Liz Truss has abandoned plans to freeze corporation tax in a desperate attempt to save her premiership.
In a humiliating U-turn, the prime minister dumped the measure, which was a central part of former chancellor Kwasi Kwarteng’s mini-budget.
The PM has already been forced to dump her plans to abolish the 45p rate of income tax paid by the highest earners.
Kwarteng was dramatically sacked by Truss after less than six weeks in the job earlier today and replaced by Jeremy Hunt.
The PM admitted at a hastily-arranged Downing Street press conference that her government’s unfunded spending cuts “went further and faster than markets were expecting”.
“We need to act now to reassure the markets of our fiscal discipline, she said.
“I have therefore decided to keep the increase in corporation tax that was planned by the previous government.”
It means it will rise from 19p to 25p in the pound from next April, as had been planned by Truss’s leadership rival Rishi Sunak when he was prime minister.
The U-turn is particularly embarrassing for the PM as she had made overturning his decision a central plank of her Tory leadership pitch.
But she had been left with little choice following the economic chaos caused by the mini-budget, which led to the pound plummeting in value, mortgage rates going up and the Bank of England forced to bail out the pensions industry.
Hinting at future spending cuts to balance the nation’s books, Truss said the government would “do whatever is necessary” to bring down debt as a share of the UK’s income.
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.”
Paying tribute to Kwasi Kwarteng, Truss said: “I was incredibly sorry to lose him.
“He is a great friend and he shares my vision to set this country on the path to growth.”
On his replacement Jeremy Hunt, the PM said: “He is one of the most experienced and widely respected Government ministers and parliamentarians.
“He shares my convictions and my ambitions for our country.”