Chancellor Jeremy Hunt has a plan to reduce taxes should the Tories win the general election, but the International Monetary Fund (IMF) will be investigating the plans next month. They’ll be conducting a health check on the economy to see if it’s a good idea.
Pre-Election Giveaways Always Happen
Tax cut promises in an election year are as predictable as gravity. To boost their chances of election a government will issue a few sweeteners to voters. One of the biggest easy wins is a tax cut.
Sounds Good, but Is It?
Whilst it sounds good to voters, having more money in their pockets, it might not be the best idea in time. Lower tax income means less government spending, unless they borrow more to fill the gap.
Lower Income, Worse Public Services
The lack of government income means spending on the NHS, on schools, on basic public services and local authorities is cut. This lowers the quality of the deliverables, leading to frustration at the poor public services.
IMF to Investigate the Plans
The IMF has no say in what the government decides to do, but as the ‘world’s bank’ they can help to advise on economic strategy and influence borrowing rates for the government. It’s worth keeping them onside.
Government Already Cut National Insurance
In a bid to boost election chances, Jeremy Hunt reduced the National Insurance contributions for many. The IMF said that this decision “could worsen the (national) debt trajectory in the medium term”.
Hunt Defended the Plans
He said, “The IMF have recognised and given credit to the government for the difficult decisions we have taken to get the public finances in order”.
Hunt Says National Insurance Cuts Won’t Lead To Increased Borrowing
He went on to say, “It was possible to make significant tax cuts in a responsible way that doesn’t increase borrowing.”
Rumours About Further Tax Cuts
The government has drawn up plans for the Autumn statement should they remain in power. Rumours around Westminster are saying that they’ll be including further tax cuts in an attempt to sweeten voters.
Several Tax Cuts Already
The issue here is that the government has already cut national insurance contributions by 2% in March and November.
Tories Keen to Jump on Recent Good Economic News
There’s a confidence in the government that the economy has turned a corner, and this might pave the way for further tax cuts. Growth has been posted as 0.3% and 0.1% so far this year.
IMF Cautious, but Content With Plans So Far
Helge Berger from the IMF’s European division said “I wouldn’t speculate about the shape of tax cuts in the future. The broader point is that there is an effort under way to provide fiscal consolidation, which is appropriate.”
Possible Concerns About Future Spending Plans
Berge also said, “There are significant pressures on the budget coming from the spending side, including health and infrastructure. It needs to look for revenue measures and spending measures going forward.”
UK Government Debt Has Been Rising
As a percentage of GDP, the UK’s net debt is almost at a peace-time high. Only during world wars has the UK debt been higher, which is a cause for concern.
Poor Credit Makes Borrowing More Expensive
If the UK is deemed to cut taxes too far, it’ll make government borrowing more expensive because credit agencies will be worried about the UK’s ability to pay it back.
We’ve Lived Through Government Policy Chaos Recently
The disastrous Truss and Kwarteng budget spooked markets, sending borrowing costs on Government bonds through the roof. This had ramifications across the financial markets, costing everyone from the government to the public more money.
Public Keen to Avoid a Repeat
With the ramifications of loose government financial policy still so raw, the public will want assurances that the Tories will be playing safe when it comes to the economy. We’ve already suffered a cost of living crisis – we don’t want another one!
IMF Has Concerns About Several Economies
The IMF website says, “The record number of elections being held across the world in 2024 represents a salient risk with regard to fiscal consolidation prospects for the year.”
Playing Politics Shouldn’t Cost Voters
Whilst the government will want to do everything it can to attract votes in the election, it ultimately has a responsibility to govern sensibly. Whilst tax promises are great, let’s hope they’re well-costed.
Tories Have Reputational Damage to Repair on the Economy
Thanks to reckless spending and planning, the Tories have lost a lot of friends when it comes to their management of the economy – and it could cost them the election.
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The post Tory Pre-Election Tax Cut Face IMF Investigation first appeared on Edge Media.
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