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UK Government Receives Criticism from IMF Over Tax Cuts and Increased Borrowing

Grace Burton by Grace Burton
September 28, 2022
in News
UK Government Receives Criticism from IMF Over Tax Cuts and Increased Borrowing
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The British government launched its anti-inflation strategy in response to inflationary pressures. However, the International Monetary Fund, the world’s top financial agency, voiced alarm about the plans made public by the UK government, which newly elected Prime Minister Liz Truss heads.

According to the IMF, the UK government’s proposed big tax cuts will have more negative consequences than positive ones. The group continued by stating that the changes would result in more inequality and inflation in the nation. In addition, the tax cuts would be the largest since the 1970s if they were implemented.

“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,” stated the IMF.

“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.”

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A weak pound value is a cause for concern

The UK government must contend with a historic drop in the value of the pound, together with rising prices for goods and services. In addition, the government is increasing its borrowing from other nations to respond to the energy shortages and to raise subsidies to consumers and energy corporations. The UK government loaned many nations, notably Italy and Greece.

In reaction to the UK government’s excessive borrowing and spending, the Central Bank of England issues a warning about probable rate increases. A massive spike from the current 2.25%, reports claims that the rates might rise by 6% next spring. Increased prices would counteract currency devaluation and rising inflation.

Additionally, noting that the current market circumstances as dysfunctional, the Bank of England said that it would take drastic measures to “restore orderly market conditions” for the nation.

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The government commits to a reckless gamble

The tax cuts were revealed a few days ago by Liz Truss, the prime minister who succeeded Boris Johnson. However, a foolish bet, according to analysts, was made by her when she also eased corporation taxes in addition to the significant cuts. To pay its subsidy program, which attempts to support people and businesses in the face of rising energy bills, the UK government must now rely heavily on government borrowing.

Additionally, the UK treasury pledged that it would have future measures to help the situation become better. The treasury staff members said that on November 23, their strategies would be revealed.

The IMF cautioned that the UK government’s present policies might aggravate the nation’s record-high inflation and raise inequality. The IMF wasted no time criticizing the UK government for these proposals, which it said could increase inequality. The IMF strongly suggests that the government should use the November budget “to consider ways to provide the support that is more targeted and reevaluate the tax measures, especially those that benefit high-income earners.”

The UK government upheld its choice after getting criticism for its statement a few days prior. Truss claims that they made the following choice to “incentivize businesses to invest, and we’re also helping ordinary people with their taxes.”

“I don’t really accept the premise of the question at all. The UK has one of the lowest levels of debt in the G7, but we have one of the highest levels of taxes. Currently, we have a 70-year high in our tax rates.”

“We’ve also put in place a package of measures to support consumers with energy prices, to make sure that nobody is having to pay more than £2,500 on their bills.”

Photo Credit: CNN

Source: CNN

Tags: Featured-top

Opinions expressed by US Insider contributors are their own.
Grace Burton

Grace Burton

Grace is a marketing professor by day and a freelance writer by night. A proud mother of two boys and a nature lover.

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