London Daily

Focus on the big picture.
Sunday, Jun 01, 2025

IMF sounds alarm on UK tax cut plans

IMF sounds alarm on UK tax cut plans

The International Monetary Fund 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 would be 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.

Chancellor Kwasi Kwarteng unveiled the country's biggest tax package in 50 years on Friday. The £45bn cut will be funded by government borrowing.

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

It said it understood the package aimed to boost growth via tax cuts, but it warned that the measures 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. On Monday the pound fell to record lows against the dollar.

Some of the country's biggest lenders 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.

Meanwhile, Lord Frost, the former Brexit minister and close ally of Prime Minister Liz Truss, criticised the IMF's statement.

He told the Daily Telegraph: "The IMF has consistently advocated highly conventional economic policies. It is following this approach that has produced years of slow growth and weak productivity.

"The only way forward for Britain is lower taxes, spending restraint, and significant economic reform."

BBC economics editor Faisal Islam says the IMF's "stinging rebuke... reflected similar concerns from the world's major finance ministries that a crisis brewing in the UK could spill over into a global slowdown".

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.

Speaking to BBC Two's Newsnight, former US Treasury Secretary Larry Summers described the situation facing the UK as "very ominous".

"I can't in all honesty remember a time when a set of policy announcements from a G7 country elicited so negative a response both from markets and from economic experts," he said.

"When a country sees its interest rates rise by [as much as they have] in two days at the same time that its currency is falling in a major way, that is a sign that there has been a major loss of market credibility and market confidence.

"The kind of warning that Britain received from the IMF today is a kind of warning that comes much more frequently to emerging markets with new governments than to a country like Britain."

Asked about the UK's plans at an event in Washington, White House economic adviser Brian Deese said he had not been surprised by the negative reaction of the markets and that it was important to focus on "fiscal prudence, fiscal discipline", the Reuters news agency reported.

Moody's credit rating agency said on Wednesday that the UK's plan for "large unfunded tax cuts" was "credit negative" and would lead to higher, persistent deficits "amid rising borrowing costs [and] a weaker growth outlook". Moody's did not change the UK's credit rating.

Labour's shadow chancellor Rachel Reeves said the government must "urgently lay out how it will fix the problems it created through its reckless decisions to waste money in an untargeted cut in the top rate of tax".

"Waiting until November [when the fiscal plan is published] is not an option," she said. Instead, "the government must urgently review the plans made in their fiscal statement last week".

She added: "This statement from the IMF should set alarm bells ringing in government and make it clear that they need to act now."


IMF statement in full


"We are closely monitoring recent economic developments in the UK and are engaged with the authorities.

"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."

Newsletter

Related Articles

0:00
0:00
Close
Hegseth Warns of Potential Chinese Military Action Against Taiwan
OPEC+ Agrees to Increase Oil Output for Third Consecutive Month
Jamie Dimon Warns U.S. Bond Market Faces Pressure from Rising Debt
Turkey Detains Istanbul Officials Amid Anti-Corruption Crackdown
Taylor Swift Gains Ownership of Her First Six Albums
Bangkok Ranked World's Top City for Remote Work in 2025
Satirical Sketch Sparks Political Spouse Feud in South Korea
Indonesia Quarry Collapse Leaves Multiple Dead and Missing
South Korean Election Video Pulled Amid Misogyny Outcry
Asian Economies Shift Away from US Dollar Amid Trade Tensions
Netflix Investigates Allegations of On-Set Mistreatment in K-Drama Production
US Defence Chief Reaffirms Strong Ties with Singapore Amid Regional Tensions
Vietnam Faces Strategic Dilemma Over China's Mekong River Projects
Malaysia's First AI Preacher Sparks Debate on Islamic Principles
White House Press Secretary Criticizes Harvard Funding, Advocates for Vocational Training
France to Implement Nationwide Smoking Ban in Outdoor Spaces Frequented by Children
Meta and Anduril Collaborate on AI-Driven Military Augmented Reality Systems
Russia's Fossil Fuel Revenues Approach €900 Billion Since Ukraine Invasion
U.S. Justice Department Reduces American Bar Association's Role in Judicial Nominations
U.S. Department of Energy Unveils 'Doudna' Supercomputer to Advance AI Research
U.S. SEC Dismisses Lawsuit Against Binance Amid Regulatory Shift
Alcohol Industry Faces Increased Scrutiny Amid Health Concerns
Italy Faces Population Decline Amid Youth Emigration
U.S. Goods Imports Plunge Nearly 20% Amid Tariff Disruptions
OpenAI Faces Competition from Cheaper AI Rivals
Foreign Tax Provision in U.S. Budget Bill Alarms Investors
Trump Accuses China of Violating Trade Agreement
Gerry Adams Wins Libel Case Against BBC
Russia Accuses Serbia of Supplying Arms to Ukraine
EU Central Bank Pushes to Replace US Dollar with Euro as World’s Main Currency
Chinese Woman Dies After Being Forced to Visit Bank Despite Critical Illness
President Trump Grants Full Pardons to Reality TV Stars Todd and Julie Chrisley
Texas Enacts App Store Accountability Act Mandating Age Verification
U.S. Health Secretary Ends Select COVID-19 Vaccine Recommendations
Vatican Calls for Sustainable Tourism in 2025 Message
Trump Warns Putin Is 'Playing with Fire' Amid Escalating Ukraine Conflict
India and Pakistan Engage Trump-Linked Lobbyists to Influence U.S. Policy
U.S. Halts New Student Visa Interviews Amid Enhanced Security Measures
Trump Administration Cancels $100 Million in Federal Contracts with Harvard
SpaceX Starship Test Flight Ends in Failure, Mars Mission Timeline Uncertain
King Charles Affirms Canadian Sovereignty Amid U.S. Statehood Pressure
Trump Threatens 25% Tariff on iPhones Amid Dispute with Apple CEO
Putin's Helicopter Reportedly Targeted by Ukrainian Drones
Liverpool Car Ramming Incident Leaves Multiple Injured
Australia Faces Immigration Debate Following Labor Party Victory
Iranian Revolutionary Guard Founder Warns Against Trusting Regime in Nuclear Talks
Macron Dismisses Viral Video of Wife's Gesture as Playful Banter
Cleveland Clinic Study Questions Effectiveness of Recent Flu Vaccine
Netanyahu Accuses Starmer of Siding with Hamas
Junior Doctors Threaten Strike Over 4% Pay Offer
×