Kwasi Kwarteng has scrapped his plan to abolish the 45p tax rate for the highest earners.
He was forced to perform the huge U-turn following a major backlash by Tory MPs.
The humiliating climbdown came despite Kwarteng being due to tell the Tory conference that the government must “stay the course” on its economic growth plan later today.
Kwarteng said: “From supporting British business to lowering the tax burden for the lowest paid, our growth plan sets out a new approach to build a more prosperous economy.
“However it’s clear the abolition of the 45p tax rate has become a distraction from our over-riding mission to tackle the challenges facing our country.
“As a result I’ve announced we are not proceeding with the abolition of the 45p tax rate. We get it and we have listened. This will allow us to focus on delivering the major parts of our growth package.”
Just hours before the government’s screeching U-turn prime minister Liz Truss had been defending tax cuts at a party.
“We’ve also announced a package of tax cuts and supply side reforms to turbocharge our economy,” she told a bash at around 10.30pm.
Earlier in the day she had insisted that 45p tax rate - which is paid by those earning more than £150,000 a year - would be abolished.
However, she appeared to distance herself from the controversial policy by stressing that it had been Kwarteng’s decision.
The tax cut was the centrepiece of Kwarteng’s mini-budget, which he delivered just 10 days ago.
He also announced he was scrapping the rise in national insurance, cutting stamp duty, and cancelling a planned rise in corporation tax in a £45 billion giveaway paid for by adding £70 billion to the national debt.
However, the statement sparked economic chaos, with the value of the pound plummeting and the cost of government borrowing soaring.
More than a dozen Tory MPs had gone public with their opposition to the tax cut for the richest, which comes in the middle of a cost of living crisis and with the prospect of fresh cuts to public spending.
Former cabinet minister Michael Gove had threatened to vote against it if it had come to parliament, despite warnings from party chairman Jake Berry that any MP doing so would lose the Tory whip.
Responding to the U-turn, shadow chancellor Rachel Reeves said the Tories “have destroyed their economic credibility and damaged trust in the British economy”.
She 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.”
Lib Dem leader Ed Davey said: “This humiliating U-turn comes too late for the millions seeing their mortgage rates soar because of this botched budget. ”
