Liz Truss finally accepts mini-budget screwed economy in major tax U-turn

Liz Truss has confirmed her latest humiliating budget U-turn on the same day as she sacked her chancellor.

Plans to block a planned rise in corporation tax from 19% to 25% have been dropped amid tumbling confidence in the government’s economic approach.

Stopping Rishi Sunak’s planned hike, which was designed to raise money following the financial shock of Covid-19, made up a key part of her leadership campaign.

The prime minister said her ‘mission remains’ to bring down taxes and boost growth but that ‘people across the country rightly want stability’.

She acknowledged the mini-budget went ‘further and faster than markets were expecting so the way we are delivering our mission has changed’.

Reversing the corporation tax decision will save the government £18 billion, according to Treasury analysis.

The PM said she was ‘incredibly sorry to lose’ Mr Kwarteng and said of the U-turn: ‘I’ll be honest, this is difficult’.

After taking a handful of questions mainly about her own position, Ms Truss abruptly walked out of the press conference.

Kwasi Kwarteng was ousted shortly after it was revealed the prime minister would address the country about the government’s economic plans.

He has been replaced by Jeremy Hunt – the fourth person to occupy 11 Downing Street this year – as the prime minister battles to prop her ailing administration.

The PM announced she was dropping another key tax pledge during a press conference (Picture: AFP)

The prime minister left abruptly before without taking questions from several outlets (Picture: Downing Street)

The prime minister now faces the task of reassuring the country and markets that she has a grip on the country’s finances and can hold her government together.

Rumours began to circulate on Thursday that Number 10 and the Treasury were locked in talks over whether to ditch parts of the £45 billion package of unfunded tax cuts.

Despite repeated denials from the prime minister’s team and ministers, the chancellor’s decision to cancel meetings in Washington DC and get on the last plane back to London seemed to confirm an announcement was afoot.

Publicly the government had been bullish on sticking to the plan put the Truss-Kwarteng pivot at the centre of the new government fell apart completely today.

Mr Kwarteng, one of the PM’s closest allies in politics, landed back in the UK this morning with his economic programme and reputation with MPs, voters and investors in tatters.

The chancellor was sacked after being summoned back from Washington DC (Picture: PA)

Yesterday he was ‘100%’ sure he would remain in post but was sacked less than two hours after returning to the country, becoming the second shortest-serving chancellor in history.

The announcement raises serious questions about the viability of a government which critics say has lost control of economic policy and may struggle to get a budget through the House of Commons.

The scale of the backlash has led to speculation that the PM’s own position could be in jeopardy and she endured a rough ride at a meeting of the 1922 Committee of Tory backbenchers earlier this week.

Some MPs are reportedly considering backing a joint challenge which would see Rishi Sunak and Penny Mordaunt take over the party swiftly without the need for a leadership election.

Liz Truss will hope replacing Mr Kwarteng with the less controversial figure Mr Hunt will help restore the party’s reputation in the polls and take the heat off her personally.

Jeremy Hunt has been drafted in to replace the chancellor (Picture: Getty)

Financial markets appeared to be anticipating moves to ditch some of the tax cuts yesterday, with speculation even leading to the value of the pound briefly surging against the dollar.

Reports suggested talks centred on the commitment to axe a planned increase in corporation tax from 19% to 25% which had been devised by Mr Sunak in order to repair the country’s finances post-Covid.

Asked about the potential U-turn just yesterday, Mr Kwarteng had maintained ‘our position hasn’t changed.

Speaking at the International Monetary Fund summit in Washington, he added: ‘I will come up with the medium-term fiscal plan on October 31, as I said earlier in the week, and there will be more detail then.’

Former chancellor George Osborne had piled on the pressure, suggesting Mr Kwarteng should not wait until the end of the month before making the ‘inevitable’ U-turn on his plans.

The party’s position in opinion polls has plummeted and there is widespread discontent over the mini-budget (Picture: Getty Images)

He tweeted: ‘Given the pain being caused to the real economy by the financial turbulence, it’s not clear why it is in anyone’s interests to wait 18 more days.’

Edward Argar has also replaced Chris Philp as chief secretary to the Treasury, while Mr Philp moves into Mr Argar’s previous role as paymaster general and minister for the Cabinet Office.

Labour’s Rachel Reeves said the chancellor’s sacking ‘doesn’t undo the damage’ already inflicted, adding: ‘Changing the chancellor doesn’t undo the damage that’s already been done.

‘It was a crisis made in Downing Street: Liz Truss and the Conservatives crashed the economy causing mortgages to skyrocket and has undermined Britain’s standing on the world stage.

‘We don’t just need a change in chancellor, we need a change in government. Only Labour offers the leadership and ideas Britain needs to secure the economy and get out of this mess.’

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The prime minister has removed Kwasi Kwarteng as she battles to save the government’s economic credibility.