The International Monetary Fund has openly criticised the UK government over its plan for tax cuts, warning that the measures are likely to fuel the cost-of-living crisis.
In an unusually outspoken statement, the IMF said the proposal would be likely to increase inequality and add to pressures pushing up prices.
The IMF works to stabilise the global economy, and one of its roles is to act as an early economic warning system.
It said it understood the package aimed to boost growth via tax cuts, but it warned that the measures could speed up the pace of price rises, which the UK’s central bank is trying to bring down.
“Furthermore, the nature of the UK measures will likely increase inequality,” it said.
BBC economics editor Faisal Islam said the “remarkable” IMF warning “must reflect the fact that big finance ministries around the world, our major partners, are concerned” about the government plans.
Editorial Note
The Truss government’s growth plan centres on tax cuts for the better off, in the hope it will benefit wider society by boosting investment, innovation and job creation.
But a 2020 study by academics at the London School of Economics examined the impact of such policies in wealthy countries over five decades - and found they failed to significantly boost growth or jobs. They were more likely, the study claimed, to widen the gap between rich and poor.
So, that’s the IMF and the LSE to put on the list of “doubters” …
Oh there are other bits of British success in all of this. Apparently some London hedge funds have made millions by betting against the pound and against UK government bonds. This positive news shows that the entrepreneurial British spirit to succeed is not completely lost. Hurrah.
I might hang around the streets of Mayfair for a bit to see if this bonanza might trickle out of the hedge fund’s fancy offices and down to me. I think that’s how it works.
The pound slumping against the dollar, high energy and fuel prices, and the promise of higher food and general commodity prices…This is not just a British problem is it?
The rest of the world and your beloved EU countries are also experiencing difficulties too.
How much more evidence do you need that the world economics are being controlled by the few and this is deliberate, with Putin as the scapegoat.
Sometimes you can’t see the wood for the trees strathmore…
The Treasury has categorically denied Kwarteng will ask financiers not to bet against the pound, which has fallen to record lows against the dollar in recent days. He is expected to underline his commitment to fiscal discipline and will talk about a “Big Bang 2.0 event” from his growth plan.
The Bank of England (BoE) has signalled it was ready to significantly ramp up interest rates to shore up the pound and guard against increased inflation.
The chancellor spoke by phone to Tory MPs at a time of growing anger on the backbenches over the government’s strategy. Some have been openly expressing concerns about the new economic approach, and the effect it has had on financial markets, saying the party risks trashing its reputation for managing the economy with voters.
He argued his fiscal strategy was focused on the medium-term, and was aimed at showing voters “we can be more efficient in how we spend taxpayers’ money” (1). He went on to say that the economic situation would be better in 2024, before what he said was always going to be a “tricky” general election - with Labour currently surging ahead in the polls. He told MPs that he was establishing a “good working relationship” with the governor of the Bank of England and was in daily contact with him. He also acknowledged that markets had been volatile but said they were now “settling down” (2) and argued the turmoil reflected a frustration that the markets had not known everything that was included in the mini-budget.
(1) KK is, apparently, borrowing £70,000,000,000 to fund his energy bills support for households and businesses - the taxpayer will, sooner or later, have to pay that back.
Well the IMF are fed up with him already, so this doesn’t bode well. I wonder if he’s going to reverse his decisions as requested… (probably the only sensible U-Turn to make)
Sir Keir said “Unlike other situations where it may be a world event, an unexpected event that causes this sort of crisis this is self-inflicted. This was made in Downing Street last Friday. And for what? For uncosted tax breaks for those earning hundreds of thousands of pounds.”
All the main opposition parties - including Labour, Liberal Democrats, Green Party and Plaid Cymru - have now called for parliament to be recalled early.
The Conservative Party conference is due to begin on 2 October, with the Chancellor Kwasi Kawrteng giving a speech on Monday. (1)
Labour has promised to reverse the government’s plans to scrap the top rate of income tax and cut corporation tax. However, Sir Keir has said his party supports the decision to cut the basic rate of tax.
Thanks. Died in office eh? It’d be quite something to beat 118 days, especially since the first couple of weeks were a freebie honeymoon due to the death of the monarch.
(probably the only sensible U-Turn to make)
