Paul Johnson, director of the Institue of Fiscal Studies, said the U-turn did not address the issue of ‘fiscal sustainability’.
On Twitter he said, ‘From a fiscal point of view important to remember cut to 45p rate was just about smallest part of the "mini budget". What was a £45bn tax cutting package is now a £43bn package. This U turn has, in itself, essentially no effect on fiscal sustainability.’
In a statement the IFS said, ‘The direct impact of the government's U-turn on the abolition of the additional 45p rate of income tax is of limited fiscal significance. At a medium-run cost of around £2 billion a year, it represented only a small fraction of the Chancellor's mini-Budget announcements. His £45 billion package of tax cuts has now become a £43 billion package - a rounding error in the context of the public finances.’
Shadow chancellor Rachel Reeves tweeted, ‘The PM has been forced to abandon her unfunded tax cut for the richest 1 per cent. But it comes too late for the families who will pay higher mortgages and higher prices for years. The Tories have destroyed their economic credibility and damaged trust in the British economy.’
Reeves added, ‘They need to reverse their whole economic, discredited trickle down strategy. Their kamikaze Budget needs reversing now. As the party of fiscal responsibility and social justice, it will come to the Labour Party to repair the damage this Tory government has done.’
Anti-poverty campaigners are also concerned that no decision has been made yet about increasing benefits to keep up with inflation, a promised made by Boris Johnson's Government.
Liz Truss has refused to say whether the Government will uprate benefits in line with inflation, which the then-Chancellor Rishi Sunak had agreed to do in an announcement to the House of Commons in May.
The Child Poverty Action Group tweeted, ‘Kids are already going hungry as costs soar. Unless benefits are uprated w/ inflation, they will also become the casualties of a collapsing economy. Struggling families will not forgive a Chancellor who comes to them for efficiency savings when their cupboards are already bare.’
CPAG Scotland said, ‘Failing to uprate benefits in line with inflation would be absolutely scandalous. It would be unforgivable if the hardest up children and families had to pay the price for the Chancellor's irresponsible tax cuts.’
Less than 24 hours before the Chancellor’s U-turn, the prime minister had insisted she was committed to abolishing the 45p tax rate, announced in the mini-budget.
This was despite the fact that the tax cuts announced in the mini-budget 10 days ago led to the pound falling to its lowest level against the dollar in 37 years, Government borrowing rising, and the withdrawal of more than 1,000 mortgage products.
Interviewed by the BBC’s Laura Kuenssberg on Sunday morning, Truss said she stood by the decision to axe the 45p top rate of tax for the wealthiest, but appeared to distance herself from it by saying it had not been discussed in cabinet, and the decision had been the Chancellor’s.
However, the Government made a dramatic U-turn in an early morning tweet on Monday, with Kwarteng saying he would not be going ahead with scrapping the 45p tax rate.
He tweeted, ‘We get it, and we have listened.’
The chancellor said the decision to cut tax for people on incomes of £150,000 or more ‘has become a distraction from our overriding mission to tackle the challenges facing our country’.
He added, ‘As a result, I’m announcing we are not proceeding with the abolition of the 45p tax rate.’
