The IMF has asked the UK to re-evaluate the tax cuts, calling them a threat to the ‘cost-of-living’ predicament
The International Monetary Fund (IMF) has presented a stinging reproach after the UK unveiled its biggest tax package in 50 years. The IMF has asked the UK to re-evaluate the tax cuts, calling them a threat to the ‘cost-of-living’ predicament. A series of historic tax cuts aimed at boosting the UK economy and deflecting a recession being called the ‘mini budget’ has unnerved financial markets and drawn concern.
What does the plan entail?
- It entails freezing taxes on corporations
- Dropping Payroll taxes across the UK
- Cutting the highest tax bracket
- Temporarily subsidizing energy bills
Kwarteng’s mini-budget
In a move just days after Kwarteng’s mini-budget, and when the pound dropped to the lowest time level compared to the US dollar at one point on Monday, the organization said it was carefully examining recent economic developments in the UK and was engaged with the authorities.
The IMF in its statement said that, given the elevated inflation pressures in a number of countries, including the UK, the IMF does not recommend vast and untargeted fiscal packages at this juncture, as it is significant that fiscal policy does not work at cross purposes to monetary policy.
Kwarteng cut the top rate of tax from 45p to 40p and guaranteed a 1p cut in the basic rate of tax from April the following year. Kwarteng also stated that he would retain corporation tax at 19%, scrapping a planned increase to 25%, and reverse the latest increase in national insurance payments, stating that the near GBP 50 billion costs would be added to the UK’s debt pile.
Prime Minister Liz Truss’s decision to cut taxes by the most since the early 1970s and cover them via borrowing at a time of surging inflation has rattled financial markets and drawn concern from international policymakers and economists.
The IMF said that it is closely monitoring current economic advancements
The IMF said that it is closely monitoring current economic advancements in the UK and are engaged with the authorities.
The analysis came hours after billionaire investor Ray Dalio stated on Twitter that the UK government is operating like the government of an emerging country.
Reports say that this is the biggest tax-cutting plan since 1972. It stems from the theory of trickle-down economics. Trickle-down economics and its policies engage the theory that tax breaks and grants for businesses and the affluent will trickle down and eventually benefit the entire world. Tools like slashed income tax and capital gains tax breaks are offered to huge investors, businesses, and entrepreneurs to stimulate economic growth.
The plan is criticized by investors, British lawmakers, the country’s citizens, and the British media. The plan is unwarranted, immoral, and damaging to the economy. The impact is already evident, as the markets are raising alarm. The Pound is crashing to a record low against the dollar as UK tax cut plans rattle investors. The British currency has dropped since the UK’s new prime minister, Liz Truss, disclosed the government’s growth strategy on Friday. The pound plummeted 5% to $1.0350 during Asian trading Monday, lower than its previous 1985 low.
Last week, The Bank of England increased UK interest rates by 0.5 percentage points to 2.25 percent to combat surging inflation amid the cost-of-living crisis,
On Monday, Federal Reserve Bank of Atlanta President Raphael Bostic said the proposal has certainly heightened uncertainty and affected people to cast doubt on the trajectory of the economy set out to be.
Martin Muhleisen, a former director of the IMF’s strategy, policy, and review department, said that it is rare for the fund to comment on large members’ economic policies outside the context of its annual Article it is unusual for the fund to comment on large members’ economic policies outside the context of its annual Article 4 consultations referring to the fund’s annual evaluations of its countries.
The fund was relatively unspoken in the prologue to higher inflation in advanced economies, but it is appropriate to indicate that fiscal discipline will have to perform a role in bringing it down over again, Muhleisen said
The IMF and UK have an intricate history. The country secured a loan of about $4 billion from the lender in the 1970s during a plummeting pound and surging inflation, whilst more in recent times, they have been at probabilities over the budget austerity enforced following the 2009 recession and then over the country’s annulment from the European Union.
Chancellor Kwasi Kwarteng is so far thrust upon by his proposals.
Kwarteng recounted in a gathering of prominent financiers that he was confident his approach will be successful, according to a readout from the Treasury. The team is committed to fiscal discipline, he stated.
The interest rates are nearly guaranteed to have been increased by the time that plan is released in November. Bank of England chief economist Huw Pill said on Tuesday that the fiscal announcement and the market reaction to it needed a “considerable” monetary policy response.
