The government will raise corporation tax despite promising not to do so in the mini-budget.
Kwasi Kwarteng, who was today sacked as chancellor, promised in the mini-budget last month to keep corporation tax at 19% instead of increasing it to 25% as planned in April.
Liz Truss confirmed her government’s change of direction at a news conference hours after dismissing Mr Kwarteng.
Ms Truss 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.
“We need to act now to reassure the markets of our fiscal discipline.
“I have therefore decided to keep the increase in corporation tax that was planned by the previous government.”
She said the change would raise £18bn for the public purse.
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She added: “We will do whatever is necessary to ensure debt is falling as a share of the economy in the medium term.”
It is the second major tax cut U-turn in three weeks after the government confirmed it would not go ahead with a plan to scrap the 45p top rate of income tax promised in the mini-budget on 23 September.
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Mr Kwarteng cut short his trip to the International Monetary Fund in Washington DC and returned to the UK on Friday morning as expectations of another significant U-turn mounted.
But his early return was not enough to save his job and less than two hours after he landed, he had been sacked.
The past three weeks have been marked by economic turmoil, with the pound reaching a record low against the dollar, interest rates soaring and the Bank of England having to intervene.
The reversal follows warnings from the Institute for Fiscal Studies, a leading economics think tank, that Mr Kwarteng’s £45bn package of unfunded tax cutshad left a £62bn black hole in the public finances.
The government has come under increasing pressure from senior Tories to take steps to reverse aspects of the mini-budget to allay market concerns.
Russian foreign minister Sergei Lavrov has said the US and Russia are moving in the “right direction” to end the war in Ukraine.
“We are ready to reach a deal, but there are still some specific points – elements of this deal which need to be fine-tuned,” Mr Lavrovtold CBS News’ Face The Nation show, which will air on Sunday.
“We continue our contacts with the American side on the situation in Ukraine, there are several signs that we are moving in the right direction.”
Image: A Ukrainian serviceman carries a dog out of a house damaged by the Russian airstrike in Kyiv. Pic: AP
Ukraine’s air force said a total of 215 drones and missiles were launched at the country by Russia on Wednesday night, with Kyiv among the areas worst hit.
Ukrainian officials said rescuers were still recovering bodies from the rubble.
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The US president was then asked about the Russian attacks while hosting Norway’s prime minister in the Oval Office, and said he “wasn’t happy” but insisted “we’re putting a lot of pressure on Russia”.
He was also asked about Crimea following reports that his peace plan includes the US acknowledging Moscow’s control of the territory.
Mr Trump admitted it would be “very difficult” for Ukraine to get the territory back, but reiterated his belief that “we’re getting close to a deal”.
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16:55
Day 96: ‘Vladimir STOP!’ Will Trump’s plea to Putin make a difference?
US secretary of state Marco Rubio said the US wanted to see both Ukraine and Russia step up to finalise a deal and further discussions were planned for the weekend.
Ukrainian President Volodymyr Zelenskyy has repeated many times that recognising occupied territory as Russia’s is a red line for his country.
Speaking about the airstrikes, he said: “It is very important that everyone in the world sees and understands what is really happening.”
Mr Zelenskyy was on a visit to South Africa when the missiles hit his country, prompting him to cut the trip short.
He said preliminary information indicated that Russia “used a ballistic missile manufactured in North Korea” and Ukraine’s special services were verifying the details.
He added if the missile was found to have been made in North Korea, it would be further proof “of the criminal nature of the alliance between Russia and Pyongyang”.
Events in Ukraine over the last 24 hours have been utterly barbaric. Bad even by the standards of this horrendous war.
Multiple Iranian drones and North Korean missiles laden with explosives brought carnage to swathes of the country, killing yet more civilians.
This was Russia’s answer to President Donald Trump’s peace plan and ultimatum. Normally, strangely reluctant to criticise Russia, even Trump was moved to implore Vladimir Putin to “STOP”.
Image: Ukrainian personnel clear rubble after a Russian ballistic missile attack in Kyiv. Pic: AP
Image: A woman is helped after an apartment building was hit by a Russian ballistic missile strike. Pic: Reuters
Image: A Ukrainian serviceman carries a dog out of a house damaged by a Russian airstrike in Kyiv. Pic: AP
But in truth, throughout Trump’s Ukraine peace process – if it can be called that – most of America’s pressure has been on Ukraine.
The peace plan that has emerged from direct US talks, which were mainly with Russia, is one-sided, and to Ukraine and its European partners, it is a surrender plan which is impossible for Ukraine to accept.
Even Russia’s supporter in this war, China, has problems with it, in particular with America’s proposal that Russia is rewarded for its invasion with sovereignty of Crimea.
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Far from heading towards a peace deal, we are now, it seems, careering towards a crunch point that could see America give up on Ukraine completely, possibly blaming Kyiv for failure and renewing relations with Moscow.
Might will be proven right, and Vladimir Putin will be emboldened to do it all over again in a few years, possibly against other countries too. That is the fear in chancelleries across Europe.
There are two key questions now.
