Jeremy Hunt to press ahead with tax cuts in defiance of IMF warning


Jeremy Hunt is set to press ahead with tax cuts at the Budget in March despite a warning from the International Monetary Fund (IMF) that it would hurt public finances.

The Chancellor was urged not to reduce taxes further by the fund’s chief economist, who argued that doing so would make it harder to fund the services needed.

But he is still planning to cut some taxes if his fiscal rules allow and will argue that lowering the tax burden will help the economy to grow, i understands.

A Treasury source said: “The tax cuts we have specifically selected drive growth and boost the economy. We will be smart in our choices.”

The IMF forecast in its World Economic Outlook that economic growth in the UK would accelerate this year as inflation falls, although at 0.6 per cent it is still set to be weaker than the US, eurozone, Canada or Japan.

Next year GDP growth is forecast to rise to 1.6 per cent, roughly in line with most other major rich economies.

Pierre-Olivier Gourinchas, the IMF’s chief economist, said that over time Britain would have to spend more on public services.

He told a press conference: “There is a need to put in place medium-term fiscal plans that will accommodate a very significant increase in spending pressures,” he told a press conference.

“In the case of the UK, you might think of spending on healthcare and modernising the NHS; spending on social care; on education; you might think about critical public investment to address the climate transition; but also to boost growth. In that context we would advise against further discretionary tax cuts as envisioned and discussed now.”

Mr Hunt announced a 2p cut to national insurance and investment tax breaks for businesses at the last Autumn Statement, and both he and Rishi Sunak have dropped heavy hints that taxes will be cut again at the Budget on 6 March.

The Chancellor said in response to the IMF: “The IMF expect growth to strengthen over the next few years, supported by our introduction of the biggest capital investment tax reliefs anywhere in the world, alongside national insurance cuts to improve work incentives.

“It is too early to know whether further reductions in tax will be affordable in the Budget, but we continue to believe that smart tax reductions can make a big difference in boosting growth.”

Darren Jones, Labour’s shadow Chief Secretary to the Treasury, said: “This is yet more evidence of 14 years of Conservative economic failure. The Tories have left Britain with high debt, flatlining growth, high taxes and working people worse off.”

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