The UK’s planned tax cuts are likely to increase inequality in the country, according to the International Monetary Fund. In an unusual …
The UK’s planned tax cuts are likely to increase inequality in the country, according to the International Monetary Fund.
In an unusual statement, the UN agency encouraged Britain — a member of the G7 financial group — to rethink how it will support people through its fiscal policy.
Chancellor Kwasi Kwarteng has faced criticism after he announced a budget on Friday aimed at boosting growth in the UK through tax cuts and increased spending.
The fiscal plan, which requires £72billion of additional government borrowing in the next six months, saw the value of British sterling plummet to a record low against the US dollar on Monday.
Kwarteng has defended his policies. The government said it will set out more financial details in a “fiscal statement” on November 23.
The IMF said in a statement on Tuesday evening: “We understand that the sizable fiscal package announced aims at helping families and businesses deal with the energy shock and at boosting growth via tax cuts and supply measures.
“However, 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.
“Furthermore, the nature of the UK measures will likely increase inequality.
“The November 23 budget will present an early opportunity for the UK government to consider ways to provide support that is more targeted and re-evaluate the tax measures, especially those that benefit high income earners.”
A former deputy governor of the IMF — established in 1945 to ensure global financial stability — said it was unusual for the agency to criticise a G7 nation.
Adnan Mazarei told the BBC that such statements are “common with regard to emerging market countries with problematic policies, but not often about G7 countries”.
Britain was forced to apply for an IMF loan of nearly $4 billion during the 1976 financial crisis, with IMF negotiators insisting on deep cuts in public expenditure at the time.
Keir Starmer, the leader of the UK’s left-leaning opposition party Labour, accused the Conservative government of making a “mess” of the economy.
“Quite often when the markets are jittery, when the pound falls, it’s because of some international event – conflict in Ukraine, a cost-of-living crisis, energy crisis. This is self-inflicted by the government,” Starmer told LBC radio.
The latest UK budget included tax cuts for the highest earners, with their tax rate dropping to 40 per cent from 45 per cent, alongside a one per cent cut for earners in the lowest band of income tax.
It also cancelled a planned rise in corporation tax from 19 per cent to 25 per cent and scrapped rules that limit bankers’ bonuses.
Kwarteng, who was appointed Chancellor on 6 September, said he believed the budget would boost economic growth in the UK.