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Chancellor U-turns on plans to scrap 45p tax rate

Chancellor Kwasi Kwarteng has confirmed that the government has U-turned on its plans to scrap the 45p rate of income tax

Kwarteng announced the U-turn on Twitter, declaring: ‘We are not proceeding with the abolition of the 45p tax rate. We get it, and we have listened.

‘It is clear that the abolition of the 45p tax rate has become a distraction from our overriding mission to tackle the challenges facing our country.

'This will allow us to focus on delivering the major parts of our growth package', including the Energy Price Guarantee, 'to support households and businesses with their energy bills'.

The plan was announced in the tax-slashing mini-budget last Friday, which included scrapping the 45p tax rate, which would cut tax by 5% to 40% for those earning over £150,000 a year.

However, the plan has since been criticised as unfair amid the current cost-of-living crisis and required a vote before it could be approved.

Several Tory MPs have voiced their criticisms of the plan, including Grant Shapps who warned that the prime minister would likely lose a Commons vote on the proposal.

Shapps told the BBC: ‘Let's not muddy the water with tax cuts for wealthy people right now, when the priority needs to be on everyday households.'

The news follows as the tax cuts in the mini budget was criticised by the International Monetary Fund (IMF) on Friday, which warned it would stoke ‘inequality’ and risked increasing interest rates, as well as benefitting high income earners.

The Bank of England also reacted with a £65bn emergency intervention in temporary and targeted purchases in the gilt market to restore 'orderly market conditions' and prevent a 'material risk' to UK financial stability.

The pound jumped against the dollar in overnight trading on Monday as reports emerged that the government would abandon the decision to axe the 45p tax rate.

Sterling hit $1.125, recovering to levels before the mini budget, but slumped back in early morning trading to $1.119.

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