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Britain has a £30bn public finance black hole and risks falling into a future debt crisis after the Conservatives and Labor rejected calls from the International Monetary Fund (IMF) to increase taxes and cut spending.
The IMF used its regular assessment of the UK economy to warn that the government’s spending plans, widely accepted by Labor, were unrealistically tough.
These state that overall public spending will increase by 1% each year in real terms over the next five years.
But the IMF said: “The government faces urgent service delivery and investment needs that, in staff’s view, will be difficult to address within its official medium-term spending plans.”
The report noted growing pressures on health and social care and the need for increased spending on the “green transition” to boost future growth.
The fund suggested that a 2% increase (an extra £30bn a year in spending) was needed, but added that this would require other fiscal adjustments to avoid an inexorable rise in the national debt.
The party warned of “tough choices”, including a road use tax, the imposition of value-added tax on a wide range of products, the abolition of the triple lock on the state pension, an increase in property tax and a charge for people to pay for some public services. A series of policy options were presented. service.
The IMF report goes on to say, “Given these challenges, staff generally oppose further tax cuts unless they credibly promote growth and are adequately offset by high-quality deficit reduction measures.” Deaf,” he said.
Prime Minister Jeremy Hunt has cut National Insurance contributions by 4p since last year and is expected to announce a further 2p cut before the election.
A senior government official said of the IMF: “They are clearly not in a good position to let us know how much public spending is going to be needed in the next Congress. Our clear position is to invest in public spending, deliver tax cuts, This means we can protect the triple lock as well.”
Labor did not comment on the details of the report, but sources suggested it had no intention of changing its position in light of the IMF ruling.
Neither party has explained how they will achieve the 1% spending target, but experts say most of the It says billions of pounds will have to be cut in Whitehall. Year.
The IMF has concluded that the UK economy is approaching a soft landing after last year’s mild recession, with inflation expected to settle around its 2% target by early 2025.
Official figures to be released on Wednesday show consumer price inflation has fallen significantly, potentially falling by as much as 2% from current levels of 3.2%, but is expected to recover to around 2.5% in the second half of the year. ing.
The fund also warned of long-term obstacles to the UK’s economic growth and recommended reforms in housing, skills and health that would boost productivity.
Mr Hunt said: “Today’s report clearly shows that independent international economists agree that the UK economy has turned a corner and is on track for a soft landing.” Stated.
“The IMF has revised our growth rate upward this year, predicting that we will grow faster than other large European countries over the next six years. So now is the time to dispel unwarranted pessimism about our prospects. has arrived.”
But Labour’s shadow chancellor to the exchequer, Darren Jones, said: “Millions of people are increasing their mortgage payments, prices are still rising in stores and the UK economy is leaving working families worse off. “I’m upset about the ‘mini-budget’ that is being introduced.” off. Such is the record of this government and the only way to turn the page and end the Tory mess is to form a Labor government. ”