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The decision to abandon plans to scrap the 45% top rate of income tax paid by those earning more than £150,000 is a humiliating U-turn for the UK government, but the alternative was even worse. Economically, it was unavoidable.
A week of turmoil in the financial markets showed just how badly the mini-budget from the chancellor, Kwasi Kwarteng, had gone down with international investors. The pound fell, the cost of government borrowing rose, mortgage products were pulled.
Liz Truss’s government has made faster growth its central mission but the mini-budget was threatening to deliver the opposite to what the new prime minister had wanted: a brutal squeeze on activity caused by dearer imports and higher interest rates.
In itself, scrapping the top rate of tax was relatively small beer. Britain is a £2tn-plus economy and the cost of abolishing the 45% rate is estimated to be about £2bn a year.