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1:26
‘Russia is winning peace talks’
Image: A drone explosion over Kyiv. Pic: Reuters
Does Trump mean he will walk away from trying to broker peace or supporting Ukraine entirely?
And if he does, can Ukraine carry on without US help?
European nations have said they will carry on supporting Ukraine. They see its survival and victory as essential for their own security.
They already give Ukraine €40bn in financial and military help. Ukraine would need another €20bn or so to fill the US gap – not that tall an order.
Image: Destruction in Kyiv following a Russian airstrike. Pic: Telegram
Image: A large-scale Russian missile and drone attack hit Kyiv overnight. Pic: Reuters
And they are beefing up their defence industries to do more to give Ukraine what it needs to fight Russia.
Ukraine’s defence increasingly depends on a homegrown drone industry, which doesn’t rely on American backing.
But Ukraine does need US intelligence, aerial defence support and satellite coverage provided by Starlink.
Were they to lose all that, they could be in trouble.
What exactly Trump does if and, as seems increasingly likely, when his deal fails, he is not making clear.
But what seems certain is America is caring less and less for Ukraine’s plight under this president.
Pakistan has halted trade and India has revoked visas as tit-for-tat retaliatory actions ramp up between the two powers after an attack in Kashmir that killed 26 people.
The victims were mostly Indian tourists who had been visiting Pahalgam, a popular tourist destination in the Indian-held part of the territory, which both nuclear-armed nations claim as their own.
In response to the attack, India closed a border crossing, suspended a water-sharing treaty and downgraded diplomatic ties with Pakistan – which it blames for the assault.
Image: Indian security force personnel stand guard at the site of a militant attack on tourists in Pahalgam. Pic: Reuters/Adnan Abidi
The Indian government did not publicly produce any evidence connecting the attack to its neighbour, but said it had “cross-border” links to Pakistan.
Pakistan has denied the accusations and a previously unknown militant group calling itself Kashmir Resistance has claimed responsibility.
On Thursday, India’s foreign ministry said all visas issued to Pakistani nationals would be revoked, effective from Sunday.
It also advised Indian citizens not to travel to Pakistan and announced other measures including cutting the number of diplomatic staff and closing the only functional land border crossing between the nations.
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In return, Pakistan said it was closing its airspace to all Indian-owned and operated airlines and suspending all trade with India – including to and from any third country.
Similarly, it also announced the cancellation of all visas under the SAARC Visa Exemption Scheme – which allows some people to have a “Special Travel” document exempting them from visas.
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1:41
Kashmir’s ‘terror attack’: What happened?
‘Act of war’
The moves are just the latest escalation of tensions between the two, as Pakistan warned that any suspension of water supplies by India would be viewed as an “act of war”.
Both Pakistan and India saw protesters turn out on the streets, calling on their respective governments to go further.
Pakistan’s Prime Minister Shehbaz Sharif chaired a meeting of the National Security Committee to respond to India’s measures.
He warned that any attempt to disrupt the Indus Waters Treaty would be met with “full force” from Pakistan.
The landmark treaty has so far survived two wars between the countries, in 1965 and 1971, as well as a major border skirmish in 1999.
It allows for a water-sharing system that is a lifeline for both countries – in particular for Pakistan’s agriculture.
‘Ends of the Earth’
It comes after Indian Prime Minister Narendra Modi promised to pursue those responsible for the attack “to the ends of the Earth”.
Speaking on Thursday at a public meeting in the eastern state of Bihar, he said: “I say to the whole world, India will identify, track, and punish every terrorist and their backers.
“We will pursue them to the ends of the Earth.”
Police in Indian Kashmir published notices on Thursday naming three suspected militants it claimed were “involved in” the attack.
Two of the three suspects were Pakistani nationals, according to the notice.
Image: Pakistan’s Prime Minister Shehbaz Sharif chairs the meeting of the National Security Committee, in Islamabad.
Pic: AP/Prime Minister’s Office
Image: India’s Prime Minister Narendra Modi addresses a rally in Madhubani in the eastern state of Bihar.
Pic: Reuters/Stringer
A contested Kashmir
India and Pakistan each administer a part of Kashmir, but both claim the territory in its entirety.
The region has a long, volatile and complex history.
Recent years has seen India claim that violence in the area has calmed – despite a bloody rebellion against New Delhi raging for decades.
India claims the militancy in Kashmir is Pakistan-backed terrorism.
Pakistan denies this. In a statement Thursday, the country said it supported the self-determination of the Kashmiri people.
Many Muslim Kashmiris, in a Muslim-majority territory, consider the militants part of a home-grown struggle for freedom.
Diplomatic relations between the two were already weak before the latest escalation as Pakistan had expelled India’s envoy after India revoked the semi-autonomous status of Kashmir in 2019.
This deepened tensions in the region but things have largely held stable after the two countries renewed a previous ceasefire agreement in 2021.
Image: A demonstrator shouts as he is stopped by police during a protest near the Pakistan High Commission in New Delhi after the attack.
Pic: Reuters/Stringer
Tens of thousands of people have been killed in Kashmir since the uprising began in 1989, but violence has tapered off in recent years and tourism has surged in the scenic region.
Until the most recent episode, tourists have not been the targets of such attacks.