U.K. Prime Minister Liz Truss scrapped her plan to freeze the corporation tax next year in another dramatic U-turn, hours after she fired her ally Kwasi Kwarteng and replaced him with Jeremy Hunt as U.K. Chancellor of the Exchequer.
The humiliating reversal follows three weeks of market turmoil since Sept. 23, when Kwarteng announced a massive program of unfunded tax cuts. Faced with no detail on how the government could make the sums add up, traders drove the pound to a record low against the dollar and forced the Bank of England into an emergency intervention to support the bond market.
"It is clear that part of our mini budget went further and faster than the markets were expecting," Truss said Friday in a short press conference. "So the way we are delivering our mission right now has to change."
Truss's decision means corporation tax will now rise to 25% from 19% next year, as had been planned by her predecessor, Boris Johnson and his chancellor, Rishi Sunak. She'll now hope her decision — worth £67.5 billion over five years to the public purse — along with Hunt's appointment, will be enough to soothe the market jitters.
"What I've done today is made sure that we have economic stability in this country,"Truss said. "Jeremy Hunt as chancellor is somebody who shares my desire for a high-growth, low-tax economy. But we recognize because of current market issues, we have to deliver the mission in a different way."
Pound, gilts
Nevertheless, the pound extended losses on Friday, while 10-year gilts trimmed gains after Truss spoke.
Far from bolstering her position, Truss's nervous performance in the press conference has made it less likely that she survives as prime minister, according to three Conservative MPs who spoke on condition of anonymity.
One pointed to a lack of detail about her tax plans, another expressed astonishment that she only devoted eight minutes to explain her decision to fire her chancellor. The third predicted she will be gone within weeks — if not days.
Kwarteng earlier posted on Twitter his resignation letter, in which he said the premier had asked him to go. His departure is a major blow to Truss after less than six weeks in office, and leaves her in a precarious position, with Tories openly plotting against her.
The two politicians had portrayed themselves as being in lockstep on the economy, and had staked their reputations on an all-out push for growth when the now former chancellor announced the biggest set of unfunded tax cuts in half a century on Sept. 23.
"We share the same vision for our country and the same firm conviction to go for growth," the premier wrote in her reply to Kwarteng, which was emailed by her office.
As well as appointing Hunt, Truss replaced Kwarteng's deputy, Chris Philp, with Edward Argar. Philp moved to a ministerial post in the Cabinet Office.
