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IMF criticises the UK government tax plans

IMF criticises the UK government tax plans
28.09.2022
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The International Monetary Fund (IMF) 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 was likely to increase inequality and add to pressures pushing up prices.

Markets have already raised alarm over the plans, sending the pound plunging.

The government says the measures will kickstart economic growth.

On Wednesday morning, sterling fell by 0.7% to $1.06 after the IMF raised its concerns. It comes after the currency hit a record low of around $1.03 on Monday.

Chancellor Kwasi Kwarteng unveiled the country’s biggest tax package in 50 years on Friday. But the £45bn cut has sparked fears that government borrowing could surge along with interest rates.

The IMF works to stabilise the global economy and one of its key roles is to act as an early economic warning system.

It said it understood the package aimed to boost growth, but it warned that the cuts 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.

The IMF said that the government publishing a fiscal plan on 23 November gave it an opportunity to “re-evaluate” tax measures, “especially those that benefit high income earners”.

The UK government proposals would scrap the top rate of income tax, and end a cap on bankers’ bonuses, among other measures.

The announcement on Friday sparked days of financial turmoil, as investors dumped the pound and UK debt. Some of the country’s biggest lenders also suspended mortgage deals amid the uncertainty.

The Treasury said: “We are focused on growing the economy to raise living standards for everyone.”

It added that Mr Kwarteng was due to publish his medium-term plan for the economy on 23 November, which would include ensuring that UK debt falls as a share of economic output in the medium term.

On Tuesday, the Bank of England signalled that it was prepared to ramp up interest rates in response to the slump in the value of the pound.

Its chief economist Huw Pill said the Bank “cannot be indifferent” to the developments of the past days.

He said the Bank would have to deliver a “significant monetary policy response” to protect sterling.

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