Truss and Kwarteng U-turn on plan for 45p tax rate for highest earners
Chancellor Kwasi Kwarteng has confirmed that the government is axing plans to give the wealthiest 1% a tax cut following a bitter backlash from Tory MPs.
Mr Kwarteng said in a tweet that the measure had become a “distraction” from his objective to grow the economy.
He said: “We get it, we have listened.”
Politics live: Major U-turn after prominent Tories speak out
The plan to scrap the 45p rate, which is paid by people who earn over £150,000 a year, was criticised as unfair amid the cost of living crisis.
It was announced in the tax-slashing mini-budget, last Friday, but would have had to go to a vote before it could be approved.
Former cabinet minister Grant Shapps, one of the big hitters in the Conservative Party who had publicly criticised the policy, told Sky News that it would not have got through parliament.
“There is no mathematical way MPs would go and vote for this,” he said.
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Tax cut ‘not my idea’ says minister
The tax cut was one of a series of proposals that prompted turmoil in the markets over the past week, with the pound reaching record lows against the dollar.
The chancellor and Ms Truss spent much of the past 10 days doubling down on their plans, even in the face of criticism from the International Monetary Fund and a £65bn emergency intervention by the Bank of England.
Ms Truss was expected to delay the vote on the 45p rate tax cut to buy herself time, after Conservative MPs were told they would lose the whip (meaning they would be suspended from the party) if they voted against it.
But the rebellion grew overnight as Mr Shapps joined his former cabinet minister colleague Michael Gove in publicly criticising the plans.
Read more:
Truss’s U-turn on 45p tax rate will embolden her many critics
Toxic impression created that Truss and Kwarteng not getting on
Truss sticks by plan but admits mistakes
Kwarteng faces calls for inquiry after party with hedge fund managers
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45p rate tax cut ‘didn’t make sense’
Kwarteng ‘not at all’ considering resigning
Mr Kwarteng abandoned the policy hours before he was due to tell the Conservative Party conference in Birmingham that the government “must stay the course”.
The chancellor told BBC Breakfast: “I have been in parliament for 12 years, there have been lots of policies which, when government listens to people, they have decided to change their minds.”
Despite the blow to his authority, he said he had “not at all” considered resigning.
And he declined to apologise directly to the nation, instead telling BBC Radio 4’s Today programme: “There’s humiliation and contrition, and I’m happy to own it.”
Moments after Mr Kwarteng confirmed the U-turn, Ms Truss tweeted the same message.
‘They have destroyed their economic credibility’
The pound surged higher in overnight trading on Monday as reports emerged that the government would abandon the decision to axe the 45p tax rate.
Labour pressed for Ms Truss and Mr Kwarteng to back down on the rest of their tax-cutting mini-budget.
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 said. “Their kamikaze budget needs reversing now.”
The Lib Dems echoed those calls, with leader Sir Ed Davey calling for the Tories to cancel their party conference and recall parliament to “sort this mess out”.
He said: “Every day it becomes clearer this Conservative government has no plan, no clue and is completely out of touch.”
Business
Chancellor’s Mansion House speech vows to rip up red tape – saying post-financial crash rules went ‘too far’
Chancellor Rachel Reeves has criticised post-financial crash regulation, saying it has “gone too far” – setting a course for cutting red tape in her first speech to Britain’s most important gathering of financiers and business leaders.
Increased rules on lenders that followed the 2008 crisis have had “unintended consequences”, Ms Reeves will say in her Mansion House address to industry and the City of London’s lord mayor.
“The UK has been regulating for risk, but not regulating for growth,” she will say.
It cannot be taken for granted that the UK will remain a global financial centre, she is expected to add.
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It’s anticipated Ms Reeves will on Thursday announce “growth-focused remits” for financial regulators and next year publish the first strategy for financial services growth and competitiveness.
Rachel Reeves
Bank governor to point out ‘consequences’ of Brexit
Also at the Mansion House dinner the governor of the Bank of England Andrew Bailey will say the UK economy is bigger than we think because we’re not measuring it properly.
A new measure to be used by the Office for National Statistics (ONS) – which will include the value of data – will probably be “worth a per cent or two on GDP”. GDP is a key way of tracking economic growth and counts the value of everything produced.
Brexit has reduced the level of goods coming into the UK, Mr Bailey will also say, and the government must be alert to and welcome opportunities to rebuild relations.
Mr Bailey will caveat he takes no position on “Brexit per se” but does have to point out its consequences.
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Bailey: Inflation expected to rise
In what appears to be a reference to the debate around UK immigration policy, Mr Bailey will also say the UK’s ageing population means there are fewer workers, which should be included in the discussion.
The greying labour force “makes the productivity and investment issue all the more important”.
