Why Kwasi Kwarteng made humiliating top tax-rate U-turn

Credit: PA

Kwasi Kwarteng’s Lawsonian ambition to start his time as chancellor by simplifying the tax system is no more.

He is dropping the plan to abolish the 45p top rate of tax. Opposition from his own benches was simply too much. And even super wealthy Tories here told me they didn’t support it.

“I don’t want it” one significant donor told me yesterday.

This is hugely embarrassing for a brand new chancellor, and also for the PM, because it shows quite how much they misread the mood of their party and the public.

It is possibly worse for Kwarteng, in that Truss said yesterday the idea to reward those earning more than £150,000 a year was his.

But she endorsed the plan and insisted only yesterday it would not be dropped. If Tories want to put a brave face on this episode it would be to say that Truss’s and Kwarteng’s ideology is tempered by pragmatism.

Those more critical would say it is humiliating for the party that a brand new leader should have misstepped so seriously so early.

If, however, the big Damoclean sword hanging over Truss and Kwarteng is that their mega mini-budget has risked causing an economically and politically damaging house-market crash, because of the way that it promised tax cuts that would increase the national debt for years to come, this U-turn barely tempers that risk: the abolition was forecast by the Treasury to cost it just £2 billion, out of a £150 billion annual fiscal loosening.

If the mini budget was unwise and harmful economically when it included the 45p abolition, the questionable economics remain more or less unchanged after the volte face.

This is all about politics. And the political ramifications are hard to exaggerate. It was only three days ago that the Leveling Up Secretary Simon Clarke defended the abolition on the basis that the 45p rate was simply a virtue-signalling gimmick that raises nothing.

On his logic, when the going gets tough Truss and Kwarteng stick with the gimmicks.