Prime minister Liz Truss performed a U-turn on the mini-budget today while sacking its co-author Kwasi Kwarteng.
Corporation tax will now rise to 25% next April instead of staying at 19% as envisaged in the “Growth Plan” launched by Kwarteng and Truss last month.
The unfunded tax cuts and pledges not to cut public spending sparked chaos in the financial markets and a screeching handbrake-turn in government policy.
Truss reaffirmed her commitment to high growth and low taxes today before confirming she will be hiking corporation tax rates.
She said: “This is difficult but we will get through this storm” while suggesting “spending plans will rise less rapidly.”
She added: “It is clear that parts of our mini budget went further and faster than markets were expecting.
“So the way we are delivering our mission right now has to change. We need to act now to reassure the markets of our fiscal discipline.
“I have therefore decided to keep the increase in corporation tax that was planned by the previous government.”
Kwasi Kwarteng was sacked as Chancellor after 38 days in the job and been replaced by Jeremy Hunt.
In a letter to the prime minister he said: “You have asked me to stand aside as your Chancellor. I have accepted.
“When you asked me to serve as your Chancellor, I did so in full knowledge that the situation we faced was incredibly difficult, with rising global interest rates and energy prices. However, your vision of optimism, growth and change was right.
“As I have said many times in the past weeks, following the status quo was simply not an option. For too long this country has been dogged by low growth rates and high taxation – that must still change if this country is to succeed.
“The economic environment has changed rapidly since we set out the growth plan on 23 September. In response, together with the Bank of England and excellent officials at the Treasury we have responded to those events, and I commend my officials for their dedication.
“It is important now as we move forward to emphasise your government’s commitment to fiscal discipline. The medium-term fiscal plan is crucial to this end, and I look forward to supporting you and my successor to achieve that from the backbenches.
“We have been colleagues and friends for many years. In that time, I have seen your dedication and determination. I believe your vision is the right one. It has been an honour to serve as your first chancellor.
“Your success is this country’s success and I wish you well.”