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.
But one Conservative former minister described the move as “desperate” and said it would not be enough to salvage Truss and Kwarteng’s careers, amid reports that senior Tories were already holding talks about replacing the PM with an alliance of former leadership rivals Rishi Sunak and Penny Mordaunt.
“A prime minister and chancellor reacting to the markets, the centrepiece of their core narrative for the economy shredded and no credibility left,” the MP told The Independent. “It is impossible for them to come back from this.”
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 31 October 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 responsibility” 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”.
Another backbench Sunak supporter said: “I’m not sure what other option they are left with… Stabilising the market has to be the priority.”
And ex-home secretary Priti Patel told Sky News’s Beth Rigby that the need for financial stability “will probably dictate some of these changes now”.
But a former member of the cabinet said Mr Kwarteng should stick to his timetable – saying further U-turns before 31 October “smacks of panic”.
After Ms Truss was savaged at a meeting of MPs in Westminster on Wednesday night, where one senior backbencher accused her of “trashing 10 years of conservatism”, Tories voiced despair at the depths to which the party had plunged.
“To think we are in the state just a month after a new leader just beggars belief,” said one. “It’s what happens when a little group who think they know everything take over and don’t talk to anyone.”
Ms Truss is expected to meet groups of MPs in No 10 over the coming week for consultations on the way forward, in the hope of securing a warmer welcome for the 31 October plan.
Liberal Democrat leader Ed Davey said Mr Kwarteng should not remain in post long enough to deliver the Halloween statement.
“The only way to restore credibility is for Kwasi Kwarteng to resign or be sacked,” said Sir Ed.
“His botched Budget then needs to be scrapped altogether and replaced with a fair and responsible plan, including emergency support for mortgage borrowers bearing the brunt of this Conservative chaos.”
But a defiant chancellor insisted he would “absolutely 100 per cent” still be in office a month from now, adding: “I’m going nowhere.”
Shadow chancellor Rachel Reeves said the Truss administration was in “utter chaos”.
“Labour has said repeatedly that they need to reverse the kamikaze Budget and restore confidence,” said Ms Reeves.
“This is now urgent as the Bank of England’s intervention in the markets ends on Friday. The Tories cannot allow the chaos caused by their mini-Budget to continue any longer.”
