Prime Minister Liz Truss has announced that corporation tax will rise to 25% next year, a U-turn on former chancellor Kwasi Kwarteng’s announcement in his mini-budget last month.
The government previously pledged to keep corporation tax at 19%, reversing then-Chancellor Rishi Sunak’s plan to increase corporation tax to 25% earlier this year.
Speaking during a new conference today, Truss admitted that "parts of our mini budget went further and faster than markets were expecting" and that "spending will grow less rapidly than previously planned".
She added that the government's "mission had to change" and that they were prepared to "act now to reassure markets".
Truss said that keeping the increase in corporation tax planned by the previous government would raise £18bn per year and "act as a downpayment" for the fiscal plan due later this month, accompanied by a growth forecast from the OBR.
Earlier today, Kwasi Kwarteng was sacked as chancellor after growing criticism of the measures announced in the budget. He has since been replaced by former health and foreign secretary Jeremy Hunt.
John O’Connell, chief executive of the TaxPayers' Alliance, said: "Taxpayers will be bitterly disappointed to see commitments to lower the 70 year high tax burden have been ditched.
“With a Tory tax rise back on the cards and their fiscal plans in chaos, this government’s u-turns risk extending the misery of a high-tax, high-spend, low growth economy for years to come.
“We have to live within our means, so sensible spending restraint supporting a balanced plan for easing the tax burden is the only path to prosperity.”
deVere Group CEO, Nigel Green, commented: “After sacking Kwarteng, the Prime Minister used an unscheduled press conference to announce that corporation tax will rise to 25% this spring.
"The embarrassing U-turn means she is abandoning one of the flagship promises from her recent leadership campaign.
“The scrapping of her plan sees her revert to the commitment of Rishi Sunak, her campaign rival.
“The sacking of Kwarteng and the humiliating climb down on corporation tax will not be enough to calm markets and restore investor confidence in UK plc.
“Truss’s previous scrapping of plans, set out in the recent reckless mini-Budget, to axe the 45p tax rate wasn’t enough to reassure febrile markets as we have seen. And this latest U-turn will not be either.
“There’s likely to be a brief relief rally in financial markets, but it will not be sustained.
“Why? Because it all smacks of incompetence. There will remain an underlying lack of confidence. After all, Kwarteng was merely the mouthpiece for Truss's economic agenda.
“He was simply implementing the promises made for weeks by Liz Truss who has the lowest level of satisfaction with the public ever recorded for a British Prime Minister.
“In addition, the Bank of England has been forced to take drastic action to calm markets and the IMF, amongst many others, has weighed in hard against the government’s economic plans.
“This whole sorry debacle has blown a massive hole in investors’ trust in the UK.
“Besides a possible nominal relief rally, I am not convinced the sacrificing of Kwarteng and the latest U-turn on corporation tax will do much to restore investor confidence. The markets will reflect this. It’s too little, too late.”
