Plans to remove the 45% rate of income tax for high earners have been scrapped by chancellor Kwasi Kwarteng, who has described them as a ‘massive distraction’.
Announced in the ‘mini-Budget’ just 10 days ago, the government had planned to abolish the top rate of income tax for earnings over £150,000, as Kwarteng and prime minister Liz Truss believed it would help encourage high earners to invest in jobs and business growth.
However, in a statement today, Kwarteng said the abolition of the 45p tax rate had “become a distraction from our overriding mission to tackle the challenges facing our economy”.
“We get it, and we have listened,” the chancellor’s statement said. “This will allow us to focus on delivering the major parts of our growth packages”.
The government will continue with plans to cut the basic rate of income tax by 1p and cancelling the 1.25% increase in national insurance contributions and the Health and Social Care Levy.
We get it, and we have listened. pic.twitter.com/lOfwHTUo76
— Kwasi Kwarteng (@KwasiKwarteng) October 3, 2022
It was reported that MPs would have widely voted against the proposal to cut the top rate of income tax when put to a vote in the House of Commons.
Tony Danker, director-general of the CBI, told BBC Radio 4’s Today programme that scrapping the tax cut would help markets stabilise.
“Businesses up and down the country want the markets to stabilise,” he said. “That is an absolute precondition to investment and growth, and it’s a precondition to getting onto these very good reforms.”
The pound jumped following the announcement, settling at $1.12 today after dropping to an all-time low against the dollar last week.