Liz Truss faces growing pressure to raise corporation tax

Liz Truss is under growing Tory pressure to raise corporation tax to reassure the markets over her debt reduction plan as she ruled out major spending cuts.

Conservative MPs on Wednesday predicted that the Prime Minister would be forced into changing more elements of her mini-Budget despite denials from Downing Street.

Ms Truss had promised to scrap the rise in corporation tax from 19 per cent to 25 per cent, due in April, but is now facing calls to reverse course.

Bringing in the tax cut over a longer period would be likely to save the Treasury billions of pounds but prompt accusations of hypocrisy after Ms Truss campaigned against a rise in the Tory leadership race this summer.

On Wednesday, Number 10 and Number 11 moved to deny reports that changes to tax cuts announced in the mini-Budget were being considered.

The Treasury will announce a “medium term fiscal plan” on Oct 31, mapping out how to get debt falling within five years, but it remains unclear how that will be achieved.

Ms Truss on Wednesday insisted she would not cut public spending to balance the books, raising questions over how she will calm the markets.

The Prime Minister said she is “absolutely” not planning public spending reductions, but qualified her comments slightly by saying that taxpayers’ money must be used well. Her official spokesman later said “difficult decisions” on spending would need to be made in the coming months.

The apparent promise not to implement major public sector cuts brought speculation that some of her tax cuts could be watered down to help tackle debt. Tory MPs on Wednesday publicly suggested the corporation tax cut could be reversed or adopted over a longer period in order to find savings.

Kevin Hollinrake, a Tory member of the Treasury select committee, said it would be better to ditch some elements of the mini-Budget than spur further market turmoil by pushing ahead.

Mr Hollinrake told BBC Radio Four: “I think it’s better to have looked at this more carefully in the context of what’s happened over the last few weeks and say ‘I think we’ve got some of this wrong and these tax cuts need to be introduced over time’.

“I think if he [Kwasi Kwarteng, the Chancellor] made that case and said they’ve been listening, as they did with the top rate, I think that’s possible – but it certainly doesn’t augur well in terms of U-turning on commitments already made.”

He pointed to reversing course on the decision to scrap the planned corporation tax rise as one potential option.

Mel Stride, the Tory chairman of the Treasury Select Committee, wrote on Twitter: “Given the clear government position expressed today on protecting public spending there is an emerging question – whether any plan that does not now include at least some element of further row back on the tax package can actually satisfy the markets.”

Mr Kwarteng and Andrew Bailey, Governor of the Bank of England, attended a meeting with G7 finance ministers in Washington on Wednesday where officials led by Janet Yellen, the US treasury secretary, made backhanded swipes at unfunded tax cuts.

While they did not single out the UK directly, Ms Yellen and Chrystia Freeland, the Canadian finance minister, reportedly warned that governments who implemented unfunded measures threatened financial stability.

On Wednesday night, Ms Truss attempted to reassure her MPs that her growth plan was still on track as she urged them not to publicly criticise her policies. Addressing the 1922 Committee of backbench Tories, she is understood to have told MPs to have disagreements on policy in private so that the party can present a united front.

She was challenged by Robert Halfon, a senior Tory MP, who said her policies have been skewed towards the rich and that the Conservatives are in danger giving the impression that they are turning their backs on blue collar voters.

Meanwhile, others are understood to have taken Ms Truss to task over proposed planning and housing reforms. One MP in the room said there were several “grumpy faces” as she spoke, while others left, adding that there were “a lot of Rishi [Sunak] supporters who were not exactly cheering”.

At Prime Minister’s Questions, Sir Keir Starmer, the Labour leader, said that during the Tory leadership plan Ms Truss had said she was not planning public spending reductions and asked whether she would stick to that.

She replied: “Absolutely... We are spending almost £1 trillion of public spending. We were spending £700 billion back in 2010. What we will make sure is that over the medium term the debt is falling. But we will do that not by cutting public spending but by making sure we spend public money well.”

Despite the public commitment, the Prime Minister’s official spokesman warned that “difficult decisions” would need to be made on spending when asked whether the cost of the energy package would be used as cover for departmental cuts.