Markets and MPs will need more than a tax U-turn from Truss

The government's surrender on its plans to abolish the 45p higher tax rate was inevitable. The retreat doesn't signal a recognition of the economic realities.

It was clear to Liz and Kwarteng that they wouldn't be able to prevent a parliamentary revolt on the issue, and that it would make other difficult measures harder to get through. Jake Berry's threat to remove the whips from any rebels had no effect on the rebellion.

She acknowledged only communication errors as recently as Sunday morning. The resolve was weakened by the evening.

They didn't have the strength to fight this one out. The backlash was getting bigger. The leadership decided that it was better to kill the issue now rather than have it undermine everything they are trying to achieve. The hope is that the restive MPs will support the government.

The big question is whether the damage can be repaired. This error is hard to overstate. The reputation for competence is no longer important. The markets were spooked by the tax cuts in the mini Budget. The consequences were higher mortgage rates.

Damage to the prime minister's authority is important to her. One strategist says that first impressions are hard to change. Instead of enjoying a political honeymoon or the benefits of a large energy bill, she has seen her party's poll ratings decline.

It will be blamed for giving attack lines to Labour. The removal of the top mandarin at the Treasury will play into a narrative of a leadership unwilling to listen to alternative views. The energy package was the only thing that needed to be rushed. The other measures could have been announced a bit earlier. Don't act in haste or you'll end up regretting it.

The impact is being defined by the fact that most of the Conservative MPs didn't back the leader. The benefit of the doubt is usually given to a new leader. They forfeited that. There was already a significant number of MPs who were not in line with her policies. She told Shapps that there was no room at the inn because he had backed the wrong horse.

The fear of their seats will make corraling them much harder. She tried to put some distance between herself and the chancellor, and her cabinet colleagues noticed. Political mistakes are difficult to justify, but the retreat is small enough for Kwarteng to survive. His budget caused a crash in the pound and raised the cost of government borrowing.

One thing that may save Kwarteng is that none of her MPs think she was not the co-author of the Budget. She will not be strengthened by removing him. He is a lightning conductor if he is in place.

Voters don't usually punish U-turns, but this one shines a spotlight on errors of economic policy that will affect them in the long run. Conservative MPs may be temporarily pacified, but they will still face opposition. They don't have a reason to trust the prime minister.

The best hope for Kwarteng is a reset, but this will require continued humility and a readiness to listen, which has not been a hallmark of her leadership. Unless they can point to an upturn in the economy, they won't be as radical as they wanted. There will be more visible work with the OBR. Even though she can change, she still sees the issue as a political mis-step rather than an error of economic policy. Markets and MPs want to see proof that she understands that the mistakes were caused by more than just communication.

The economic concerns about unfunded tax cuts are not going to be alleviated by this. This retreat is small in comparison to the overall package. The damage was huge.

Robert.shrimsley@ft.