A government plan to cut a tax for top earners which sent markets into turmoil and risked a rebellion in Parliament has been axed, UK Finance Minister Kwasi Kwarteng said on Monday.
Prime Minister Liz Truss came into power less than one month ago, but her government has come under heavy fire for a plan to reduce taxes for the most wealthy in the midst of a cost-of-living crisis.
Following warnings from top lawmakers in her Conservative Party that the proposed "mini-budget" would not make it through Parliament, Truss and her finance minister backed down.
"We get it, and we have listened," Kwarteng said on the second day of the annual Conservative conference.
In light of the government U-turn, the pound returned to its pre-announcement value of around $1.12.
Dashed hopes for 'Trussonomics'
Truss's government had hoped for a running start with a series of budget policies that they believed would boost growth.
This had included a plan to do away with a 45% income tax on any earnings above £150,000 ($167,000) a year, announced on September 23.
The £45 billion tax-cut stimulus package would have been funded by government borrowing.
The resulting plunge of the pound led the independent Bank of England to intervene to prop up the flailing bond market. Fears over further interest rate hikes also caused turmoil in the housing market.
The announced budget had sparked widespread anger, including from Conservative lawmakers who feared the unpopular tax cut could see them lose their seats in Parliament.
Truss and Kwarteng had argued that the tax cut would trigger investment and growth which would eventually result in even great tax revenues, but also admitted that social spending would have to be cut.