In a uniquely bold statement, the International Monetary Fund (IMF) has openly criticised the UK Government for its planned tax cuts.
Unveiled in Chancellor Kwasi Kwarteng’s mini-budget last week, Liz Truss’s new government’s plans for £45 billion in tax cuts have already pulled in warnings from markets and economic critics, with fears that government borrowing could surge, along with interest rates.
The IMF has said that the tax cuts will likely increase inequality and contribute to rising prices, in stark contrast to the Government claiming the measures will kickstart economic growth.
Indeed, on Wednesday morning, the sterling fell by 0.7 per cent to $1.06, following the IMF raising concerns. This comes after the currency hit a record low of around $1.03 on Monday.
Here’s a look at what the IMF is and more detail on what they had to say about Kwarteng’s plans.
What is the IMF?
The IMF is an agency of the United Nations, and an international financial institution, headquartered in Washington, DC.
It is made up of 190 countries and works to achieve sustainable growth and prosperity for all of its member countries, by promoting economic policies in line with those goals.
In this way, the IMF plays a key role in stabilising the global economy and one of its key roles is to act as an early economic-warning system.
While the IMF can and has commented on economic policies in the past, it is not usually as outspoken as it has been in this case.
What did the IMF say?
The IMF said that, while the package aimed to boost growth in the UK, the cuts could speed up the pace of price increases, the opposite of what the Bank of England is attempting to do.
“Furthermore, the nature of the UK measures will likely increase inequality,” it added.
The IMF also seemed to encourage a revised plan ahead of the Government’s intention to unveil a fiscal plan on November 23, describing it as an opportunity to “re-evaluate” tax measures, “especially those that benefit high-income earners”.
Adnan Mazarei, a former deputy director at the IMF, told the BBC it was common for the IMF to make such statements on “emerging-market countries with problematic policies but not often G7 countries”.
He added that it showed the IMF was worried that the proposed tax cuts were permanent and that the budget would have to be financed by more borrowing. It’s likely also concerned about inflation rising, which would require interest-rate increases by the Bank of England.
