Prime minister Liz Truss has reinstated the increase to corporation tax in a bid to stablise the economy and reassure investors, following weeks of market turmoil.
In a short speech announcing the U-turn this afternoon (14 October), Truss said keeping the previous government’s planned increase to corporation tax would raise £18bn per year, which would act as a “down-payment on our full medium-term fiscal plan”, which is to be revealed on 31 October.
She said she was committed to delivering a low tax, high wage, high growth economy, but acknowledged that the UK needed stability.
“It is clear that parts of our mini budget went further and faster than markets were expecting,” she said. “So the way we are delivering our mission right now has to change.”
She also announced the appointment of Jeremy Hunt as chancellor of the exchequer, following the resignation of Kwasi Kwarteng earlier today.
Government and economics
“[Hunt] will drive our mission to go for growth, including taking forward the supply side reforms that our country needs,” Truss said.
“We owe it to the next generation to improve our economic performance to deliver higher wages, new jobs and better public services, and to ease the burden of debt.”
The corporation tax U-turn was widely welcomed by organisations representing employers and workers.
CBI director-general Tony Danker said: “The instability of recent weeks has paused investment and hit livelihoods, so it was important today that the government responded to those market concerns. In the weeks to come, government plans will need to continue to restore fiscal credibility to give markets and business confidence to invest.
“Once stability is restored, we must plan for economic growth from 2023. That will be the moment to set out a new long-term tax regime that will kickstart business investment and ensure the UK is competitive in a changing world.”
However, some have suggested it has thrown the economy into further instability.
TUC general secretary Frances O’Grady said: “The Conservatives’ kamikaze budget has already cost millions of people dear. Today’s U-turn will not help families already hit by higher mortgages and higher prices. And sacking the chancellor for implementing the prime minister’s plans is not the total change of direction we need.
“Working people will remember the chaos and worry of these last few weeks. This government’s first priority was tax cuts for the wealthy and big business and removing the cap on bankers’ bonuses. You can’t trust the Tories with the nation’s finances.
“We need a government that will do the right thing – starting with getting wages rising, getting more money into the pockets of working families and protecting our public services. That’s how we stop the coming recession and protect families in this cost-of-living emergency.”
Seb Maley, CEO at tax and IR35 insurance consultancy Qdos, said: “The government doesn’t seem to know which way to turn. Having rowed back on its pledge to scrap the corporation tax rise, the government would be unwise to do the same regarding IR35 reform.
“One of the few things Liz Truss and the now ex-chancellor, Kwasi Kwarteng, have got right is the decision to repeal IR35 reform. Backtracking on a promise to scrap these changes would ultimately cause more financial problems than it would solve.”
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There has been nothing so far to suggest that plans to repeal IR35 reforms will be scrapped.
