Q: Do you owe an apology to MPs who were threatened with the prospect of having the whip removed if they refused to vote for abolishing the 45% top rate of tax?
Kwarteng says this is not just about MPs. The government has listened to people in the country too.
Q: You can apologise to them too?
Kwarteng does not apologise. But he says the government is not going ahead with the move. And he goes on:
There is humility and contrition in that, and I’m happy to own it.
And that’s it. The Today interview is over.
Paul Johnson, director of the Institute for Fiscal Studies thinktank, has put out a longer statement with reaction to the tax U-turn, fleshing out a point he made on Twitter earlier. (See 11.11am.) He said:
The direct impact of the government’s U-turn on the abolition of the additional 45p rate of income tax is of limited fiscal significance. At a medium-run cost of around £2bn a year, it represented only a small fraction of the chancellor’s mini-Budget announcements. His £45bn package of tax cuts has now become a £43bn package – a rounding error in the context of the public finances.
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. On the latter, the chancellor has indicated that departments’ cash spending plans that run to 2024-25 will be left unchanged [see 8.28am], which amounts to a real-terms cut in their generosity in the face of higher inflation. This will squeeze public services, but will not be enough to plug the fiscal hole the chancellor has created for himself.
Downing Street has said that Liz Truss still has confidence in the chancellor, Kwasi Kwarteng. At the lobby briefing in London, asked if Truss has confidence in her chancellor, the prime minister’s spokesperson told reporters: “Yes.”
Yesterday Liz Truss conducted a series of interviews with ITV’s regional stations. They were recorded for broadcast tonight, but the 45p tax rate U-turn means some of the material is now very out-of-date, as this clip from Emma Hutchinson at ITV Anglia reveals.
The government’s 45p tax U-turn overshadowed attempts today by the Scottish Tory leader, Douglas Ross, to promote the Scottish Conservatives as “the real alternative to the SNP”.
Ross, whose leadership has been been questioned and who had been defending abolishing the 45p tax rate in recent days, told a fringe event at the Tory conference in Birmingham:
This morning, the chancellor has confirmed a change to the budget that was presented 10 days ago. I think he has made the right decision. The best parts of the government’s growth plans remain and the area that caused the most concern has gone.
Politicians have to listen and respond – and that’s exactly what the chancellor has done
Asked about claims that his leadership was now under threat, Ross said that he was “getting on with the job of holding the SNP to account”. He went on:
I read the stories, but if I get to Hogmanay and I am still leader then clearly I will have outlived the expectations of the Scottish media.
Yesterday Michael Gove, the former levelling up secretary, refused to commit to voting for the mini-budget. He was particularly critical of the plan to abolish the 45% top rate of income tax, but he also said it was wrong to go ahead with unfunded tax cuts on this scale, which he said was “fundamentally not Conservative”.
Today he has told Times Radio he would now be willing to vote for the mini-budget. Unfunded tax cuts are not a deal-breaker for him, he implies.
Asked if he would vote for the tax measures, he said:
Yeah, I think so, on the basis of everything that I know …
There were lots of good things [in the mini-budget] and some potentially interesting things … The debate over the 45p tax increase obscured that. So I naturally – I’m still a Conservative MP, last time I checked and I’ll check in with the chief whip later – and therefore I will want to support and I think, on the basis of everything I’ve heard, there’s lots that can be enthusiastically supported.
But Gove also said he would need “a lot of persuading” to approve not uprating benefits in line with inflation.
I wouldn’t want to prejudge an argument that was put in front of me before the argument was made. Because in crises, you sometimes have to do things and embrace policies that would in other circumstances be deeply unattractive. But my basic position, my starting position is, yes, Boris was right [to promise to uprate benefits in line with inflation for the 2023-24 financial year].
At the fringe event on the blue and red walls, Damian Green said fracking wouldn’t happen in the UK.
Noting that the government said the proposal would only be explored in communities who support it, Green went on:
The chance of any local community indicating consent for fracking is as close to zero as it can be. It’s not going to happen. It’s the wrong solution to the energy crisis.
Damian Green, first secretary of state under Theresa May, says Liz Truss needs six to 12 months of hard work “to persuade the public she is competent”.
Talking at a fringe event looking at the so-called blue and red walls, Green welcomed the U-turn on the 45p tax cut for those earning over £150,000, as “exactly the right decision – if you are going to U-turn, U-turn rapidly”. He added:
The achilles heel of the Conservative party is the idea that it is the party of the rich …
Liz Truss needs six to 12 months of hard work to persuade the public that she is competent.
Commenting on Truss blaming poor communications for the almost universally negative reaction to the tax cut for the rich, Green said it was “really easy to blame bad communications for bad policy”. He said a lot of people would have looked at the policy and asked themselves: “Is this a time we want to be helping the rich?”
At the same event, Tom Hunt, elected as Conservative MP for Ipswich in 2019, also welcomed the U-turn. “There’s an economic case for [cutting the 45p rate], absolutely … but I had some sympathy for colleagues who were concerned about it,” he said.
Hunt defended the climbdown, saying:
I think the capacity to reflect is important. I would rather that than belligerently ploughing on.
Frances O’Grady, the general secretary of the TUC, has accused Liz Truss of betraying a promise not to return to austerity. Referring to Kwasi Kwarteng’s declaration in his interview on the Today programme that he would not increase departmental budgets to compensate them for the impact of higher-than-expected inflation (see 8.28am), she posted this on Twitter.
