Homeowners face a mortgage rate shock as Liz Truss confirms corporation tax and national insurance cuts

Liz Truss has detailed her plans for sweeping tax cuts amid warnings that interest rates could hit 3.75 per cent by the end of the year, piling pain on mortgage-holders.

The Prime Minister confirmed that her Chancellor, Kwasi Kwarteng, will cancel the planned rise in corporation tax and roll back the increase in national insurance contributions in his fiscal statement on Friday.

Speaking on her first overseas visit since entering No 10, she said her Government would take the “difficult decisions to get our economy right”.

However, her plans to fire up the economy by slashing taxes came as the US President Joe Biden insisted that “trickle-down economics” does not work, ahead of the leaders’ first full bilateral meeting in New York.

And it coincided with warnings from economists that the Bank of England could be forced to raise interest by a further 2 percentage points by the end of this year to get a grip on inflation.

Ms Truss told the BBC: “We have to look at our tax rates. So corporation tax needs to be competitive with other countries so that we can attract that investment.

“We should be setting our tax policy on the basis of what is going to help our country become successful.”

Ms Truss came under fire during the Tory leadership campaign when the economist she name-checked as backing her economic plans, Patrick Minford, suggested interest rates would have to rise to 7 per cent to allow for her tax-cutting plans.

The Bank of England is expected to raise interest rates by 0.75 percentage points on Thursday, taking them to 2.5 per cent. But investors fear that the base rate could rise to 3.75 per cent by the end of the year, its highest level since 2008.

Under that scenario, average households would see their mortgage costs double, with an extra £202 a month for people on trackers and £270 for those on fixed-rate mortgages.

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Stephen Yiu, manager of Blue Whale Growth Fund, said: “A lot of people and businesses will be in worse shape because of this, but that’s how you kill off inflation.

“The Bank of England is having to do something difficult. Meanwhile, what the Government is doing may prolong this journey.”

Ms Truss will reaffirm her commitment to cutting taxes in her major speech to the United Nations General Assembly on Wednesday, where she will tell leaders the UK will cut taxes in an attempt to draw a dividing line with authoritarian regimes.

But in an unfortunately timed intervention for Ms Truss, President Biden tweeted that he was “sick and tired of trickle-down economics”, adding: “It has never worked.”

While Mr Biden was probably aiming his jibe at the Republican Party ahead of the US midterm elections, it is a sign that the meeting between the UK and US leaders is unlikely to be a meeting of minds.

Downing Street said it was “ludicrous” to suggest the President was making a statement about Ms Truss’s economic plans.