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.
She said the change would raise £18bn for the public purse.
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.
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 cuts had 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.