In fact, Truss did not clearly promise no return to austerity during the Tory leadership contest. In July she said: “I’m very clear I’m not planning public spending reductions, what I am planning is public service reforms.” But promising not to cut existing spending plans is not the same as promising to increase them in line with inflation, and so in that quote she was only ruling out an actual spending cut, not a real-terms spending cut.
Other comments during her campaign implied that there would be real-terms cuts to departmental spending. This was acknowledged in an IFS briefing which said: “Liz Truss has promised to hold a new spending review, but it is possible that such an exercise could lead to lower, rather than higher, departmental budgets. She is, after all, promising more than £30bn per year of tax cuts.”
Truss also benefited from the fact that the implications of her plans for public spending received relatively little scrutiny during the campaign. During the hustings organised by the Conservative party, members asked very few questions about this, and Truss herself turned down interviews where she would have been subject to intensive scrutiny.
Paul Johnson, director of the Institute for Fiscal Studies thinktank, says the U-turn on the top rate of tax will not really make any difference to the fiscal sustainability of the mini-budget. In other words, he is saying it is still a huge package of unfunded tax cuts.
The government said abolishing the 45% top rate of tax could cost just £2bn a year – although at the time the IFS said it might cost nothing, but could also end up costing a lot more.
Stephen Crabb, the Conservative former work and pensions secretary, has told LBC that the government faces further trouble with its backbenchers over the mini-budget. MPs would object to wide-ranging spending cuts, he said.
These are from LBC’s Theo Usherwood.
The DUP is sticking to its position that the “best way” to resolve the dispute over Brexit trade arrangements in Northern Ireland is to “expedite the NI protocol bill”.
It is not issuing a statement following Northern Ireland minister Steve Baker’s extraordinary apology for not respecting Irish or EU’s “legitimate interests” in the past.
However, one source said they felt Liz Truss had rowed back “a little” from her resolve to take legal action to scrap parts of the protocol unilaterally.
“A negotiated outcome would be welcome but we tried negotiations for two years and the EU repeatedly stated ‘there could be no renegotiation’,” said a senior source.
Gerard Lyons, an economist who has given advice to the Liz Truss team, has said Kwasi Kwarteng was wrong to say that he was not warned that unfunded tax cuts would alarm the financial markets.
In his Today interview Kwarteng said he could not “remember” being warned by Lyons that the markets would not tolerate unfunded tax cuts. But Lyons told PA Media:
Well that’s incorrect. I was very clear.
Asked if he was pleased about the U-turn, Lyons replied:
I have no view on the U-turn. I was critical of that immediately after the mini-statement and said so publicly on the record, but it’s up to them what they do in terms of U-turns.
In his big read in Sunday Times yesterday Tim Shipman said it was Chris Philp, the chief secretary to the Treasury and Kwarteng’s deputy, who “during the leadership election wrote a paper for Truss recommending the abolition of the 45p tax rate”. My colleague Pippa Crerar was told the same.
According to George Parker from the FT, Philp is saying he wasn’t the main architect of the plan.
In the Observer yesterday Michael Savage identified another culprit. He said:
The Observer understands that the main advocate of a tax cut for the highest earners was Andrew Griffith, who was Boris Johnson’s policy chief and is now financial secretary to the Treasury.
As with much of what Liz Truss’s government is up to, it is also possible to pin responsibility on the Institute for Economic Affairs, the free market thinktank she favours. In a press release two days before the mini-budget, the IEA said the chancellor should:
Reform income taxes by unfreezing thresholds, abolishing the 45p income tax rate and removing the 60 per cent effective marginal tax rate at £100k-£125k, thus encouraging people to work.
On the Today programme Alasdair Locke, a leading business figure and major Conservative party donor, said that he did not approve of the decision to scrap the abolition of the 45% top rate of tax.
Speaking after it was reported that Kwasi Kwarteng would abandon the policy, but before Kwarteng formally announced that at 7.30am, Locke said:
I think it would be unfortunate to be blown off course by a rather sensational media. The presentation was very poor. It’s the right direction of travel, however.
Generally, cutting taxes when you’re facing an economic downturn, if not a recession, seems to me to be a pretty obvious thing to do rather than to raise taxes.
The 45% rate is a bit of a distraction. It doesn’t raise much money. There’s some evidence, from the past certainly, that reducing that level of tax actually increases the overall tax take. So it is a bit of a distraction.
Asked what he thought of the decision to abandon the abolition of the 45% rate, Locke said:
I think we should be, as a party and as a government, careful about having what we do dictated by short-termism, by media reaction, by market reaction, which is not necessarily rational. We shouldn’t be blown off course.
When it was put to Locke that senior Tory MPs like Michael Gove and Grant Shapps said the 45% rate should stay, Locke replied:
Just because you are a senior Conservative MP doesn’t necessarily make you a savant.
And here is some Twitter commentary from political journalists on the U-turn.
From the i’s Paul Waugh
From the Spectator’s James Forsyth
From my colleague Jessica Elgot
From the FT’s Jim Pickard
From the broadcaster and author Steve Richards
Joe Twyman from Deltapoll thinks today’s U-turn will only give the Tories a relatively small boost in the polls. Recent polls have given the Labour party huge leads.