IMF urges UK government to reconsider tax-cutting
plans
International Monetary Fund says measures should
target households worst affected by energy crisis and inflation
Phillip
Inman and Richard Partington
Wed 28 Sep
2022 00.10 BST
The
International Monetary Fund has launched a stinging attack on the UK’s
tax-cutting plans and called on Liz Truss’s government to reconsider them to
prevent stoking inequality.
In rare
public criticism of a leading global economy, the Washington-based fund said
Kwasi Kwarteng’s mini-budget risked undermining the efforts of the Bank of
England to tackle rampant inflation amid the cost of living emergency.
It said a
statement planned by Kwarteng for 23 November presented an “opportunity for the
UK government to consider ways to provide support that is more targeted and
reevaluate the tax measures, especially those that benefit high income
earners”.
The rebuke
comes amid a growing international backlash over the chancellor’s £45bn of
unfunded tax cuts, with the intervention from the IMF swiftly followed by sharp
criticism from the credit rating agency Moody’s late on Tuesday. The US
treasury secretary, Janet Yellen, also said the US was “monitoring developments
very closely” in the UK.
As one of
the most influential adjudicators in global financial markets, which rates the
creditworthiness of governments and corporations on behalf of large investors,
Moody’s said the UK’s “large unfunded tax cuts are credit negative”.
“A
sustained confidence shock arising from market concerns over the credibility of
the government’s fiscal strategy that resulted in structurally higher funding
costs could more permanently weaken the UK’s debt affordability.”
The
intervention from the IMF is rare given the influence of the UK in the global
economy, and as one of the organisation’s largest shareholders.
Larry
Summers, the former US treasury secretary, said such a warning shot from the
IMF would be more usual for an emerging market economy than a country like
Britain. He told the BBC’s Newsnight: “It is early days and things could change
and economics is not an exact science, but I would certainly say that this has
the look right now of a number of unforced errors.”
Summers
said earlier on Tuesday that he was surprised the IMF had not intervened since
the mini-budget on Friday.
The IMF has
consistently warned countries to avoid universal bailouts in response to the
energy price shock. It has argued that only the poorest households should be
protected from higher energy bills and the extra costs from rising inflation to
limit the impact on public borrowing.
In a move
just days after Kwarteng’s mini-budget, and after the pound fell to the lowest
ever level against the US dollar at one point on Monday, the organisation said
it was “closely monitoring recent economic developments in the UK” and was
engaged “with the authorities”.
“Given
elevated inflation pressures in many countries, including the UK, we do not
recommend large and untargeted fiscal packages at this juncture, as it is
important that fiscal policy does not work at cross purposes to monetary policy,”
the spokesperson said in the IMF’s first public reaction.
Privacy
Notice: Newsletters may contain info about charities, online ads, and content
funded by outside parties. For more information see our Privacy Policy. We use
Google reCaptcha to protect our website and the Google Privacy Policy and Terms
of Service apply.
Kwarteng
cut the top rate of tax from 45p to 40p and promised a 1p cut in the basic rate
of tax from April next year. He also said he would retain corporation tax at
19% – scrapping a planned rise to 25% – and reverse a recent rise in national
insurance payments, saying that the near £50bn cost would be added to the UK’s
debt pile.
The move
sent sterling and government bonds into freefall over the weekend and on
Monday, despite Kwarteng arguing that the budget was aimed at growing the
economy.
Kwarteng
calmed markets by saying he would set out medium-term debt-cutting plans on 23
November, alongside forecasts from the independent Office for Budget
Responsibility on the full scale of government borrowing.
The Bank of
England also issued a notice saying it stood ready to raise interest rates to
bring down inflation. However, most analysts forecast that the pound would
continue to fall and borrowing costs rise unless the government reversed at
least some of its planned tax cuts.
A Treasury
spokesperson said: “Our energy price guarantee saves households £1,000 on
average and we’re halving business energy bills.
“We are
focused on growing the economy to raise living standards for everyone and the
chancellor has announced he will publish his medium-term fiscal plan on 23
November, which will set out further details on the government’s fiscal rules.”
Sem comentários:
Enviar um comentário