The UK corporate tax will rise to 25%, Prime Minister Liz Truss said after sacking finance minister Kwasi Kwarteng and backtracking on a tax-cut program on Friday.
On September 23, Kwarteng had said the corporate tax would be frozen at 19%, eliminating a planned increase to 25% by his predecessor, and announced a series of other unfunded tax cuts that have since rocked financial markets. .
Truss, speaking just hours after dismissing Kwarteng, said he had decided to keep the increase, a move that will increase public accounts by 18 billion pounds ($20 billion).
“Of course, parts of our mini-budget went further and faster than the markets expected,” Truss said at a news conference. “We need to act now to reassure markets about our fiscal discipline.”
British government spending will increase less rapidly than previously anticipated as part of an effort to reduce debt as a proportion of GDP over the medium term, the prime minister said.
“We will control the size of the state to ensure that taxpayers’ money is always well spent. Our public sector will become more efficient in providing world-class services to the British people and spending will grow less rapidly than previously planned.” , Truss said.
British companies had not been very supportive of the corporate tax freeze. Many say that political and economic stability is more important to their ability to make decisions and do business than how much they pay in taxes.
Designed with the aim of boosting growth, the £45bn ($50bn) tax cut program hit the pound, forcing the Bank of England to step in to stabilize markets, and caused political backlash.
Kitty Ussher, chief economist at the Institute of Directors, said the corporate tax freeze was not something the organization had requested.
“It wasn’t on the list at all,” Ussher said.
She said the recent political upheaval plus rising inflation was weighing on the investment plans of midsize companies, which make up the bulk of the institute’s membership.
Kwarteng’s announced reduction in the higher income tax rate, another part of his plan, had already been reversed in early October.
new finance minister
To replace Kwarteng, Truss appointed Jeremy Hunt, a former foreign and health secretary who had supported his rival Rishi Sunak in the race to become leader of the Conservative Party. He is the fourth finance minister in four months in the UK, where millions of people are facing a cost-of-living crisis.
“This marks the first time in decades, since at least the 1990s, that financial markets have forced the government of a large developed economy with its own central bank to capitulate on key fiscal ambitions,” Evercore analysts said.
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