Chancellor Kwasi Kwarteng has confirmed that the government is axing plans to give the wealthiest 1% a tax cut following a bitter backlash from Tory MPs.
Mr Kwarteng said in a tweet that the measure had become a “distraction” from his objection to grow the economy.
He said: “We get it, we have listened.”
Politics live: Major U-turn after prominent Tories speak out
The 45p income tax cut policy was one of a series that prompted turmoil in the markets over the past week, with the pound reaching record lows against the dollar.
The plan was announced in the mini-budget, but would have had to go to a vote before it could be approved.
On Sunday, the Conservative Party said any Tory MP who voted against the mini-budget would have the whip removed (meaning they would be suspended).
However, former cabinet members Grant Shapps and Michael Gove spoke out against the policy and indicated they would vote against it.
Prime Minister Liz Truss was expected to delay the vote to buy herself some time amid a growing backbench rebellion.
It is understood the decision to back down altogether was made overnight.
Sky News’ political editor Beth Rigby said it was a “massive U-turn”.
She said: “Rebellion was brewing and the government clearly decided they need to stop this row and try to stop it quickly.”
The value of the pound has gone up against the dollar following the news.
Grant Shapps, who wrote a piece in The Times last night criticising the axing of the 45p rate, was among the first to respond to the reversal.
Mr Shapps said: “Strongly welcome today’s 45p tax reversal.
“Sensible and pragmatic.
“Conservatives want lower tax, but let’s show our energy price cap and other policies are on side of consumers rather than borrowing to cut high earner taxes first.”