Corporation Tax was due to rise from 19 per cent to 25 per cent in April 2023.
However, as part of the mini Budget, the government confirmed the planned rise would be scrapped so the tax would remain at 19 per cent for all companies.
However, in another embarrassing U-turn for the Conservative government, just moments after Chancellor Kwasi Kwarteng was sacked and swiftly replaced by Jeremy Hunt, Liz Truss said parts of the mini Budget went “further and faster than the markets were expecting”.
As such, she would keep the increase in corporation tax planned by the previous government which will raise £18bn a year, and “act as a down payment on its medium-term plan”.
Truss attempted to calm the nation and the markets and added that since day one, she has been ambitious on growth.
She said that since the 2008 financial crisis, Britain’s potential has been held back by consistently weak growth and a “low tax, high wage and high growth economy” is what she was elected to do.
‘Sticking plaster’
Danni Hewson, AJ Bell financial analyst, said: “Markets were terrified that the ‘mini Budget’ was unfunded and fiscally irresponsible. The new regime was untried and seemingly unwilling to follow the accepted playbook for updating, in this case upending, fiscal policy.
“If the government thought it could ride out the tsunami of economic instability it wasn’t paying enough attention to the numbers, and when the numbers start pummelling the voting public, governments can’t focus on anything else.
“The writing was on the wall when markets surged in anticipatory delight on the news that another post budget U-turn was imminent and moves on corporation tax have gone a long way to bolstering sentiment today. But it’s a sticking plaster that’s already curling at the edges.”
Oliver Faizallah, head of fixed income research at Charles Stanley, added: “As of 2:30 pm today, Liz Truss admitted that parts of the mini Budget went ‘further and faster than’ the markets expected, however she kept her message brief, and the only relief from the original mini Budget being the reversal of the increase in corporation tax from 19 per cent to 25 per cent.
“Market reaction reflected the underwhelming message and delivery. We saw the selloff in sterling intensify and gilt yields retrace their optimistic moves from yesterday and this morning.
“In short, the announcement, coupled with the withdrawal of support from the Bank of England has not calmed markets. The UK still has a credibility issue, which has not been helped with today’s events. The pressure is on new chancellor Jeremy Hunt to try and bring some confidence back to the market.”
Following the mini Budget, the pound fell to a record low against the dollar, gilt yields spiked which in turn led to mortgage rates rocketing and concerns mounted there would be a Northern Rock style run on pension funds. It prompted the Bank of England to step in with an emergency bond-buying programme to stabilise the markets. This extraordinary measure is due to stop today.
