Nadhim Zahawi, the UK’s new Chancellor of the Exchequer, has announced he will review government plans to raise corporate tax from 19p to 25p while Boris Johnson seeks to bail out his faltering government.
Zahawi was appointed on Tuesday night after the shock resignation of his predecessor Rishi Sunak, Health Minister Sajid Javid and several younger government officials.
There were more resignations Wednesday morning, including several ministers, bringing the total to 21 in less than 24 hours.
As Johnson fights for his future as Prime Minister, Downing Street wants the new chancellor to cut taxes – and cancel planned tax increases – to win back voters despite the potential fallout for Britain’s fragile public finances.
On Wednesday morning, Johnson was gearing up for a difficult lunchtime session of questions from the Prime Minister.
Meanwhile, rebellious MPs plan to change the Conservative Party’s rules to secure another vote of confidence in him before Parliament’s summer recess.
Zahawi told Times Radio on Wednesday morning that he could reverse the corporate tax hike planned for next April. “When boards invest, companies invest, invest for the long term and compare corporate tax rates,” he said. “So I’ll look at everything.”
April’s tax hike is set to raise £17 billion a year to fix public finances after the UK government borrowed hundreds of billions of pounds to get the country through the Covid-19 pandemic. This was partially offset by a new “super deduction” designed to encourage companies to increase their capital investments.
Sunak feared tax cuts could fuel inflation, which is already heading towards double digits. He said in his resignation letter that he couldn’t agree on an economic strategy with Johnson, who is known to dislike the looming corporate tax hike because their approaches are “fundamentally too different.”
A senior government insider suggested that the new chancellor would pursue a different economic strategy than Sunak: “For the next phase, we need a growth plan and not just balancing the books.”
Markets will be watching to see if a looser fiscal regime could force the Bank of England to raise interest rates faster.
Sunak and Javid’s resignations follow several scandals that haunt Johnson. The latest came last week when deputy chief whip Chris Pincher quit after claiming he had drunk groped two men at a private members’ club.
Downing Street insisted for days that Johnson had not been informed of “specific allegations” of Pincher’s wrongdoing in the past. On Tuesday, Johnson admitted he had been briefed on the allegations in 2019 – but had forgotten.
Many Tory MPs believe the ministerial mutiny signals the beginning of the end for Johnson.
John Glen, Treasury Secretary for Business, Justice Secretary Victoria Atkins, Schools Secretary Robin Walker and Environment Secretary Jo Churchill were among those who resigned.