Liz Truss signals second huge mini-budget U-turn as corporation tax cut binned

Ms Truss named former UK health secretary and foreign secretary Jeremy Hunt as her new Chancellor – who will be tasked with delivering the next financial update on October 31.

The Prime Minister confirmed her second screeching U-turn in an attempt to cool the financial markets.

Following the tax cut for the super-rich in England being abandoned, Ms Truss announced that corporation tax will rise from 19 per cent to 25% - tallying up £18bn a year for the public purse.

Speaking at a media conference in Downing Street, where she only took four questions from journalists, Ms Truss said she has “acted decisively” by announcing the reverse of the corporation tax rise and sacking her now-former chancellor.

Mr Kwarteng was fired after being forced to cut short his visit to the United States and comes just one day after the Prime Minister and him were adamant they were in “lock step” with the strategy.

But instead of taking a portion of the blame for the economic turmoil caused by her government’s mini-budget, Ms Truss pointed the finger at “current market issues”, insisting that “we have to deliver the mission in a different way”.

The Prime Minister added that “global economic conditions are worsening”, due to the war in Ukraine, alongside debt tallied up during the pandemic.

She said: “But 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. This will raise £18bn per year.

“It will act as a down payment on our for medium-term fiscal plan, which will be accompanied by a forecast from the independent OBR.

“We will do whatever is necessary to ensure debt is falling as a share of the economy in the medium-term.”

Mr Kwarteng’s humiliating stint as chancellor comes to an end after a frantic three weeks which saw him forced to defend his growth strategy of uncosted tax cuts and ballooning borrowing levels.

The now-former chancellor caused anger in the markets after he refused to allow the OBR to publish its usual forecasts alongside his budget and was forced into the first U-turn on tax cuts for the super-rich in England despite spending days defending the move.

In a letter to Ms Truss, Mr Kwarteng said that when he was appointed chancellor, “I did so in full knowledge that the situation we faced was incredibly difficult”, but added that the Prime Minister’s “vision of optimism, growth and change was right”.

He added: “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.

Ms Truss said she was “incredibly sorry” to see Mr Kwarteng leave his post.

She added: “He is a great friend and he shares my vision to set this country on the path to growth.

“Today, I have asked Jeremy Hunt to become the new Chancellor.

“He's one of the most experienced and widely respected government ministers and parliamentarians and he shares my convictions and ambitions for our country.

“He will deliver the medium-term fiscal plan at the end of this month. He will see through the support we are providing to help families and businesses, including our energy price guarantee that's protecting people from higher energy bills this winter.”

A more centrist figure, Mr Hunt is unlikely to share Mr Kwarteng and Ms Truss’s ideological free market commitment to tax cuts.

Ms Truss claimed she has “acted decisively” to ensure “our country’s economic stability” remains her priority.

But the Prime Minister caused alarm after stating that “spending will grow less rapidly than previously planed”, raising concerns that real-terms spend cuts are on the cards.

At Prime Minister's Questions last week, Ms Truss insisted that spending cuts were not a possibility despite concerns being raised that the budget of government departments was not due to be raised in line with inflation.

Ms Truss added: “Our public sector will become more efficient to deliver world-class services for the British people.”

Conservative former chancellor Lord Hammond said the events of the past weeks had wrecked the party’s reputation for fiscal discipline, leaving her growth agenda “in tatters”.

He said Ms Truss will survive in Number 10 only because Tory MPs do not want a general election they know they will lose.

He told BBC Radio 4’s The World at One: “I’m afraid we’ve thrown away years and years of painstaking work to build and maintain a reputation as a party of fiscal discipline and competence in government."

“Many of the arguments that we routinely deploy against the Labour Party around fiscal management will look extremely limp in light of what has happened over the last few weeks.”

Labour’s shadow chancellor Rachel Reeves said Ms Truss should “put the country first” and “go back to the drawing board with her budget that was devised in lock step with the former chancellor.

Asked what she would do as chancellor to repair the damage, she said: “We need to respect economic institutions – the undermining of the Bank of England, the sacking of the permanent secretary of the Treasury, the gagging of the Office for Budget Responsibility have all added to the volatility in the financial markets along with the scale of the unfunded tax cuts.

“Labour would always put fiscal responsibility and economic credibility first because we know that is so important for family finances."

“Labour’s plans for growth – investing in the industries of the future with our Green Prosperity Plan, reform of business rates to help our high streets and small businesses, making Britain the best place to start and grow a business – that’s at the heart of Labour’s plans for economic growth and stability. A world apart from the trickle-down economics that we see from Liz Truss and her Conservative Government.”