Truss, and her finance minister Kwasi Kwarteng, announced a new "growth plan" on September 23 that would cut taxes and regulation, funded by vast government borrowing to snap the economy out of years of stagnant growth.
But the plan triggered a crisis of confidence in the government, hammering the value of the pound and government bond prices and jolting global markets to such an extent that the Bank of England had to intervene with a £65 billion ($NZ128 billion) programme to shore up the markets.
While the removal of the top rate of tax only made up around £2 billion out of a £45 billion tax-cutting plan, it was the most eye-catching element of a fiscal package that was to be funded by government borrowing, with Kwarteng not explaining how it would be paid for in the long-term.
Just hours after Truss went on BBC television to defend the policy, Kwarteng released a statement saying he accepted it had become a distraction from wider efforts to help households through a difficult winter.
"As a result, I'm announcing we are not proceeding with the abolition of the 45p tax rate. We get it, and we have listened," he said in the statement.
"It is clear that the abolition of the 45p tax rate has become a distraction from our overriding mission to tackle the challenges facing our country," Kwarteng said in a statement.
"As a result, I'm announcing we are not proceeding with the abolition of the 45p tax rate. We get it, and we have listened."
The decision to reverse course is likely to put Truss and Kwarteng under huge pressure, less than four weeks after they came to power. Britain has had four Prime Ministers in the last six politically turbulent years.
Kwarteng said he had not considered resigning.
"The 45p rate was simply a distraction on what was a very, very strong set of measures," he told BBC television, adding that the U-turn decision had been taken by himself and Truss.
MISTAKEN POLICY
Truss, Britain's 47-year-old former foreign minister who took office on September 6 after winning a leadership contest among Conservative Party members, and not the country, admitted on Sunday that she should have done more to "lay the ground" for the policy.
She has also not denied that it would require spending cuts for public services and on Sunday refused to commit to increasing welfare benefits in line with inflation - a toxic combination that would be seized on by opposition parties.
"From a markets perspective, it is a good step in the right direction. It will take time for markets to buy the message but it should ease the pressure," said Jan Von Gerich, chief analyst at Nordea.
The pound has clawed back its losses against the U.S. dollar since Kwarteng delivered the mini-budget. It traded up 0.8% on Monday before slipping back as Kwarteng spoke to the BBC.
Government bond yields also remain sharply higher, underscoring the concern among investors about the economy's direction under Britain's new government.
Several senior lawmakers in the Conservative Party had come out publicly against the policy, saying cutting government spending and hiking borrowing to fund tax cuts for the richest was politically risky during a cost-of-living crisis.
One Conservative lawmaker who asked not to be named said the reversal was inevitable. "More structure, clearly, is needed in decision-making," he said.
The opposition Labour Party said the government had destroyed its economic credibility and damaged trust in the British economy.
"This is not over - it's not just some distraction," Labour's finance spokesperson Rachel Reeves said in a statement.
"They need to reverse their whole economic, discredited trickle down strategy."
