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Prime Minister Liz Truss Arrives in Downing Street
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Truss confirms corporation tax U-turn

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The prime minister has significantly reversed September’s mini-Budget by raising corporation tax to 25% in a major policy U-turn, having appointed a new Chancellor earlier today.

14th Oct 2022
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Following three weeks of ongoing market upheaval since Kwasi Kwarteng’s mini-Budget, Liz Truss threw out a key policy announcement on freezing corporation tax. 

Speaking in a short Downing Street press briefing this afternoon, prime minister Liz Truss reversed the government’s plans to freeze corporation tax at 19% and instead increased it to 25% from April 2023. And as previously announced by the former Chancellor Rishi Sunak, smaller companies with profits up to £50,000 will pay tax at 19%.

“This will raise £18bn per year. It will act as a down payment on our medium-term fiscal plan, which will be accompanied by a forecast from the independent Office of Budget Responsibility,” said Truss.

“We will do whatever is necessary to ensure debt is falling as a share of the economy in the medium term. We will control the size of the state to ensure that taxpayers’ money is always well spent. Our public sector will become more efficient to deliver world-class services for the British people. And spending will grow less rapidly than previously.”

However, Truss still committed to wanting to deliver “a low tax, high wage, high growth economy”. She said: “I was elected by my party to do that. That mission remains.”

Truss didn’t announce any further Budget U-turns, with many policies surviving from the mini-Budget, including the reversal of the national insurance hike, raising the threshold of the stamp duty land tax and the 1p cut to income tax. 

New Chancellor

Kwasi Kwarteng took the fall for the backlash to the mini-Budget and was sacked from his position in Number 11. He has been replaced as Chancellor by Jeremy Hunt, making him the fourth Chancellor of the Exchequer in four months. 

Truss said: “He will deliver the medium-term fiscal plan at the end of this month. He will see through the support we are providing to help families and businesses including our energy price guarantee that’s protecting people from higher energy bills this winter.”

Jeremy Hunt was also part of the Tory leadership contest this summer, and while he is seen as less libertarian than the prime minister he did lead his campaign saying he would cut “all taxes”, slash corporation tax to 15% and freeze business rates for five years. 

Hunt is a cabinet veteran, having served in the David Cameron cabinet as health secretary and culture secretary.  

Backed into a corner

The markets responded positively yesterday to news the government was set to climb down from the Budget announcements and expected a Budget U-turn.

When Kwarteng announced plans to freeze corporation tax in September, he reasoned that this tax policy would encourage private sector investment in the UK.

The decision to revert back to Rishi Sunak’s original plan to increase corporation tax to 25% will be even more embarrassing – and potentially politically fatal – for the prime minister as she based her leadership campaign on freezing corporation tax

U-turns and market pressure

Today’s sensational U-turn follows the ex-Chancellor’s first mini-Budget U-turn at the start of October where he scrapped plans to abolish the 45p rate of income tax. At the time, Kwarteng said the backlash to the measure had become a “distraction”. Abolishing the 45p rate of income tax for the highest earners in particular had become unpopular with Tory backbenchers including former minister Michael Gove who called the tax cut “unconservative”. 

The mini-Budget in September rolled out a raft of tax cuts designed to “ignite growth”, but the announcement was conspicuously missing the Office of Budget Responsibility fiscal forecasts. Soon after the announcement, the markets reacted unfavourably to the uncosted tax cuts, and the pound plummeted.

Five days after the mini-Budget and against the backdrop of what it called “unprecedented repricing in UK assets”, the Bank of England announced that it would buy up to £65bn of government bonds, in an attempt to restore calm and confidence across financial markets. 

The Bank intervened again on Monday (10th) to increase the programme’s daily maximum purchase level from £5bn to £10bn and again on Tuesday, announcing that it would widen the scope of its daily gilt purchase operations to include the buying of index-linked gilts. 

The Bank's support has now come to an end, with bond purchases ceasing today. It has spent a total of £19.3bn - £12.1bn on long-dated gilts and a further £7.2bn on index-linked debt - although it is reported to have signalled privately to bankers that it could extend the bond-buying programme past today's deadline if needed.

