Liz Truss is on the verge of introducing corporation tax as part of a Downing Street plan to back away from the huge package of unfunded tax cuts in her mini-budget, sources have claimed.
The prime minister has come under intense pressure from agitated Tory MPs to stage a major economic turnaround to calm markets ahead of a financial storm.
But the move would represent a huge boost, as her promise to scrap Rishi Sunak’s plans to raise corporation tax from 19% to 25% was a central promise of her leadership campaign.
A government source told the Guardian that No 10 officials are reviewing the mini-budget to prop up the Truss premiership after Kwasi Kwarteng’s disastrous economic development plan last month.
Another source suggested that the option of raising corporation tax was “on the table” as the Prime Minister tries to balance the books – although this may only be by one or two per cent.
They said no decision would be announced until the chancellor returned from Washington, where he is attending an International Monetary Fund meeting, on Friday. However, there was speculation in Whitehall that the scale of the turnaround could make it impossible for Kwarteng to continue in the post.
Earlier on Thursday morning, No 10 ruled out further changes to the mini-budget despite pressure from Tory MPs with the prime minister’s official spokesman saying “the position has not changed”.
Both UK government bonds and the pound rallied strongly, partly due to continued bond buying by the Bank of England, but also in response to speculation of a reversal of planned cuts to corporate and dividend taxes.
At Prime Minister’s Questions on Wednesday, Truss ruled out any rise in corporation tax, telling MPs: “I feel it would be wrong at a time when we are trying to attract investment to our country at a time of global crisis to raise taxes.”
The government has already made a key promise to scrap the top rate of income tax of 45pc, in a major blow to Tras’s power that has left her premiership on the brink and rebel MPs are warning it must change course or face a vote of confidence.
Rachel Reeves, the shadow chancellor, said: “Today’s mess shows the absolute mess this government is in. This is a crisis created in Downing Street and workers are paying the price.
“Labour has repeatedly said they need to reverse the kamikaze budget and restore trust.
“This is now urgent as the Bank of England’s intervention in the markets ends tomorrow. The Tories cannot allow the chaos caused by their mini-budget to continue any longer.”