The pound has climbed after the chancellor reversed his controversial decision to scrap the top rate of tax.

Sterling gained more than 1% to $1.1284 before falling back slightly while government borrowing costs edged lower.

Tory MPs had threatened to vote against Kwasi Kwarteng’s plan, saying it was unfair when living costs were so high.

The U-turn may ease market nerves, said the Institute for Fiscal Studies, but unease remains over how a remaining £43bn of tax cuts will be funded.

“The difference this makes really is trivial,” said Paul Johnson, director of the IFS think tank.

The chancellor pledged to abolish the 45p rate of tax, which is paid by people who earn more than £150,000 a year.

Getting rid of the rate would have cost the Treasury around £2bn out of the £45bn worth of tax cuts Mr Kwarteng announced in his so-called “mini-budget”.

“This was, if anything, possibly the smallest measure from a fiscal point of view, if not a political point of view, in the mini-budget,” said Mr Johnson.

“It is about 5% of the tax cuts.”