The U-turn on the abolition of the 45p tax rate marks the end of the first phase of the Truss premiership. Truss came in declaring that she was prepared to do ‘unpopular’ things, that she was going to smash through the consensus and put economics ahead of political optics. Her retreat on 45p signals the end of that period of government. She has retreated under sustained political criticism of, to use Grant Shapps’s phrase, the ‘tin eared’ nature of the cut. She has bowed to the optics.
Now, the U-turn was better than the alternative: a rapidly growing rebellion. It was clear when Jake Berry’s threat to take the whip away from those who opposed the cut emboldened its Tory opponents, rather than cowing them that a U-turn would be necessary. But having U-turned on this, it will be more difficult for Truss to hold the line on other controversial measures she wants to introduce – think planning reform and immigration liberalisation.
The other question is whether the abandonment of the 45p cut is enough for the markets. Will the cost of government borrowing now stabilise? Or will gilts spike again when the Bank of England ends its intervention on 14 October? I suspect that despite what Kwasi Kwarteng said this morning, the government will still have to bring forward the announcement of its fiscal strategy currently scheduled for 23 November.
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