News updates October 14: Truss scraps UK corporate tax plan after sacking Chancellor as earnings season begins for US banks

The UK Prime Minister’s about-face on corporate tax could leave a black hole of tens of billions of pounds in public finances, economists warn.

Liz Truss said on Friday that she would return to raising the corporate levy to 25 percent as announced by Rishi Sunak and the previous government, adding that public spending would increase “less rapidly than previously planned”.

Paul Johnson, director of the Institute for Fiscal Studies, wrote on Twitter that spending “can’t go up much less quickly without actually coming down.”

Torsten Bell, chief executive of the Resolution Foundation, a think tank, said that “the worst unforced error in UK economic policy in generations has been announced and exposed in the last two weeks”.

The prime minister ousted Kwasi Kwarteng as chancellor on Friday and scrapped almost half of her tax cuts, Bell calculated.

“However, the need to fund the remaining tax cuts and the gloomier economic outlook, including higher debt interest costs, means that despite today’s about-face, Jeremy Hunt has just two weeks to decide how to fill a tens of billions black hole can put pounds in public finances,” he explained.

Paul Dales, UK chief economist at Capital Economics, said that “this probably won’t be the last word either”.

He added that “it is possible that the Prime Minister will soon be removed and/or more needs to be done to restore the UK’s credibility in financial markets”.

Stephen Phipson, chief executive of Make UK, a business association, said the decision to raise corporate tax again “sends the wrong signal to investors about how attractive the UK is as a destination for foreign investment”.

“The UK urgently needs a long-term, credible economic and industrial strategy that includes a wide-ranging view of how we encourage investment in the Round,” he said.

“We cannot zigzag from one policy to the next,” he added.