IMF Warns UK Government On Tax Giveaways

Tax giveaways are not compatible with the poor state of the UK's public finances, even with an election to win.

Will the Treasury department listen to the IMF?

As the UK gears up for a critical General Election later this year, the International Monetary Fund has warned the Chancellor of the Exchequer not to compromise public services or undermine investment in the economy by cutting taxes.

The almost unprecedented move comes at a time when the Conservative Party are almost 20 points behind in the polls, and face a devastating defeat after 13 years in power. Tax cuts are a tried and tested means of winning back voters, though in this instance it is unlikely to prevent a landslide victory.

Questions About Spending Plans

In what will be seen as an unusual and potentially inflammatory intervention, the IMF—one of the most influential economic bodies in the world—has argued that even the current spending plans do not go far enough. Any tax cuts, which were hinted at by the Chancellor for the March Budget statement, would do even more damage, as a spokesperson for the IMF detailed:

Preserving high-quality public services, and undertaking critical public investments to boost growth and achieve the net zero targets, will imply higher spending needs over the medium term than are currently reflected in the government's budget plans... The IMF has recommended strengthening carbon and property taxation, eliminating loopholes in wealth and income taxation, and reforming the pensions triple lock. It is in this context that staff advises against further tax cuts.

Downgraded Growth And Persistent Inflation

The IMF's statement comes at a time when the UK's economic forecast has already been downgraded, from 2% GDP growth to just 1.6% for the coming year. Moreover, while inflation is on the right track, it is still stubbornly high, and the most recent CPI figures showed an increase on the previous month.

UK Inflation Posts Surprise Increase
Alcohol and tobacco were the biggest contributors to rising consumer prices.

The Chancellor is ideologically opposed to the recommended tax rises, maintaining that lowering taxes will stimulate growth.

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