The medium-term fiscal plan, already pushed forward three weeks to 31 October by Kwarteng when he also promised to publish the OBR forecasts, remains in place but will now be delivered by the new Chancellor.

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Replies (93)

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By TB93
14th Oct 2022 14:56

It seems anybody in parliament can be chancellor, no experience in finance necessary. Maybe they'll give the janitor a shot next.

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Replying to TB93:
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By RickyRoark
14th Oct 2022 15:14

Financial experience and skill need not apply. The only credential needed is loyalty to the regime.

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Replying to RickyRoark:
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By vstrad
14th Oct 2022 15:57

I wouldn't put Hunt and loyalty to the regime in the same sentence.

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Replying to TB93:
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By Paul Crowley
14th Oct 2022 15:22

They get good advisors
The sensible take into account the advisors' warnings
The stupid do what they wanted to do and ignore the advisors

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Replying to Paul Crowley:
paddle steamer
By DJKL
14th Oct 2022 16:09

Or, of course, remove the advisers ,as this lot did with Sir Tom Scholar.

https://www.ft.com/content/9571c1f7-55b2-42ac-a126-ec0fcdeefca4

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Replying to DJKL:
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By Paul Crowley
14th Oct 2022 16:17

His own fault
He brought bad news to the king
Messenger always get shot

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Replying to TB93:
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By stuartburnell
15th Oct 2022 11:04

Looks like they've already given whoever masterminded the recent changes to the Highway Code a shot.

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By mkowl
14th Oct 2022 14:58

Rips up notes of last few weeks emails and discussions with clients

I am just annoyed I will have to re-learn how to do marginal relief calcs

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Replying to mkowl:
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By tim hervey
14th Oct 2022 16:31

Don't you use CT compliance software which will do all that for you

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By Arcadia
14th Oct 2022 14:58

The only measure that had a shred of credibility was reversing the rise to 25% to attract inward investment! And that is the one that is gone. Truss had a surefire way of getting back into the public's good books if she was going to do a u-turn anyway- a windfall tax on energy companies. Why not go that route?

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Replying to Arcadia:
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By Arbitrary
15th Oct 2022 13:24

You have to remember she did once work for Shell.

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By petestar1969
14th Oct 2022 14:59

Jeremy Hunt? Really?

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By Winnie Wiggleroom
14th Oct 2022 14:59

What a complete joke they have turned this country into. A joke that is not funny of course

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By Ian McTernan CTA
14th Oct 2022 15:00

We're down to rule by mob. Scream loud enough and you can get policies reversed, even if they weren't even a tax cut but stopping a planned rise...

More taxes when we're already the most highly taxed ever, to support ever more Govt spending (despite all the cries of 'underfunding' from the left).

Sooner or later people will wake up and realise that we can't sustain this level of spending (even 'austerity' grew the total spending pile), but clearly the majority now seem to believe 'tax the rich' or more likely 'tax someone other than me' is the way to go.

Sad day for the country and no doubt more companies will now look at the total tax take and decide to base their operations elsewhere. 25% CT plus dividend tax = almost 60% tax rate on profits.

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Replying to Ian McTernan CTA:
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By Paul Crowley
14th Oct 2022 15:09

https://www.investopedia.com/articles/wealth-management/121515/top-10-eu...
And when dividends are paid, no second tax deduction
And only ONE tax on companies. No regional, canton or other tax

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Replying to Ian McTernan CTA:
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By RickyRoark
14th Oct 2022 15:10

It’s always been this way. We’ve always been the frogs in the boiling water and people are now noticing how hot it is.

Conservatism is progressivism driving the speed limit.

