Kwasi Kwarteng has dramatically cut short his visit to the International Monetary Fund, flying home early from Washington in response to the mounting political crisis over his tax-cutting budget.
Adding to signs that the government is preparing to announce a U-turn over its plan to scrap a rise in corporation tax, the chancellor left the US capital a day earlier than planned.
Treasury sources said the chancellor had two constructive days in Washington but was keen to get back to London to engage with colleagues over his medium-term fiscal plan, due to be announced on 31 October.
But his unscheduled departure on a late-night flight from Washington capped a day of drama for the Truss government and prompted comparisons with the sterling crisis suffered by the Labour government in 1976.
Then, the chancellor Denis Healey turned around at Heathrow rather than fly out to an IMF meeting in Manila after pressure mounted on the pound.
Treasury sources refused to comment on whether Kwarteng’s decision meant a U-turn on corporation tax was imminent, but the chancellor was under pressure to make a decision before the financial markets open for business on Monday.
The pound and government bonds – or gilts – rallied yesterday at rumours of a change of heart on tax. But the Bank of England’s support scheme for bonds comes to an end on Friday.
“This is all about the medium-term fiscal plan,” a treasury source said. “The chancellor wanted to make sure he had as wide a range of colleagues as possible engaged with it.”
Earlier, Kwarteng was forced to deny his position as chancellor was in peril, insisting he was “absolutely, 100%” confident he would still be in post next month despite a growing Tory rebellion.
But there were signs yesterday that decisions on tax were being taken by Liz Truss in London rather than by the chancellor 3,000 miles away across the Atlantic.
On another febrile day in Westminster, government sources told the Guardian that No 10 officials – rather than their Treasury counterparts – were reviewing the mini-budget in the prime minister’s efforts to balance the books.
Truss has repeatedly promised to cancel the former chancellor Rishi Sunak’s plans to put up corporation tax from 19% to 25%. Sources suggested that a potential climbdown could involve putting it up by just one or two percentage points, rather than the full 6%.
October 14, 2022 at 06:40AM Larry Elliott Economics editor