UK corporation tax to rise to 25% as PM Truss U-turns

British Prime Minister Liz Truss speaks on stage at Britain's Conservative Party's annual conference in Birmingham, Britain, October 5, 2022. REUTERS/Toby Melville/File Photo

LONDON, Oct 14 (Reuters) - Britain's corporation tax will rise to 25% from April next year, Prime Minister Liz Truss said on Friday just hours after sacking her finance minister Kwasi Kwarteng, U-turning on a promise not to go ahead with the hike.

In a Sept. 23 "mini-budget", Kwarteng had said corporation tax would be frozen at 19%, scrapping the rise planned by his predecessor, alongside a raft of other unfunded tax cuts which have since roiled financial markets.

Aimed at driving growth, the 45 billion pound ($50 billion) tax-cutting programme instead battered the pound, forcing the Bank of England to intervene to stabilise markets, and caused political backlash, which has now cost Kwarteng his job.

Speaking at a news conference, Truss said she had decided to keep the rise, a move which would boost the public finances by 18 billion pounds ($20 billion).

"We need to act now to reassure the markets of our fiscal discipline," she told a news conference.

British companies had not been vocal in their support of the corporation tax freeze. Many say political and economic stability matters more to their ability to make decisions and do business than how much tax they pay.

The government said in a statement that smaller and less profitable businesses would not pay the full 25% rate, and companies with less than 50,000 pounds of profit would continue to pay corporation tax at 19%.

Kitty Ussher, chief economist at the Institute of Directors, said that the corporation tax freeze was not something the organisation had requested.

"It wasn't on the list at all," Ussher said.

She said that recent political upheaval plus the surge in inflation was weighing on the investment plans of the mid-sized firms that make up the bulk of the IoD's membership.

Kwarteng's cut to the highest rate of income tax, another part of his mini-budget, had already been reversed earlier in October.

($1 = 0.8894 pounds)

Reporting by William James and Kylie MacLellan, additional reporting by William Schomberg, writing by Muvija M and Sarah Young, editing by Tomasz Janowski, Kirsten Donovan

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