Fury as IMF tells Hunt not to cut taxes

Economic group says UK should spend on health and education

THE International Monetary Fund was criticised yesterday for urging Jeremy Hunt not to cut taxes and instead go on a spending spree.

Pierre-Olivier Gourinchas, its chief economist, said ‘we would advise against’ the reductions being considered by the Chancellor.

In an extraordinary intervention months before the general election he said the UK should be spending more money on the NHS, net zero and education.

Economists and Tory MPs immediately rounded on the fund, whose overseas staff based in Washington benefit from tax-free salaries.

Simon French, chief economist at Panmure Gordon investments, branded the IMF ‘idiots’ and said the body was ‘wading into domestic politics’ in a move that smacks of ‘naivety and hubris’.

Even Ken Rogoff, a predecessor of Mr Gourinchas at the IMF, told Sky News the organisation seemed to have decided to ‘pick on’ Britain.

Mr Hunt said growth was being boosted by business tax breaks and national insurance cuts announced in November.

He added: ‘It is too early to know whether further reductions in tax will be affordable in the budget [in March], but we continue to believe that smart tax reductions can make a big difference.’

A Downing Street spokesman said the Prime Minister was ‘very clear that we want to cut taxes where we can afford to do so’.

Mr Gourinchas, a French economist who holds a post at California’s Berkeley university, said that like other countries the UK was facing ‘very significant increases in spending pressures’ which needed to be addressed while at the same time not allowing debt to spiral out of control. ‘In the case of the UK you might think of spending on healthcare and modernising the NHS, spending on social care, on education,’ he said.

‘You might think about critical public investment to address the climate transition but also to boost growth.

‘That requires a combination of tax and spending measures to make sure that you can allocate the resources where they need to be allocated but at the same time preventing your debt levels from increasing.

‘And in that context, we would advise against further discretionary tax cuts as envisioned or discussed now.’

The comments came as the IMF cut the UK’s growth outlook for next year from 2 per cent to 1.6 per cent. It left its forecast for 2024 unchanged at 0.6 per cent. That leaves Britain near the bottom of the pile among G7 advanced nations for this year, ahead only of Germany at 0.5 per cent.

Carsten Brzeski of ING Bank said the German economy ‘remains stuck in the twilight zone between recession and stagnation’.

Economists have warned it is unclear how the UK Government will balance the books. Panmure’s Mr French said: ‘The IMF are not wrong that public spending plans postelection are poorly defined.

‘But you can make the same point without criticising tax cuts and wading into domestic politics.’

‘Wading into domestic politics’