IMF warns UK against more tax cuts
The International Monetary Fund has warned the United Kingdom’s Chancellor of the Exchequer Jeremy Hunt against cutting taxes in his spring budget, which is to be unveiled on March 6, saying public spending should be a bigger priority.
The budget is always delivered in March, but this is the earliest date in the month that has been picked in the 14 years that the Conservative Party has been in power, a choice that has fueled speculation that Prime Minister Rishi Sunak may call a general election earlier in the year than previously suggested.
The IMF’s latest global economic outlook says the world economy is “(beginning) the final descent toward a soft landing, with inflation declining steadily and growth holding up”, but, as more turbulence may lie ahead, caution is still urged.
“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 (UK) government’s budget plans,” an IMF spokesperson said. “Accommodating these needs, while assuredly stabilizing the debt/ GDP ratio, will already require generating additional high-quality fiscal savings, including on the tax side.”
But Hunt disagreed, saying, “It is too early to know whether further reductions in tax will be affordable in the budget, but we continue to believe that smart tax reductions can make a big difference in boosting growth.”
This is because countries with lower taxes, such as the United States, “have dynamic economies and grow faster”, Hunt told ITV News last month.
Unexpectedly high levels of growth in 2023 in several major economies were one of the reasons the IMF revised its growth estimates for the year ahead, with its chief economist, Pierre-Olivier Gourinchas, observing that “the clouds are beginning to part”.
The comments came at the same time as the IMF predicted the UK economy will expand by just 0.6 percent this year, only a marginal year-on-year increase of 0.5 percent and the second-slowest among G7 members, behind Germany.