Chancellor of the Exchequer Kwasi Kwarteng announced the decision in a tweet early Monday, saying “we get it, and we have listened.” In a statement posted with his tweet, he said the decision to scrap the 45% rate of income tax had become a “distraction.”

The pound jumped as much as 1% before giving up some of those gains to trade 0.2% higher against the dollar at 09:04 a.m. in London.

The U-turn is a major embarrassment for Truss and Kwarteng. They’ve spent days defending the chancellor’s Sept. 23 fiscal statement, with Truss saying on Sunday that she was committed to the package, while Kwarteng was due to say his party should “stay the course” and that the plan was “the right one” in his speech to the Tory Party’s annual conference in Birmingham on Monday. 

The reversal on a major policy just a month into her tenure will inevitably spark speculation about both Truss’s and Kwarteng’s future. The chancellor on Monday told BBC TV that he hadn’t considered resigning over the issue. Former cabinet minister Grant Shapps, sacked by Truss when she formed her top team, told the broadcaster: “I want the PM to survive.”

Tory Discontent

Kwarteng’s package, dubbed the government’s “growth plan” had sparked a market rout, sending the pound to an all-time low against the dollar and forcing the Bank of England into making a dramatic intervention to stave off a crash in the gilt market. Play Video

The scrapping of the 45% rate for the highest earners had been the least popular measure, coming at a time when ordinary Britons are struggling in a cost-of-living crisis that’s seen inflation surge to 40-year highs.

Rumblings of discontent had also been growing within the Tories, with former cabinet minister Michael Gove telling the BBC that removing the top rate of income tax for the highest earners was the wrong decision and indicated he would not support it. By late Sunday, he had become an unofficial recruiting sergeant for unhappy Tories, some of whom said they would be prepared to rebel against the plan. 

Much of the Tory opposition stemmed from two fears: that the tax cuts will be funded by borrowing at a time the government is already increasing debt levels to help Britons with soaring energy bills; and that the reduction in the top rate of income tax looks like the government is prioritizing the wealthiest earners over those on lower incomes during a cost-of-living crisis.

Kwarteng himself had spoken to some 25 MPs in recent days to reassure them that his tax cuts can fix the economy, and on Monday told the BBC that the abolition of the 45% rate “was drowning out the elements of an excellent plan.”

He told LBC radio that he takes “full responsibility” for the measures he’d announced, and said he’d “had to take on board what people were saying.”