LONDON: The International Monetary Fund has openly questioned the UK's new fiscal plans and urgedmore targeted support measures. The IMF said, given "elevated inflation pressures" in the UK, the fiscal measures, especially the significant tax cuts, are "untargeted" and will "likely worsen inequality."
On November 23, when Chancellor Kwasi Kwarteng is set to present his next budget, the IMF urged the UK government to "re-evaluate the tax measures, especially those that favour high-income earners," stressing the need of "fiscal policy not working at cross purposes with monetary policy."
In the 12 months leading up to August, the consumer price index in the UK increased by 9.9 percent due to a 13.1 percent increase in the price of food and non-alcoholic beverages. The Bank of England (BoE) raised interest rates to 2.25 percent, the highest level since 2008, to combat excessive inflation.
Kwarteng will "present his medium-term fiscal plan on November 23 which will spell out further specifics on the government's budgetary policies," a UK Treasury spokeswoman responded. The market's harsh responses to the government's new policies included the criticisms.
The measures, published on September 23 by Kwarteng, call for scrapping the proposed hike in corporation tax to 25 percent and keeping it at 19 percent as well as rolling back the 1.25 percentage point increase in National Insurance contributions that was set to take effect in April.
A year earlier than expected, in April 2023, he also announced a 1 percent reduction in the base rate of income tax to 19 percent. Also, the additional 45 percent income tax rate on earnings over 163,000 British pounds (£150,000) would be eliminated.
Along with these measures, Kwarteng established a target of 2.5 percent economic growth. The largest package of tax cuts and reforms in generations, according to the Chancellor, "sends a strong signal that growth is our focus." The largest tax cut since 1972 is a 45 billion pound reduction.
The UK government also unveiled a slew of initiatives earlier this month to assist individuals, families, and businesses with rising energy costs amid a deteriorating cost-of-living issue.
The cost of borrowing money from the government has increased and the value of the pound has dropped since the new measures were announced. The pound fell on Monday, reaching a low of $1.035, moving it closer to parity. The pound was trading at $1.07 against the dollar on Wednesday as it continued under pressure.
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