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Replying to Ian McTernan CTA:
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By Paul Crowley
14th Oct 2022 15:16

Only for rich people getting the profits from workers
Company tax is 25%
Shareholders can choose whether to draw it out now or get BADR at 10% later
The rich can plan, the poor suffer

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Replying to Paul Crowley:
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By Ian McTernan CTA
14th Oct 2022 15:31

'rich people' no, anyone who draws a dividend, not all of them are 'rich'. And where would the workers be without those willing to risk everything in setting up companies in the first place? Workers choose to draw a salary rather than work for themselves as they want the stability that comes with less risk.

Sharreholders in small companies need the money to live on and can't choose BADR, nor can investors in larger companies as they won't qualify.

The 'poor' will suffer with a higher CT rate= less to reinvest= less jobs.

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Replying to Ian McTernan CTA:
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By DavidWinter
14th Oct 2022 15:51

Companies were still here when it was 35%. The only thing I'm annoyed at is they reduced the tax all the way to 19% for big companies and then included small companies and their shareholders with every single increase, including all but the smallest companies in next years.

Overall though, big companies have still had a massive tax cut since 2010, more than anyone else.

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Replying to DavidWinter:
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By Arbitrary
15th Oct 2022 13:30

And how has the UK economy performed since 2010, relatively, & absolutely? Ouch!

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Replying to Ian McTernan CTA:
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By Paul Crowley
14th Oct 2022 16:08

No worries
Just think of it as Higher rate tax on companies, £50,000 is about the cut off anyway
And cheap
Only 6% increase, people pay 20% increase

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Replying to Ian McTernan CTA:
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By Paul Crowley
14th Oct 2022 16:29

''rich people' no, anyone who draws a dividend, not all of them are 'rich'. And where would the workers be without those willing to risk everything in setting up companies in the first place? Workers choose to draw a salary rather than work for themselves as they want the stability that comes with less risk.'
Dividend tax is 7.5% unless Higher rate applies
Complete bargain
Market price determines labour rates and entrepreneurs can generally make sweet FA without their wage slaves
Do you really think society would be better if employers got off their idle butts and invented some new trade?
No:
Schools
Armed forces
Hospitals
Ambulances
Insurance companies
Pension providers
Civil Service
Or indeed any method of collecting tax
So good news, no government
Your distain of employees is outrageous

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Replying to Ian McTernan CTA:
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By Paul Crowley
14th Oct 2022 16:41

'And where would the workers be without those willing to risk everything in setting up companies in the first place?'
Limited liability companies get set up so that there is zero risk of becoming insolvent
Risk everything? No risk, all managed. Suppliers take all the risk together with taxpayers.
All the rewards with none of the risk of being self employed.
Just tax, No NI so the lack of risk is rewarded with lower taxes
How can that possibly be fair

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Replying to Ian McTernan CTA:
Caroline
By accountantccole
14th Oct 2022 15:44

Let me introduce you to French social charges...............

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Replying to accountantccole:
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By steve 12321
14th Oct 2022 16:03

accountantccole wrote:

Let me introduce you to French social charges...............


What are the tax/social charges in France?
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Replying to accountantccole:
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By steve 12321
14th Oct 2022 16:03

accountantccole wrote:

Let me introduce you to French social charges...............


What are the tax/social charges in France?
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Replying to accountantccole:
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By Paul Crowley
14th Oct 2022 16:05

Would they be higher than CT @ 19% and dividend tax at 7.5% on company profit AFTER tax?

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Replying to Paul Crowley:
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By DJKL
14th Oct 2022 16:12

Used to be- we once had a charter yacht in the Med with a crew, having seen what the French would have charged us if the crew were employees we upped sticks with where the yacht's base was to be.

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Replying to DJKL:
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By steve 12321
14th Oct 2022 16:32

DJKL wrote:

Used to be- we once had a charter yacht in the Med with a crew, having seen what the French would have charged us if the crew were employees we upped sticks with where the yacht's base was to be.

