Liz Truss u-turns on plan to scrap rise in corporation tax and fires Kwasi Kwarteng

The government's planned increase in the main rate of corporation tax from 19% to 25% will now go ahead in 2023 after the prime minister reversed her decision to scrap it. She has also fired Kwasi Kwarteng as chancellor and replaced him with Jeremy Hunt.

The corporation tax announcement was originally made by former chancellor Rishi Sunak in March 2021 and ditching the plan was a key promise in Truss' campaign to be the new Conservative Party leader.

After she won the contest and became prime minister, it was included among tax cuts and other announcements in the mini-Budget by the then chancellor Kwasi Kwarteng on 23 September.

Due to the lack of independent estimates for how the government will pay for the tax cuts, the speech led to turmoil on the financial markets and calls from Tory MPs for Truss to rethink her economic plans.

Plans to raise corporation tax to go ahead

Speaking at a press conference in Downing Street, Truss said she "absolutely determined" to see through her plans on delivering economic growth but admitted it was "clear" that parts of the mini-Budget "went further and faster than markets were expecting, so the way we are delivering our mission now has to change".

Announcing that the corporation tax rise will go ahead, she added:

"We need to act now to reassure the markets of our fiscal discipline."

The corporation tax rise applies to the main rate of corporation tax which will increase from 19% to 25% in April 2023. A new ‘small profits rate’ will keep the tax at 19% for businesses with profits of £50,000 or less. Businesses with profits between £50,000 and £250,000 will pay the main rate reduced by a marginal relief which provides a gradual increase in the effective corporation tax rate between 19% and 25%.

Today's announcements follow the first u-turn on the mini-Budget. It was announced on 3 October that the decision to scrap the 45p upper rate of income tax for people earning over £150,000 has been reversed.

Jeremy Hunt replaces Kwasi Kwarteng as chancellor

Kwasi Kwarteng is no longer chancellor. He has been replaced by former foreign secretary and Tory leadership contender Jeremy Hunt. He is the fourth chancellor since July.

Kwasi Kwarteng was due to unveil the government's medium-term fiscal plan and accompanying economic forecasts on 31 October. Truss said Hunt will deliver that announcement as planned.

More follows.

Top image credit: © UK Parliament/CC BY 3.0