“I will also say this: when we think about broad policy on labour supply, the economic arguments must feature in the debate,” he’s due to add.
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The exact numbers of people at work are unknown in part due to fewer people answering the phone when the ONS call.
Mr Bailey described this as “a substantial problem”.
He will say: “I do struggle to explain when my fellow [central bank] governors ask me why the British are particularly bad at this. The Bank, alongside other users, including the Treasury, continue to engage with the ONS on efforts to tackle these problems and improve the quality of UK labour market data.”
Business
Reeves has welcome support from Bank’s governor as she goes for growth and seeks to woo City
When Gordon Brown delivered his first Mansion House speech as chancellor he caused a stir by doing so in a lounge suit, rather than the white tie and tails demanded by convention.
Some 27 years later Rachel Reeves is the first chancellor who would have not drawn a second glance had they addressed the City establishment in a dress.
As the first woman in the 800-year history of her office, Ms Reeves’s tenure will be littered with reminders of her significance, but few will be as symbolic as a dinner that is a fixture of the financial calendar.
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Her host at Mansion House, asset manager Alastair King, is the 694th man out of 696 Lord Mayors of London. The other guest speaker, Bank of England governor Andrew Bailey, leads an institution that is yet to be entrusted to a woman.
Ms Reeves’s speech indicates she wants to lean away from convention in policy as well as in person.
By committing to tilting financial regulation in favour of growth rather than risk aversion, she is going against the grain of the post-financial crash environment.
“This sector is the crown jewel in our economy,” she will tell her audience – many of whom will have been central players in the 2007-08 collapse.
Sending a message that they will be less tightly bound in future is not natural territory for a Labour chancellor.
Her motivation may be more practical than political. A tax-and-spend budget that hit business harder than forewarned has put her economic program on notice and she badly needs the growth elements to deliver.
Rachel Reeves on budget day. Pic: PA
Her plans to consolidate local authority pension schemes so they might match the investing power of their Canadian and Australian counterparts is part of the same theme.
Infrastructure investment is central to Reeves’s plan and these steps, universally welcomed, could unlock the private sector funding required to make it happen.
Bank governor frank on Brexit and growth
If the jury is out in a business financial community absorbing £25bn in tax rises, she has welcome support from Mr Bailey.
He is expected to deliver some home truths about the economic inheritance in plainer language than central bankers sometimes manage.
Britain’s growth potential, he says, “is not a good story”. He describes the labour market as “running against us” in the face of an ageing population.
With investment levels “particularly weak by G7 standards”, he will thank the chancellor for the pension reforms intended to unlock capital investment.
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Governor warns inflation expected to rise
He is frank about Brexit too, more so than the chancellor has dared.
While studiously offering no view on the central issue, Mr Bailey says leaving the EU had slowed the UK’s potential for growth, and that the government should “welcome opportunities to rebuild relations”.
There is a more coded warning too about the risks of protectionism, which is perhaps more likely with Donald Trump in the White House.
“Amid threats to economic security, let’s please remember the importance of openness,” the Bank governor will say.
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All that is welcome for Ms Reeves.
Already a groundbreaking chancellor, she is aiming for a political and economic legacy that extends beyond her gender and the dress code.
Water company United Utilities has reported hundreds of millions in profit as it seeks to further increase customer bills.
The utility serving seven million customers in the northwest of England recorded £335.7m in underlying operating profits for the first half of this year, up nearly 23% from £271.1m a year ago.
It comes as the firm has requested bills rise 32% to make them among the most expensive in England and Wales.
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The proposed average annual bill would increase to £584 by 2030 from the £443 typical yearly charge in the 2023/2024 financial year. Since April 2023 bills have been upped 6.4% and then 7.9%.
Bills hikes were behind the rise in revenue to more than £1.08bn from £975.4m in 2023.
Other ways of assessing profit were lower than the underlying operating sum. Profit before tax reached £140.6m while after tax profit topped £103.1m for the six months to the end of September 2024, both lower than a year earlier.
Boss’s pay
Bonus and benefits payments worth £1.416m were paid to two executives on top of £1.128m in base pay, according to analysis of company filings done by the Liberal Democrats.
It’s down compared with 2022/2023 when three executives were given £1.6m in base pay and £2.456m in bonuses and benefits.
Read more:
Water giant United Utilities strikes £1.8bn pension deal
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The environment
In a year of record sewage outflows into waterways the company was one of just three firms that met the Environment Agency’s top four-star performance ranking.
United Utilities in July came under investigation by water regulator Ofwat for not meeting its obligation to minimise pollution.
In response the company said at the time: “We understand and share people’s concerns about the health of the environment and the operation of wastewater systems, including combined sewer overflows.”
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