Truss defends her low tax agenda as she makes another major U-turn and sacks Chancellor

Prime Minister Liz Truss vowed to see through her low-tax agenda as she announced a major U-turn after sacking Kwasi Kwarteng as Chancellor.

The Prime Minister said her mission remains the pursuit of a “low-tax, high-wage, high-growth economy” but accepted parts of the mini-budget last month went “further and faster” than markets had expected.

Admitting she had to change course, she reversed a key policy to scrap the planned rise in corporation tax from 19% to 25%.

Speaking at a hastily-arranged Downing Street press conference, she said: “It is clear that parts of our mini-budget went further and faster than markets were expecting so the way we are delivering our mission right now has to change.”

Resign

But asked whether she should resign, Ms Truss said: “I am absolutely determined to see through what I have promised.”

The Prime Minister – who summoned Mr Kwarteng back from the International Monetary Fund (IMF) annual meeting in Washington to inform him of his fate – said she was “incredibly sorry” to lose him.

She said his successor, Jeremy Hunt, was “one of the most experienced and widely respected Government ministers and parliamentarians”.

She added: “He shares my convictions and my ambitions for our country.”

She said action was needed to reassure the markets of the Government’s commitment to fiscal discipline, with the U-turn on corporation tax raising £18 billion a year.

She said it was a “down payment” on the medium-term fiscal plan on October 31 when the new Chancellor will set out how he intends to get the public finances back on track.

“We will do whatever is necessary to ensure debt is falling as a share of the economy in the medium term,” she said.

Storm

She added: “I want to be honest, this is difficult, but we will get through this storm. And we will deliver the strong and sustained growth that can transform the prosperity of our country for generations to come.”

As well as the move on corporation tax, Ms Truss also signalled a squeeze on public spending which would “grow less rapidly than previously planned”.

Paul Johnson, the director of the Institute for Fiscal Studies, said that higher inflation had already eaten into the spending plans set out a year ago.

“Can’t increase much less quickly without actually going down,” he tweeted.

Following her announcement, the pound dipped back again.

Sterling had pared back some of its early losses shortly before the Prime Minister’s press conference but then dropped back, indicating that traders believe there is still more action to be taken.

The pound moved 1.2% lower at 1.119 against the US dollar after the update.

Meanwhile, yields on gilts – UK government bonds, which have come under severe pressure in recent weeks – also tipped higher to 4.5%, almost returning to levels from the market opening on Friday.

Responding to today’s developments, First Minister Mark Drakeford said: “The Prime Minister is the architect of her own misfortunes.

“It is her decisions that have led to weeks of confusion and chaos.

“We must now see a period of stability and certainty so that we can support people and businesses through the massive challenges we face.”

Labour leader Sir Keir Starmer said the whole Government – and not just Mr Kwarteng – needed to go.

“Changing the chancellor doesn’t undo the damage made in Downing Street,” he tweeted.

“Liz Truss’ reckless approach has crashed the economy, causing mortgages to skyrocket, and has undermined Britain’s standing on the world stage.

“We need a change in Government.”