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The International Monetary Fund (IMF) has raised concerns over the UK’s £20 billion national insurance tax cut, warning of potential repercussions on the country’s public finances. In its latest assessment, the IMF projected an increase in the UK’s debt burden over the next five years, casting doubt on the government’s ability to meet its fiscal targets.
According to the IMF, the UK’s public debt ratio is expected to rise until the end of the decade, reaching 98 per cent of GDP by 2029. These projections challenge the government’s assertions that debt levels would decrease within the next five years, as outlined in the chancellor’s fiscal rule.
While the IMF’s calculations for the UK’s debt levels differ from those of the Office for Budget Responsibility, both forecasts indicate a continuous rise in debt beyond 2024. The chancellor’s fiscal rule mandates a reduction in the debt ratio by the end of a five-year period.
The IMF has consistently cautioned against tax cuts that diminish government revenues and constrain spending on essential public services. Specifically, it highlighted the recent decision by the Conservatives to reduce the national insurance contribution rate, a move estimated to cost the Treasury £20 billion.
Although Chancellor Jeremy Hunt has defended tax cuts as a means to stimulate economic growth and alleviate cost-of-living pressures, the IMF warns that such measures could exacerbate the medium-term debt trajectory. Hunt, who is currently in Washington for the IMF’s spring meetings, has championed the benefits of lower taxes to spur dynamism in the UK economy.
The IMF’s broader assessment also underscores the global risks posed by high debt levels, with public debt projected to reach 100 per cent of GDP globally by 2029. The organization emphasizes the need for policy actions to address spending-revenue imbalances in major economies like the UK, the US, Italy, and China.
In response, Labour’s Shadow Chancellor Rachel Reeves has affirmed the party’s commitment to maintaining the existing fiscal rule, aiming to reduce the debt ratio within five years. Conversely, Hunt and the Conservatives face criticism for allegedly manipulating fiscal rules by funding short-term tax cuts with promises of long-term public spending reductions.
