IMF urges Brown to curb spending
The Government’s ambitious public spending plans have received the thumbs down from the International Monetary Fund in its annual report on the UK.
Although the IMF states that Britain’s economic performance over the last few years has been ‘enviable’, it suggests that the ‘sharp increases’ in public spending planned by the Chancellor could put a strain on the country’s fiscal health.
In the pre-Budget report earlier this month Gordon Brown announced that he had yet again underestimated the UK’s borrowing requirements, and that the figure would rise to £37bn by the end of this fiscal year. He added, however, that he expected that sum to drop dramatically as the economy continued to recover.
According to the IMF the ‘widening fiscal deficit’ doesn’t pose a problem in terms of sustainability, but the report suggests: ‘While inflation is low, we see a case for pre-emptive, gradual tightening of monetary policy.’
There are also concerns that a sudden housing market crash could be highly damaging to the economy and could scupper spending plans.
On a more positive note the IMF’s growth projections for the UK economy are similar to those of the Treasury, although there were concerns about the medium term.
The report claims that the Chancellor’s predicted turnaround in public finances will not come without changes in policy: it notes that there are ‘significant risks’ that a failure to take action could lead to a budget deficit almost 1% of GDP higher than the Government’s predictions by the end of 2006.
The report has also backed concerns raised by opposition parties in the UK about Labour’s year-on-year increase in public spending. It states that large increases come with an ‘associated risk of inefficiencies’ and that it is ‘not yet clear to what extent public spending is achieving the desired results with value for money’.
Shadow chancellor Oliver Letwin, has claimed that the overall indication from the report is that Gordon Brown will have to renege on his promise on tax.
“It is perfectly clear that the IMF believes Gordon Brown will have to raise taxes if he intends to continue with his present spending path. The IMF believes he needs to take action in the 2004 Budget. I am afraid I do not believe that Gordon Brown intends to let the nation’s electors realise that he intends to raise taxes after the next election.
“He is borrowing now in order to postpone tax rises until after the next general election. The IMF can see it. Independent commentators can see it. We can see it. It is time for Mr Brown to start admitting it.”
