Liz Truss Bows to Pressure With Corporation Tax U-turn On the Table – Liz Truss has agreed to redraw her mini-budget in response to severe pressure from Conservative MPs and the markets, setting the way for a big U-turn on her signature corporation tax cut. In yet another serious blow to her authority as prime minister, government sources said that a pullback from the plan to scrap the corporation tax increase was now “on the table.”
Downing Street officials and ministers are now attempting to balance the books after releasing a massive package of unfunded tax cuts. Kwasi Kwarteng, who was in Washington for an IMF conference, was compelled to deny his job as chancellor was in jeopardy, stating he was “absolutely, 100%” confident he would still be in office next month despite a brewing Tory rebellion.
When asked by the Daily Telegraph if people should expect a change in company tax policy, he said, “Let’s see.” Treasury officials downplayed the relevance of this wording. Insiders in Downing Street said there would be no “imminent” U-turn on major components of the mini-budget. However, many Conservative MPs believe that delaying a declaration until the next fiscal event on October 31 would be politically detrimental.
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Backing down from her plan to scrap the corporation tax hike, while potentially calming the markets, would be a U-turn of “Black Wednesday” proportions that could fatally undermine Truss’s premiership as it was a central pledge of her leadership campaign.
Both UK government bonds and the pound rose significantly on Thursday, owing in part to the Bank of England’s continuing bond purchases, but also to speculation about a reversal of anticipated corporation and dividend tax cuts. On another frosty day in Westminster, government sources told the Guardian that No. 10 officials, rather than Treasury counterparts, were assessing the mini-budget as part of the prime minister’s efforts to balance the books.
According to one No. 10 source, officials, ministers, and advisers informed the prime minister on how they thought she should rework the mini-budget, but she had not yet made up her mind. “Given the pain being caused to the real economy by financial instability, it’s not clear why it’s in anyone’s interests to wait 18 more days until the inevitable U-turn on the mini-budget,” Tory former chancellor George Osborne tweeted.
Truss has consistently stated that he will cancel previous chancellor Rishi Sunak’s plans to raise corporation tax from 19% to 25%. According to sources, a potential climbdown may involve raising it by only one or two percentage points, rather than the entire 6%.
While rumours about a U-turn grew in Whitehall, Kwarteng stated that the mini-budget will not be changed despite conversations in No 10. “Our position hasn’t changed, he said in an interview in Washington, where he was on his first visit to the IMF as chancellor. On October 31, I will present the medium-term fiscal plan. There will be additional information then.”
The chancellor acknowledged “some turbulence” in the markets but avoided queries about the government’s plans to freeze corporation tax. He said: “My total focus is on delivering on the mini-budget and making sure we get growth back into the economy. I speak to Number 10. I speak to the prime minister all the time. We are totally focused on delivering the growth plan.”
Earlier on Thursday morning, despite pressure from Tory MPs, No. 10 ruled out further modifications to the mini-budget, with the prime minister’s official spokesperson declaring “the position has not changed.” While some Conservatives plotted how to depose Truss, foreign secretary James Cleverly warned that doing so would worsen the situation. “I think that changing the leadership would be a disastrously bad idea, not just politically but also economically,” he told the BBC.
Truss ruled out hiking company taxes during prime minister’s questions on Wednesday, telling MPs, “I feel it would be wrong at a time when we are seeking to attract investment into our country in a time of global crisis to be raising taxes.” The government has already backtracked on a vow to eliminate the 45p top rate of income tax, throwing a major blow to Truss’s authority and leaving her leadership weakened, with mutinous MPs warning she must shift direction or face impeachment.
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The IMF welcomed reports of a U-turn on Kwarteng’s mini-budget after publicly criticizing the unfunded tax cuts proposed last month. The IMF’s managing director, Kristalina Georgieva, stated, “It is correct to be led by the evidence, so if the evidence is that there has to be a recalibration it is right for governments to do so. We discussed the importance of policy coherence and communicating clearly so in these jittery times there are no reasons for even more jitters.”
