Chancellor admits mini-budget tax cuts caused a 'little turbulence' during Tory conference speech
The Chancellor tried to play off the U-turn during his conference speech, but it was the only thing on most of the delegates' minds, Robert Peston reports
Chancellor Kwasi Kwarteng has admitted his growth plan caused a "little turbulence" during his speech at the Tory Party conference.
He made the comments after announcing an abrupt U-turn over the abolition of the top rate of income tax for the highest earners.
He opened his conference speech by saying: "What a day, it has been tough, but we have a plan and we need to get on and deliver it."
During the speech, he referenced the market turmoil sparked by the government's mini-budget announcement - but defended his growth plan, by saying he refused to commit to "managed decline."
Mr Kwarteng said: "Our growth plan set out 10 days ago will ensure we focus relentlessly on economic growth. Because we must face up to the fact that for too long, our economy has not grown enough.
"The path ahead of us was one of slow, managed decline.
"But I refuse to accept that it is somehow Britain’s destiny to fall back into middle league status or that the tax burden reaching a 70-year high is somehow inevitable. It isn’t and it shouldn’t be."
He conceded the mini-budget's proposals had not been well received, saying: "I know the plan put forward only 10 days ago has caused a little turbulence, I get it we are listening and have listened."
Mr Kwarteng issued a statement on Monday, climbing down over the plan to axe the 45% rate for earnings over £150,000 and pay for it by borrowing, saying "we get it and have listened", stating it had become a “distraction” amid widespread criticism and market turmoil.
"The road plan had strong elements to it, reducing taxes for everybody, getting growth, but the 45p rate became a focal point of discussion, there was lots of concerns," the Chancellor told ITV News.
'We listened to people' - Kwasi Kwarteng admits abolishing the 45p tax rate was "the wrong thing to do"
"I listened to people, spoke to colleagues, spoke to some people in the country, and felt the best thing to do was to not proceed with the abolition of the 45p rate, simply because it was just drowning out the other elements of the plan, which was about reducing energy bills for people, reducing taxes for people," he said.
Despite this, he defended the tax-cutting agenda saying during his speech: "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.
He also said growth was central to the government's plan criticising the high tax burden of recent years and "glacially slow infrastructure delivery."
He added: "We can’t sit idly by. What Britain needs more than ever is economic growth.”
But he also tried to bolster the idea the Conservative Party was the party of fiscal responsibility after its reputation had been severely damaged by the market chaos of recent days.
Ministers tried to defend the U-turn on the conference floor but many Tories were unhappy with the situation, Anushka Asthana reports
He said: “Conservatives have always known this and we know it still. And it is because we are Conservatives that we remain absolutely committed to being serious custodians of the public purse. This is what defines us and separates us from the Labour Party.”
The Chancellor's so-called mini budget on September 23 in which he unveiled the "biggest tax-cutting event in half a century" spooked the mortgage and financial markets, sending sterling crashing and interest rates soaring.
Mr Kwarteng had denied he was warned of the impact of his fiscal statement on the markets, a statement that was disputed by an external economic adviser to Ms Truss who said he had been "very clear".
The public did not have many kind words about the government's first few weeks in government, Shehab Khan reports
Gerard Lyons, chief economic strategist at Netwealth, said: “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”.
Meanwhile, Business Secretary Jacob Rees-Mogg said the government had to U-turn on the abolition of the top rate of income tax out of “political reality”, but said Mr Kwarteng should not resign.
He told a Telegraph event at the Conservative conference: “Sometimes things we want to do don’t receive the approbation of the nation.”
Mr Rees-Mogg said there is no point “sticking stubbornly” to policies amid opposition but insisted “this is a tax-cutting government" and described the 45p tax U-turn as a “tale of sound and fury signifying nothing”.
Jacob Rees-Mogg told Anushka Asthana at the Tory conference he still supported the tax cuts but the U-turn was politically necessary
While the financial fallout had quietened over the weekend, the political one only escalated, with senior Tories, including Michael Gove, openly criticising the cuts.
