Larry Elliott Economics editor 

Jeremy Hunt’s tax cut plans to face IMF scrutiny next month

Annual health check to examine whether tax increases or spending cuts will be needed after election
  
  

Jeremy Hunt
Jeremy Hunt’s Treasury is already drawing up plans for an autumn statement before polling day. Photograph: José Luis Magaña/AP

Jeremy Hunt’s plans for a fresh tranche of pre-election tax cuts will be put under the microscope when the International Monetary Fund conducts its in-depth look at the UK economy next month.

IMF officials said the team sent to London to conduct its annual health check would be looking closely at whether tax increases or spending cuts would be needed after the general election.

Asked whether tax cuts before the vote would be followed by tax increases or spending cuts in the next parliament, the fund said this would feature in its article 4 consultations with the UK. It issued a general warning earlier this week against pre-election tax cuts that might damage the public finances.

The Treasury is already drawing up plans for an autumn statement before polling day and there has been speculation the chancellor will use the opportunity to cut taxes for a third time in less than a year. Hunt reduced national insurance contributions by two percentage points in both last November’s autumn statement and the March budget.

Helge Berger, the deputy head of the IMF’s European division, said the Washington-based organisation was following events in the UK “closely” and that the UK government’s fiscal policy would feature strongly in the article 4 study.

“I wouldn’t speculate about the shape of tax cuts in the future”, Berger said. “The broader point is that there is an effort under way to provide fiscal consolidation, which is appropriate.

“There are significant pressures on the budget coming from the spending side, including health and infrastructure.”

Berger said the government should look at ways that would allow it to respond to these pressures. “It needs to look for revenue measures and spending measures going forward,” he said.

The IMF will also be studying recent developments in the UK labour market – including the reasons for rising inactivity – in the article 4 review.

After Rishi Sunak’s announcement of a clampdown on “sicknote Britain”, Berger said the IMF recognised how important labour supply had been to the UK economy.

“In the last two years most of the momentum has come from an expanding population, including from migration. So the increase in inactivity is a concern for growth.”

Berger said there would be weaker productivity if people were ill and had to work. “One area to think about is the quality of health care. Another is the way disability is supported,” he said.

Official figures released this week showed the number of people inactive because of illness or disability has risen to a record 2.83 million.

The UK is the only member of the G7 group of leading developed nations where the share of working-age people outside the workforce remains higher than before the pandemic.

 

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