Liz Truss may raise corporation tax in further mini-budget U-turn

 

Liz Truss may raise corporation tax in further mini-budget U-turn

 

Speculation that reversal on leadership campaign pledge risks split with her chancellor, Kwasi Kwarteng

 

Liz Truss made the promise to cancel the corporation tax rise a central plank of her leadership campaign.

 

Pippa Crerar and Larry Elliott in Washington

Thu 13 Oct 2022 15.43 BST

https://www.theguardian.com/politics/2022/oct/13/liz-truss-may-raise-corporation-tax-in-further-budget-u-turn

 

Liz Truss is on the brink of putting up corporation tax as part of a Downing Street plan to back down from the huge package of unfunded tax cuts in her mini-budget, sources claim.

 

However, the chancellor, Kwasi Kwarteng, ducked questions on whether the government was about to make a major U-turn, insisting that his position “hasn’t changed” on the 23 September mini-budget.

 

The prime minister has been under intense pressure from jittery Conservative MPs to stage a major economic U-turn to calm the markets in the face of a financial storm, but risks a split with her chancellor if she proceeds.

 

The move would represent a massive climbdown as her promise to cancel Rishi Sunak’s plans to put up corporation tax from 19% to 25% was a central pledge of her leadership campaign.

 

One government source told the Guardian that No 10 officials – rather than their Treasury counterparts – were reviewing the mini-budget in order to shore up Truss’s premiership after the disastrous economic growth plan last month.

 

Another source suggested that the option of raising corporation tax was “on the table” in the prime minister’s efforts to balance the books – although this could be by just one or two percentage points.

 

They indicated that no decision would be announced until the chancellor had returned from Washington – where he was at a meeting of the International Monetary Fund – on Friday. However, there was speculation in Whitehall that the scale of the U-turn could make it impossible for Kwarteng to continue in post.

 

In an interview in Washington, Kwarteng said there would no changes to the mini-budget despite discussions in No 10. “Our position hasn’t changed,” he said. “I will come up with the medium-term fiscal plan on 31st October. There will be more detail then.”

 

The chancellor also sidestepped questions about a U-turn on the government’s plans to freeze corporation tax, saying his “total focus” was on delivering his growth plan.

 

Earlier on Thursday morning, No 10 ruled out further changes to the mini-budget despite the pressure from Tory MPs, with the prime minister’s official spokesman saying “the position has not changed”.

 

Both UK government bonds and the pound rallied strongly, in part due to continued bond-buying by the Bank of England, but also in response to the speculation about a reverse on planned cuts to corporation and dividend taxes.

 

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”.

 

The government has already U-turned on a key promise to scrap the 45p top rate of income tax in a major blow to Truss’s authority which has left her premiership weakened and mutinous MPs warning she must change course or face a confidence vote.

 

Reports of a U-turn on Kwarteng’s mini-budget were welcomed by the I MF, which has been publicly critical of the unfunded tax cuts announced last month.

 

Kristalina Georgieva, the IMF’s managing director, said: “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.”

 

Georgieva said she had had a “constructive meeting” with Kwarteng and Andrew Bailey, the Bank of England governor, who are both in Washington for the annual meeting of the IMF this week.

 

“We discussed the importance of policy coherence and communicating clearly so in these jittery times there are no reasons for even more jitters,” she said.

 

With the effects of Kwarteng’s package still reverberating around global financial markets, Georgieva gave strong backing to the Bank of England’s action to halt a run on pension funds and added: “Our message to everybody, not just the UK, is that fiscal policy should not undermine monetary policy.

 

“If it does the task of monetary policy becomes harder and translates into further increases in interest rates. So don’t prolong the pain. Make sure policy is coherent and consistent.”

 

Kwarteng flew into Washington for a planned two-day stay on Wednesday and was given a taste of the international concern at events in Britain when he was publicly dressed down by Janet Yellen, the US Treasury secretary, at a meeting of G7 finance ministers and central bank governors.

 

Yellen said tax cuts that required extra borrowing posed a risk to financial stability.

 

The chancellor is due to attend a reception in his honour at the British embassy in Washington later on Thursday before flying home on Friday.

 

Rachel Reeves, the shadow chancellor, 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 [on Friday]. The Tories cannot allow the chaos caused by their mini-budget to continue any longer.”