Many felt that spending around £2 billion annually on a tax cut for top earners while scrapping the cap on bankers’ bonuses was seen as politically toxic while millions face the squeeze of the cost-of-living crisis.
Although the government has now backed down from the most toxic aspect of their mini-budget, there are still many backbench Tory who are unhappy with the new administration.
Former Cabinet minister Nadine Dorries said on Monday there was "widespread dismay” at Liz Truss for ditching key parts of Boris Johnson’s administration’s agenda and suggested the Prime Minister should call an election.
Local Labour MP Jess Phillips said the Tories still had a lot to answer for when it came to rising mortgage prices
She said: "Widespread dismay at the fact that three years of work has effectively been put on hold.
"No one asked for this. Channel 4 sale, online safety, BBC licence fee review, all signed off by Cabinet all ready to go, all stopped.
"If Liz wants a whole new mandate, she must take to the country."
After Monday's U-turn, Sterling rose to around $1.12, about the value it held before the mini-budget announcement.
Prime Minister Liz Truss tweeted: “We get it and we have listened. The abolition of the 45pc rate had become a 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.”
Backbench MP Selaine Saxby said she would not have been able to support the abolition of the 45p tax band while people faced the cost of living crisis
Ms Truss and Mr Kwarteng had been under pressure, including from their own party, to back down on the measure announced in the mini-budget.
But instead, they doubled down on plans despite the financial turmoil triggered by the fiscal package, with the PM defending it as recently as Sunday.
They had even resisted backing down in the face of criticism from the International Monetary Fund and a £65 billion emergency intervention by the Bank of England to restore order.
Conservative former Cabinet minister Grant Shapps said he was "very pleased" to see the government reversing the 45p top rate of tax, saying it was the "wrong move at the wrong time" and sent out the wrong message.
Mr Shapps told ITV News that people in his Welwyn Hatfield constituency were telling him they were taking on extra shifts and that many people held the government responsible for rising mortgage rates.
He said they could not tolerate tax cuts for the rich against that backdrop and squeezing public services.
"People understand that's largely to do with inflation caused by Putin, what they don't understand is that we're borrowing money and therefore spooking the markets and pushing up the cost of borrowing. And that's affecting them because their own government is doing it. So it wasn't the right thing to do at this moment in time," he told ITV News.
Mr Shapps told ITV News Political Editor Robert Peston that he did not think removing the cap on bankers' bonuses was as toxic with voters and did not advocate reversing that part of Mr Kwarteng's plan.
Grant Shapps tells ITV News Political Editor Robert Peston that abolishing the top rate of tax was so inflammatory because many people were holding the government responsible for their rising mortgage rates
Asked if the government had been humiliated after the U-turn, Mr Shapps, who had been a vocal critic of the Chancellor's plans, said: "I liked what Kwasi said this morning, in his statement, which is 'we get it', that's what I've been encouraging him to say and it would be churlish if I didn't recognise and say I think they've done the right thing, it's exactly what I was calling for."
Labour have pressed for the government to row back on the rest of their tax-cutting mini-budget despite their massive U-turn.
Shadow Chancellor Rachel Reeves said the reversal “comes too late for the families who will pay higher mortgages and higher prices for years to come”.
“The Tories have destroyed their economic credibility and damaged trust in the British economy,” she added.
“This is not over – it’s not just some distraction.
“The Tories need to reverse their whole economic, discredited trickle down strategy.
“Their kamikaze Budget needs reversing now. As the party of fiscal responsibility and social justice, it will come to the Labour Party to repair the damage this Tory government has done.”
Mr Kwarteng had been preparing to tell the Conservative Party conference in Birmingham that they must “stay the course” and back their tax plans.
But, in a possible hint of what was to come, Ms Truss was criticised for singling Mr Kwarteng out as responsible for the tax cut on Sunday, saying “it was a decision the Chancellor made” rather than one debated by the entire Cabinet.
The U-turn will be seen as a massive blow to their authority, coming a little over a week after the measure was announced and a month into Ms Truss’s premiership.