LONDON – Spending by Britain’s government will rise less quickly than previously planned as part of a push to bring down debt as a share of the economy over the medium term, Prime Minister Liz Truss said on Friday.

“We will control the size of the state to ensure that taxpayers’ money is always well spent. Our public sector will become more efficient to deliver world-class services for the British people and spending will grow less rapidly than previously planned,” Ms Truss said during a news conference.

Ms Truss told reporters she would now allow a key business levy to rise from next year, raising £18 billion (S$29 billion).

"It is clear that parts of our mini-budget went further and faster than markets were expecting," she said. "We need to act now to reassure the markets of our fiscal discipline."

But she said she is determined to push ahead with her contentious programme to boost sluggish economic growth, despite the market turbulence it has caused that has, among other consequences, forced her to sack her finance minister Kwasi Kwarteng.

She said she is "absolutely determined to see through what I have promised to deliver, a higher growth, more prosperous United Kingdom”.

British companies have not been vocal in their support of the corporation tax freeze. Many say political and economic stability matters more to their ability to make decisions and do business than how much tax they pay.

Aimed at driving growth, the £45 billion tax-cutting programme has battered the pound, forcing the Bank of England to intervene to stabilise markets, and caused political backlash, which has now cost Mr Kwarteng his job.

Ms Kitty Ussher, chief economist at the Institute of Directors, said that the corporation tax freeze was not something the organisation had requested.

“It wasn’t on the list at all,” Ms Ussher said.

Ms Truss’ position remains in jeopardy, despite walking back the more controversial parts of her growth plan.

She won the Conservative Party leadership last month by promising vast tax cuts and deregulation to try to shock the economy out of years of stagnant growth. The fiscal policy Mr Kwarteng announced on Sept 23 aimed to deliver that vision.

But the response from markets was so ferocious that the Bank of England had to intervene to prevent pension funds from being caught up in the chaos, as borrowing and mortgage costs surged.

Ms Truss and Mr Kwarteng have since been under mounting pressure to reverse course, after polls showed support for the Conservative Party has collapsed, prompting many colleagues to look for ways to force them out of office.

“The party loves the idea of principles and conviction politicians, but staying in power is everything,” one party insider told Reuters. “Ruthless can also be popular.”

Having triggered a market rout, Ms Truss now runs the risk of bringing the government down if she cannot find a package of public spending cuts and tax rises that can appease investors and get through any parliamentary vote in the House of Commons. 

A Conservative Party lawmaker, who asked not to be named, said Ms Truss’ economic policy has caused so much damage that investors may demand even deeper cuts to rebuild confidence.

“Everything’s possible at the moment,” said the lawmaker, who backed another ex-chancellor, Mr Rishi Sunak, in the leadership race.  “The markets have lost trust in the Conservative Party – and who can blame them?”

According to a source close to the prime minister, Ms Truss is in “listening mode” and consulting lawmakers to gauge which parts of the programme they would support in Parliament.

Credit Suisse economist Sonali Punhani said the government needs to find around £60 billion through tax cut U-turns and further spending cuts.

“It would be challenging to deliver the scale of these cuts, but for them to be credible, these need to be delivered sooner rather than in the latter part of the forecast,” Ms Punhani said.

The latest bout of political drama to grip Britain comes as the Bank of England also prepares to end its intervention in the gilt market.

Ms Truss is the fourth prime minister in six turbulent years of British politics. REUTERS, AFP