years to come”.

Liberal Democrat Treasury spokeswoman Sarah Olney said:  “Laughing about the turbulence caused by this botched budget is an insult to the millions of people already facing spiralling mortgage costs.

“Kwasi Kwarteng’s fiscal failure saw the economy tank and mortgage rates go through the roof, his words will bring cold comfort to struggling families and pensioners.”