Liz Truss is poised to tear up further elements of Kwasi Kwarteng’s disastrous mini-Budget, with a U-turn on corporation tax expected as early as this weekend.
Discussions were understood to be taking place in 10 Downing Street on a means to avoid fresh market panic after the Bank of England withdraws its emergency bond-purchasing scheme at the end of trading on Friday.
It came after The Independent revealed on Tuesday that officials had been asked to go through the tax giveaway Budget line by line to see where there was scope for change.
The Independent understands that an announcement is planned ahead of Monday’s reopening of markets to restore – partially or in full – the corporation tax hike to 25p scheduled for 2023 by Rishi Sunak but cancelled by Mr Kwarteng last month.
No final decision will be made until the chancellor returns late on Friday from a trip to New York where he was rebuked by IMF president Kristalina Georgieva for pursuing an expansive tax-and-spend policy at odds with the Bank’s efforts to rein in inflation.
In a scarcely-veiled call for London to be ready to embrace U-turns, Ms Georgieva said her message to national leaders was: “Don’t prolong the pain.. It is correct to be led by evidence. If the evidence is that it has to be a recalibration, it is right for governments to do so.”
Government bonds and the pound rallied on speculation that a climbdown on corporation tax was in the offing, as well as an uptick in the Bank’s bond-buying activity ahead of Friday’s deadline.
Downing Street refused to be drawn on speculation that Ms Truss was ready to sign off on a hike in the 19p levy on corporate profits, which could raise £18.7bn a year to fill Treasury coffers if the planned 25p rate was restored.
Spokespeople did not deny that meetings were taking place, telling reporters only: “Our position hasn’t changed.”
And Mr Kwarteng insisted that he and the PM were “totally focused on delivering on the mini-Budget”, while acknowledging for the first time that the 23 September statement had caused “turbulence”.
“I speak to No 10, I speak to the prime minister all the time,” he told broadcasters. “We are totally focused on delivering the growth plan.”
But there were indications of tensions between Kwarteng and No 10, with one insider saying the chancellor was “nonplussed” to hear of his package being reviewed in Downing Street after being assured that earlier reports of discussions were wrong.
And asked whether the markets were right to expect a U-turn, the chancellor told the Daily Telegraph: “Let’s see.”
Former chancellor George Osborne urged Truss and Kwarteng not to wait until the Halloween medium-term fiscal plan to announce their “inevitable” climbdown.
“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 before the inevitable U-turn on the mini-Budget,” he said.
Former shadow chancellor Ed Balls responded: “I agree with George.” And Tory ex-cabinet minister Julian Smith retweeted Mr Osborne’s post with the cryptic comment: “Confidence … Noun: The feeling or belief that one can have faith in or rely on someone or something.”
The chair of the Commons Treasury Committee, Tory former minister Mel Stride, told LBC’s Andrew Marr that a U-turn on corporation tax was “quite possible for reasons of basic arithmetic and fiscal resonsibility” after Ms Truss ruled out spending cuts to fit an estimated £62bn hold in the nation’s finances.
“We are all struggling to see how all the numbers can add up without some kind of rollback on the mini-Budget,” said Mr Stride. “If you’ve decided you’re going to do it, you do it earlier rather than later – get out there and use it as an approach to steady the market.”
One of the most senior backbench critics of the mini-Budget told The Independent that rowing back on corporation tax would be “a sensible move”.
