UK Chancellor Kwasi Kwarteng doesn't rule out tax U-turn as pressure mounts

He gave mixed signals about his fiscal plan several times on Thursday

British Chancellor of the Exchequer Kwasi Kwarteng. Photo: HM Treasury

Amid growing pressure to abandon more elements of the mini budget that has caused market turmoil, UK Chancellor Kwasi Kwarteng has appeared not to rule out a retreat on corporation tax.

Early on Thursday, Mr Kwarteng said he was “totally focused” on delivering the tax-cutting plans, which are aimed at increasing UK economic growth.

Then when asked about the expectation from financial markets that the government could ditch the plan not to increase corporation tax to show commitment to balancing the books, he told The Telegraph newspaper: “Let's see.”

Reports suggest talks are under way between Downing Street and the Treasury on abandoning elements of the £43 billion ($49bn) tax-cutting plan, including the commitment to axe the planned increase in corporation tax.

“Work is ongoing between the Chancellor and the prime minister, as you’d expect, before the medium-term fiscal plan,” Downing Street said.

But a spokeswoman refused to be drawn on the nature of the discussions or the possible scrapping of the corporation tax commitment.

Mr Kwarteng, in Washington for the International Monetary Fund’s annual meeting, was repeatedly asked about the prospect of a U-turn and did not explicitly rule it out.

He insisted “our position hasn’t changed”.

“I will come up with the medium-term fiscal plan on October 31, as I said earlier in the week, and there will be more detail then,” Mr Kwarteng said.

Asked whether a corporation tax retreat was on the cards, he said: “What I’m totally focused on is delivering on the mini budget.”

With talks on ditching his plans rumoured to be taking place in London while he was on the other side of the Atlantic, Mr Kwarteng insisted his position was safe.

Asked if both he and Prime Minister Liz Truss would still be in office in a month, Mr Kwarteng said: “Absolutely 100 per cent. I am not going anywhere.”

“I speak to No 10, I speak to the prime minister all the time. We are totally focused on delivering the growth plan.”

Mr Kwarteng acknowledged the UK suffered some “turbulence” after his mini budget but said the economy was facing the same problems as other countries around the world.

“What I am going to acknowledge is the fact that it is a very dicey situation globally,” he said.

Yet Mr Kwarteng also insisted that there would be “no real cuts to public spending”, appearing to stick to comments made in the House of Commons by the prime minister on Wednesday.

“Let’s face it, there are difficult choices within that you have to prioritise,” he told The Telegraph.

“You have to make sure that you know the public is getting value for money. And I make no apologies for that, there has to be some sort of fiscal discipline.”

Mr Kwarteng also insisted that his party could still be trusted with the public finances.

“We’re Conservatives. Fiscal discipline runs right through our DNA”, he said.

But the managing director of the IMF hinted that Mr Kwarteng might need to change course.

“Our message to everybody, not just the UK, is that at this time, fiscal policy should not undermine monetary policy,” Kristalina Georgieva said.

“It is correct to be led by the evidence, so if the evidence is that there has to be a recalibration, it’s right for governments to do so”.

Former British chancellor George Osborne suggested Mr Kwarteng should not delay until his October 31 statement before making the “inevitable” U-turn on his plans.

“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,” Mr Osborne said.

The scale of the backlash to the mini budget has led to speculation Ms Truss’s position could be in jeopardy.

She endured a difficult time at a meeting of the 1922 Committee of Tory backbenchers.

Former home secretary Priti Patel also suggested the new administration could be forced into a reversal. “Market forces will probably dictate some of these changes now,” Ms Patel told Sky News.

The editor of the influential ConservativeHome website, Paul Goodman, suggested there had been rumours about replacing Ms Truss with a joint ticket involving her former leadership rivals Rishi Sunak and Penny Mordaunt.

On Thursday, newly-elected foreign affairs committee chairwoman Alicia Kearns told LBC that she wanted Ms Truss to succeed but also called for a change of course on the mini budget. “The markets are not woke, the markets are not left,” Ms Kearns said. “The fact they are not lefty, anti-government, the fact they have been spooked, is something that should be taken incredibly seriously.”

'Changing PM would be disaster'

Foreign Secretary James Cleverly on Thursday told BBC Radio 4: “I think changing the leadership would be a disastrously bad idea politically and also economically.”

The government’s plans revolve around securing an increase in economic growth, with a target of an annual rise of about 2.5 per cent in gross domestic product.

The forecasts presented by the Office for Budget Responsibility alongside Mr Kwarteng’s October 31 statement will give an assessment on whether that is viewed as a realistic ambition.

But Business Secretary Jacob Rees-Mogg has said the government could ignore OBR forecasts accompanying the strategy if they predict low growth and rising debt.

Downing Street, however, said Ms Truss has confidence in the data produced by the OBR, which is the government’s official forecaster.

“The prime minister has said on a number of occasions that she values their scrutiny and respects their independence,” her official spokesman said.

“They are a highly regarded body worldwide.”

In response to speculation about a possible U-turn on corporation tax, the Liberal Democrats called for Mr Kwarteng to resign.

“This U-turn would come too late for many struggling families facing mortgage misery,” said Lib Dem leader Sir Ed Davey.

Labour shadow chancellor Rachel Reeves said: “Today’s mess shows the utter chaos this government is in. This is a crisis made in Downing Street and working people are paying the price.”