Liz Truss Announces U-turn on Mini Budget

Liz Truss raised corporate tax and scraped parts of the mini budget to survive the market turmoil gripping the United Kingdom.

Truss appointed centrist Jeremy Hunt, a former candidate for the Conservative Party leadership, as her new finance minister in place of Kwarteng. 

British government bonds rallied further ahead of Truss's statement, adding to their partial recovery since her government started looking for ways to balance the books after her unfunded tax cuts crushed UK asset values and drew international censure.

Kwarteng is the country's shortest serving chancellor of the exchequer since 1970, and his successor will be the fourth finance minister in as many months in Britain, where millions are facing a cost of living crisis. 

Having triggered a market rout, Truss now runs the risk of bringing the government down if she cannot find a package of public spending cuts and tax rises that can appease investors and get through any parliamentary vote in the House of Commons.

Liz Truss has bowed to intense pressure from Conservative MPs and the markets by scrapping her signature corporation tax cut from the government’s mini-budget.

According to a source close to the prime minister, Truss is now in "listening mode" and inviting lawmakers to speak to her team about their concerns to gauge which parts of the programme they would support in parliament.

Credit Suisse economist Sonali Punhani said markets needed to see a credible fiscal plan, with the government needing to find around 60 billion pounds through tax cut U-turns and further spending cuts.

"It would be challenging to deliver the scale of these cuts, but for them to be credible, these need to be delivered sooner rather than in the latter part of the forecast," Punhani said.

One policy that is expected to be reversed is the government's plan to hold corporation tax rates at 19 percent. This was a key aspect of the budget package after Sunak proposed increasing it to 25 percent when he was finance minister under Truss's predecessor Boris Johnson.

This move could save 18.7 billion pounds by 2026/27. The latest bout of political drama to grip Britain comes as the Bank of England also prepares to end its intervention in the gilt market.