Truss sacks Kwarteng; U-turns on tax cuts

Britain’s corporation tax will rise to 25 per cent, said Prime Minister Liz Truss after she sacked her chancellor Kwasi Kwarteng and U-turned on a programme of tax cuts on Friday.

In a Sept. 23 “mini-budget”, Kwarteng had said corporation tax would be frozen at 19 per cent, scrapping a rise to 25 per cent planned by his predecessor, alongside a raft of other unfunded tax cuts which have since roiled financial markets.

Truss, speaking just hours after she fired Kwarteng, said she had decided to keep the rise, a move which would boost the public finances by £18 billion.

“We need to act now to reassure the markets of our fiscal discipline,” she told a news conference.

Jeremy Hunt, former health and foreign secretary, has been appointed as the new chancellor.

British companies had not been vocal in their support of the corporation tax freeze. Many say political and economic stability matters more to their ability to make decisions and do business than how much tax they pay.

Aimed at driving growth, the £45 billion tax-cutting programme has battered the pound, forcing the Bank of England to intervene to stabilise markets, and caused political backlash, which has now cost Kwarteng his job.

Kitty Ussher, chief economist at the Institute of Directors, said that the corporation tax freeze was not something the organisation had requested.

“It wasn’t on the list at all,” Ussher said.

She said that recent political upheaval plus the surge in inflation was weighing on the investment plans of the mid-sized firms that make up the bulk of the IoD’s membership.

Kwarteng’s cut to the highest rate of income tax, another part of his mini-budget, had already been reversed earlier in October.

Opposition Labour Party’s Rachel Reeves, shadow chancellor, said the “humiliating U-turn” was necessary. “But the real damage has already been done. This is a Tory crisis, made in Downing Street. It won’t be forgiven or forgotten,” she added.

The British Independent Retailers Association (BIRA) has called on the new chancellor to help find clarity and certainty for independent traders.

Jeff Moody Managing Director of BIRA Direct said: “It’s now a very uncertain time following news of the sacking and the government’s u-turn on the recent mini-budget.

“Both events have led to a further lack of certainty and clarity for independent retailers in this the Golden Quarter, which is when most retailers look to earn the profits to keep them in business.

“BIRA believes that reverting to the new proposed 25 per cent corporation tax will reduce the unfunded £43bn of tax cuts by some £17bn. Part of this money should be targeted at reducing the business rates for the high street. The business rate multiplier rate has increased for small business from 41.4p in 2010 to 50.4p in 2022 which is ludicrous given the pressures that small retailers are facing,” he said.

Mr Moody added that BIRA was asking for clarity so retailers can plan and invest for the future, and uncertainty was not helping.