Besieged Conservative prime minister Liz Truss has completed the second u-turn from last month’s mini budget by reinstating the increase to Corporation Tax from April.
The move was announced within hours of former chancellor Kwasi Kwarteng being sacked by Truss and replaced by Jeremy Hunt.
Kwarteng (pictured centre) delivered the disastrous mini budget last month which resulted in Sterling sinking, sharp rises in interest rates for government borrowing and major interventions from the Bank of England, amid substantial turmoil in the mortgage market.
Truss (pictured left) has sought to lay the blame at Kwarteng for the economic unrest after reversing the higher rate tax cut earlier this month, but reports suggest the pair made the spending decisions together as part of a wider strategy.
Increase rate to 25%
The latest volte-face means the rate of Corporation Tax will increase as previously planned from 19% to 25% from April 2023 for firms making more than £250,000 profit.
Companies making between £50,000 and £250,000 will see their Corporation Tax rate increase incrementally from 19% to 25% depending on profit level.
The remaining 70% of actively trading companies which make profits of £50,000 or less will continue to pay a 19% tax rate.
According to documents published by HM Treasury last month, the move was due to cut tax revenue by more than £67.5bn over the next five years.
This was expected to amount to £2.27bn in this financial year, soaring to £12.4bn in 2023/24, £16.6bn in 2024/25, £17.6bn in 2025/26 and £18.7bn in 2026/27.
‘Went further and faster’
Announcing the climbdown, Truss said: “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 a year.
“It will act as a down payment on our full medium-term fiscal plan which will be accompanied by a full forecast from the independent OBR (Office for Budget Responsibility).
“We will do whatever is necessary to ensure debt is falling as a share of the economy in the medium term.
“We will control the size of the state to ensure that taxpayers’ money is always well spent, our public sector will become more efficient to deliver world class services for the British people and spending will grow less rapidly than previously planned.”