Corporation tax: Liz Truss confirms major mini budget U-turn - how much will tax rise by and what has PM said?

Prime Minister Liz Truss has made a major U-turn by scrapping plans to cancel the corporation tax increase.

The news comes mere hours after Kwasi Kwarteng was sacked as Chancellor of the Exchequer, following a “catastrophic” mini budget which plunged the country into economic chaos. He cut short his trip to the International Monetary Fund in Washington to return early to the UK for crisis talks at Number 10 Downing Street.

Pressure for a U-turn has been piled on the Prime Minister in the last few days, with her own MPs launching something of a mutiny and urging her to abandon her tax-slashing agenda. The Institute for Fiscal Studies added to the criticism, warning it would not be possible for the government to deliver the Chancellor’s tax cuts without £62 billion worth of cuts to public services. Only public spending cuts, or a reversal of some of the fiscal proposals, would help stabilise national debt.

Meanwhile, Tory MPs discussed the prospect of ousting their leader if she did not succeed at reassuring the financial markets. Truss has now confirmed the widely-speculated U-turn.

While the Prime Minister told a press conference at Downing Street that her “mission” to deliver a “low tax, high wage, high growth economy” remains, she admitted the government‘s mini budget had gone “further and faster than expected.” She said therefore “we need to act now to reassure the markets of our fiscal discipline.”

On September 23, Kwarteng announced that a planned increase in corporation tax on big business profits, which in April 2023 was due to rise from 19% to 25%, had been scrapped - at a cost of £19 billion. He said at the time: “This will plough almost £19 billion a year back into the economy. That’s £19 billion for businesses to reinvest, create jobs, raise wages, or pay the dividends that support our pensions.”

This is no longer the case, and the tax will soon rise to 25% as initially organised by former Chancellor Rishi Sunak. Commentators have said the government was left with no choice but to axe the plans, with the pound - which earlier this month hit a record low against the dollar - responding positively to rumours that the corporation tax hike would go ahead.

There is no confirmation yet on whether or not other measures announced in the mini budget will be reversed, but it is likely this will be the case. Truss previously U-turned on plans to scrap the top rate of income tax for the highest earners, with ousted Chancellor Kwarteng saying their desire to axe the 45% rate on earnings over £150,000 - which would be paid for by borrowing - had become a “distraction” amidst widespread criticism.