Controversy as IMF Praises Reeves’s Budget Amid Concerns Over Growth and Living Standards

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The International Monetary Fund’s (IMF) recent endorsement of Rachel Reeves’s budget has stirred controversy in the UK, with critics calling it a blow to working people struggling under rising taxes and slow wage growth. In a statement, the IMF praised the budget, particularly its aim to reduce the deficit through sustainable revenue measures and a plan to increase public investment, which they believe will spur growth and address crucial public service needs. "We support the envisaged reduction in the deficit over the medium term, including by sustainably raising revenue,” an IMF spokesperson remarked. The budget’s strategic increases in public investment were also applauded as necessary steps toward addressing urgent issues in public services.

 

However, Robert Jenrick, a potential leader within the Conservative Party, expressed frustration with the IMF’s stance, describing it as a “slap in the face” to working citizens already stretched by rising taxes. Jenrick criticized the IMF's support of the budget's tax measures, especially given that the Office for Budget Responsibility (OBR) projects these tax increases will slightly hinder economic growth over the next decade. The OBR warns that living standards, particularly as measured by disposable income adjusted for inflation, will experience slower growth due to higher employer National Insurance contributions.

 

Jenrick’s criticism went further, calling the budget "gloom-and-bust," a reference to fears it may trigger higher inflation and escalating national debt. “This gloom-and-bust Budget is predicted by the OBR to lower growth, increase inflation, and cause debt to balloon. For working people being crippled by higher taxes, the IMF’s comments welcoming this Budget will feel like a slap in the face,” Jenrick stated.

 

The IMF’s support has not been universally shared among economists, either. Douglas McWilliams, deputy chairman of the Centre for Economics and Business Research, was openly skeptical of the IMF’s assessment, questioning both the reliability of the Fund’s forecasts and its understanding of policy. McWilliams argued, “The IMF does not have a great track record of either forecasting or understanding policy. If you keep getting your forecasts wrong, it calls into doubt virtually everything else you do.” He further explained that slowing growth, as projected by the OBR, is likely to reduce tax revenues, which could mean higher borrowing down the line. “So the numbers on which the IMF is commenting on are almost certainly wrong,” he added.

 

Rachel Reeves, the architect of the budget, has maintained that her plans are designed as a “once in a parliament Budget.” Still, she has conceded that further tax hikes may be necessary in the future. Despite her assertion, concerns linger that Britain’s tax burden is on course to reach a historic high, potentially hitting 38.2% by the end of the decade. This would be a significant rise, marking an increase of 5.1 percentage points compared to pre-pandemic levels.

 

Based on a report by Daily Telegraph 2024-11-02