In his 'Growth Plan Statement' 10 days ago, Kwasi announced plans to abolish the top rate of income tax, the 45% rate for earnings over £150,000, stating that reducing tax is "central to solving the riddle of growth".
However speaking to the BBC this morning, Kwarteng said: "We just talked to people, we listened to people, I get it".
He added that the proposals had become "a massive distraction on what was a strong package".
Following the announcement, the pound rose by more than a cent against the dollar to $1.1263.
Rachael Griffin, tax and financial planning expert at Quilter, commented: “Scrapping the top rate of income tax would have benefited the few – around 1% – who are very well paid and would have cost the exchequer around £2 billion.
“The optics looked difficult from the start, as scrapping the top rate was seen by many in the general public as some sort of reverse of the Robinhood narrative by giving to the rich and taking from the poor. However it is really the market reaction that has spooked the new government as the pound is got hammered and gilt yields spiked. Borrowing became more expensive and the Bank of England signalled it will have to go much higher on interest rates to defend the currency.
"The line from government that its fiscal policies will culminate to stimulate economic growth hasn’t proved to be convincing enough, crucially even within their own party with outspoken heavyweights like Michael Gove critical of the policy. The market reaction means it was hard to see the move as pro-business either, with the concern that consumers may simply bank the savings rather than spend and invest amid the global economic uncertainty.
“This is an embarrassing U-turn for the government and only time will tell if this has damaged the reputation of both Truss and Kwarteng irreparably. Interest rate rises were already going to spell huge pain for the public, but the announcements like the scrapping of the top rate of tax only served to potentially push them higher and it was key that the government tried to distance themselves from their action causing this reaction. Kwarteng must do a better job of instilling confidence and giving people certainty around the tax rules so they can plan efficiently at the November budget.”
