Expectations of imminent Truss U-turn on corporation tax

Rebuke for Kwasi Kwarteng’s budget from IMF boss in New York

(AFP/Getty)

Liz Truss was today accused of leading the government into “utter chaos” as rumours swirled around Westminster of a further U-turn on her mini-Budget package – with a backtrack on corporation tax looking increasingly likely.

The prime minister last month cancelled a planned rise in the tax on company profits from 19p to 25p, but reports in The Sun and newswire Bloomberg today suggested this could be fully or partially ditched in response to intense pressure from markets and angry Conservative MPs.

The reports followed The Independent’s revelation earlier this week that officials at 10 Downing Street were going through chancellor Kwasi Kwarteng’s package looking for possible climbdowns to restore financial stability.

But asked during an interview in New York whether he was going to U-turn on big measures in the mini-Budget, Mr Kwarteng replied: “Our position hasn’t changed. I will come up with a medium-term fiscal plan on 31 October, as I said earlier in the week, and there’ll be more detail then.”

In comments which fell short of a denial that changes to his package were being considered in London, Mr Kwarteng said: “I speak to the prime minister all the time and we are totally focused on delivering the growth plan.”

Challenged over whether he would still be in post in a month’s time, a defiant chancellor replied: “Absolutely, 100 per cent. I’m not going anywhere.”

It came after IMF president Kristalina Georgieva issued a barely-veiled rebuke to the Truss government for allowing its tax-and-spend policies to run counter to the Bank of England’s efforts to use monetary policy to rein in inflation.

“At this time, fiscal policy shouldn’t undermine monetary policy, because if it does then the task of monetary policy becomes only harder and it translates into the necessity for even further increase of rates and tightening fiscal conditions,” said Ms Georgieva.

Speaking at an IMF/World Bank summit in New York also attended by Mr Kwarteng, Ms Georgieva made clear she supported U-turns to stabilise the economy: “Don’t prolong the pain..  It is correct to be led by evidence, if the evidence is that it has to be a recalibration it is right for governments to do so."

The Sun quoted a Downing Street source as saying a rise in corporation tax was “on the table”, though it may not bring the levy all the way up to the 25p rate planned by former chancellor Rishi Sunak for 2023.

And Bloomberg said that officials were looking at a possible U-turn on corporation tax, but that no decision would be made until Mr Kwarteng’s return from New York.

But senior sources at No 10 insisted that the position was unchanged from a briefing this morning, when Ms Truss’s official spokesperson denied that further U-turns were on the way, telling reporters: “The position hasn’t changed.”

Asked whether the prime minister can “promise that there will be no more U-turns on the Budget?” He replied: “Yes.”

At prime minister’s questions on Wednesday, Truss ruled out any corporation tax hike, telling MPs: “I feel it would be wrong at a time when we are trying to attract investment into our country at a time of global crisis to be raising taxes”.

Ditching Mr Sunak’s planned hike in the levy on corporate profits was the largest single item in Mr Kwarteng’s “growth plan”, with an annual cost of £18.7bn dwarfing the £2bn saved by reversing his decision to scap the 45p income tax rate for the highest earners.

Independent economists at the Institute for Fiscal Studies calculate that Mr Kwarteng must find tax rises or spending cuts totalling £62bn in order to have debt falling as a proportion of GDP by 2026/27.

But his room for manoeuvre was limited on Wednesday when Ms Truss said there would be no spending cuts. Her official spokesperson today clarified that her pledge was that overall spending would “continue to rise in real terms”, taking into account inflation as measured by the GDP deflator.

Conservative former chancellor George Osborne said the government should not wait for Mr Kwarteng’s Halloween medium-term fiscal plan to announce a U-turn.

“Given the pain being caused to the real economy by the financial turbulence, it’s not clear why it is in anyone’s interests to wait 18 more days before the inevitable U-turn on the mini-Budget,” tweeted Mr Osborne.

Responding to reports of an imminent U-turn, shadow chancellor Rachel Reeves said: “Today’s mess shows the utter chaos this government is in. This is a crisis made in Downing Street and working people are paying the price.

“Labour has said repeatedly that they need to reverse the kamikaze budget and restore confidence.

“This is now urgent as the Bank of England’s intervention in the markets ends tomorrow. The Tories cannot allow the chaos caused by their mini-budget to continue any longer.”

And Liberal Democrat leader Sir Ed Davey said Kwarteng should be sacked.

“This U-turn would come too late for many struggling families facing mortgage misery,” said Sir Ed.

“The only way to restore credibility is for Kwasi Kwarteng to resign or be sacked. This chancellor has done enough damage and needs to go.

“His botched Budget then needs to be scrapped altogether and replaced with a fair and responsible plan, including emergency support for mortgage borrowers bearing the brunt of this Conservative chaos.”