Exactly the effect this staggeringly stupid corporation tax rise will have. As well as inflation, business failures and jobs losses

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Replying to steve 12321:
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By Paul Crowley
14th Oct 2022 16:43

You have missed the whole point of the comment

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Replying to Paul Crowley:
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By steve 12321
14th Oct 2022 17:40

Paul Crowley wrote:

You have missed the whole point of the comment

Enlighten me

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Replying to steve 12321:
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By DJKL
14th Oct 2022 16:54

No it will not, the French social charges are I believe costs before your strike a profit (like NIER), the increase back to 25% is just going back to what it was before all companies were 19%, catch now is small company limit previously was £250k now it is £50k.

To me playing with headline rates is lazy policy, cannot be bothered doing the detailed analysis needed to devisee true incentives and disincentives so play with headline rates, frankly it is all pretty ill thought through, a party with few real ideas which runs on headline slogans not policy. (Growth, Growth, Growth, Growth ought to be replaced with How,How,How,How

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By steve 12321
14th Oct 2022 15:03

Does she understand the damage this will cause? So bad. How do these people get these jobs? This is not supporting businesses. This is helping to destroy them. She needs to go. We don’t need a new PM we need a new way to run the country. Politicians can’t do it.

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Replying to steve 12321:
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By johnjenkins
14th Oct 2022 15:22

I've been saying this for years. We need a common sense party that is motivated by "common sense" not ideals.
We need x amount to run the country and we tax accordingly to raise that money. Another thing if £1 = $1 = E1 it would stop much of the speculation and give a lot more stability, not just in the UK.

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Replying to johnjenkins:
Caroline
By accountantccole
14th Oct 2022 15:46

Should have joined the Euro when we had the chance?

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Replying to accountantccole:
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By Red1960
14th Oct 2022 16:07

I take it you're being ironic?

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Replying to accountantccole:
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By johnjenkins
17th Oct 2022 10:13

Nothing wrong with having one currency world wide. It's all the rubbish that that goes with it that makes it all go wrong.

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Replying to johnjenkins:
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By RickyRoark
14th Oct 2022 15:57

“We need” is always code for “I want”

Common sense politics is how we got to where we are today

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Replying to RickyRoark:
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By johnjenkins
17th Oct 2022 10:14

You missed out "lack of".

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Replying to johnjenkins:
By Nick Graves
14th Oct 2022 16:14

Currency parity makes introducing a global Central Bank Digital Currency a lot easier, that's for sure...

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Replying to johnjenkins:
paddle steamer
By DJKL
14th Oct 2022 16:16

Would it stay there, doubt it, markets set exchange rates not politicians, fixed exchange rates will not remain anywhere where one wants them to be, the tensions of maintaining the equality eventually snapping. (In reasonably recent years think ERM, previously gold standard)

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Replying to DJKL:
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By johnjenkins
17th Oct 2022 10:16

Consider one currency world wide. No speculation and much more stable markets.

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Replying to steve 12321:
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By Paul Crowley
14th Oct 2022 16:11

We need a Leader and strong loyal support. You know, the kind of leader that does not like criticism

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Replying to Paul Crowley:
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By spilly
15th Oct 2022 08:23

Do you not think Putin is a bit busy elsewhere at the moment?

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By Paul Crowley
14th Oct 2022 15:10

If you make a calamitous mistake?
Own it and fix it

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Replying to Paul Crowley:
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By Red1960
14th Oct 2022 15:58

With this shower?

Really?

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Replying to Red1960:
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By Paul Crowley
14th Oct 2022 16:14

No
Because they did not own it
PM blamed her naive little lapdog, the poor simpleton that did what he was told to do and then got dropped for doing such stupid things

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Replying to Paul Crowley:
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By DJKL
14th Oct 2022 16:18

If you listen to her speech the blame is still with the markets for not accepting her views, there was no recognition from her that in any way her policies, or their timing,were flawed.

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Replying to DJKL:
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By Paul Crowley
14th Oct 2022 16:56

It (the speech) was shameful
The avoidance of responsibility was and still is shameful
New Chancellor was probably difficult. How many turned it down?
Personal survival is all that matters

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Replying to DJKL:
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By johnjenkins
17th Oct 2022 10:20

She should have had a GE and put her policies to the people of this country, not the markets.

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