LONDON — Facing a mutiny of Conservative Party lawmakers, Prime Minister Liz Truss of Britain on Monday reversed plans to abolish the top income tax rate of 45 percent on high earners, a humiliating about-face that leaves her supply-side economic agenda in tatters and her grip on power uncertain.
The sudden announcement, made as party members gathered for their annual conference in the city of Birmingham, deepened the disarray around a prime minister, in office barely a month, who had made cutting taxes the centerpiece of her successful campaign to replace Boris Johnson as the Conservatives’ leader.
Ms. Truss’s economic proposals, announced 10 days ago, had already roiled financial markets, sending the British pound into a tailspin and leading the Bank of England to intervene to prop up some British government bonds.
Now, Ms. Truss has been forced to act to avert a wholesale rebellion by her own lawmakers in Parliament. Several had signaled in recent days that they would vote against the tax cut, and senior party members predicted that the government would fail to get the measure through the House of Commons.
“We get it, and we have listened,” Kwasi Kwarteng, the chancellor of the Exchequer, posted on Twitter on Monday, hours before he was to address the annual party conference.
Later, a chastened Mr. Kwarteng told the BBC that the cut in the top tax rate had become a “massive distraction” from the rest of the government’s economic agenda. He said he had raised the idea of reversing course with Ms. Truss on Sunday after seeing the “intense focus” of lawmakers on the measure.
The reversal will lift one cloud hanging over Britain’s public finances. The value of the pound plummeted when Mr. Kwarteng unexpectedly announced on Sept. 23 that the government would abolish the income tax rate of 45 percent applied to those earning more than 150,000 pounds, or about $164,000, a year.
Rising Inflation in Britain
Ms. Truss had telegraphed plans to lower other taxes in the government’s package during her campaign for the party leadership over the summer. Those included cuts to the basic rate for lower earners, a cut in taxes on house purchases, and a decision not to raise corporate taxes.
But abolishing the top rate was a surprise and immediately became a political liability, drawing criticism as a giveaway to the wealthy at a time when millions of Britons are dealing with a cost-of-living crisis.
Fears that the government would have to borrow massively to pay for the cuts sent the pound to its lowest level against the dollar since 1985. Other British assets were also pummeled, leading the Bank of England to intervene in the markets last week to shore up faltering government bonds.
On Monday, the pound briefly rebounded against the dollar, trading at $1.124 on Monday morning, up about 1 percent. But it gave up much of those gains later, as economists pointed out that the tax break for high earners accounted for just £2 billion of the £43 billion in total tax cuts proposed by the government.
Ms. Truss and Mr. Kwarteng had remained defiant in the face of the market turmoil, arguing that the tax cuts were the centerpiece of a supply-side plan to reignite Britain’s economy. But on Sunday, Ms. Truss conceded for the first time that the government had not laid the proper groundwork for the tax cuts.
Speaking to the BBC journalist Laura Kuenssberg, Ms. Truss said that the impetus for the abolition of the top tax rate came from Mr. Kwarteng and that it had not been debated by the entire cabinet. That was widely interpreted as an attempt to distance herself from the most divisive element of the economic plan.
Michael Gove, an influential former Tory cabinet minister, harshly criticized the government on Sunday, saying it was “not Conservative” to pass unfunded tax cuts, meaning they would necessitate substantial new borrowing.
The government is already promising to pay tens of billions of pounds to protect people from surging gas and electricity bills this winter because of the disruptions caused by Russia’s war in Ukraine.
“I think there is an inadequate realization at the top of government about the scale of the change required,” Mr. Gove said to Ms. Kuenssberg. He strongly suggested that he would vote against the measure.
Another former Tory minister, Grant Shapps, said the tax cut was likely not to pass in the House of Commons, and urged Ms. Truss to reverse course. Mr. Shapps, who served as transport minister in the government of Mr. Johnson, told the BBC that the government was muddying the water with “tax cuts for wealthy people right now, when the priority needs to be on everyday households.”
But the reversal leaves Ms. Truss’s month-old government in flux, with a rebellious and newly empowered band of lawmakers in Parliament. Cutting taxes was the prime minister’s signature economic proposal; reversing course so quickly on part of her plan will raise doubts about her leadership.
“The savings are more or less meaningless from the perspective of debt sustainability,” said Mujtaba Rahman, an analyst with the risk management consultancy Eurasia Group. “And the politics now just got a lot harder.”
It will also raise questions about the future of Mr. Kwarteng, the chancellor, who pushed for the cut to the top tax rate. He is a close ally of Ms. Truss, both having long championed tax cuts, deregulation and other free-market policies as ways to lift Britain out of a long stretch of sluggish economic growth.
Speaking to the BBC Breakfast program after the announcement, Mr. Kwarteng said he had no plans to resign.
