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IMF warns Rachel Reeves will have to raise taxes or make cuts such as axing the pensions triple lock and means-testing NHS services

Rachel Reeves faces having to take drastic action on spending unless she abandons her pledge not to hike taxes on ‘working people’, the IMF warned today.

The international body highlighted the ‘difficult decisions’ facing the Chancellor in its latest assessment of the UK’s position.

The report pointed to medium-term pressures from the aging population, suggesting that unless more revenue is raised the pensions triple lock could have to be axed, or NHS services means-tested.

The verdict came as Ms Reeves desperately hunts for options to increase taxes as she faces an estimated £30billion black hole in the public finances at the Autumn Budget.

Labour has ruled out increasing income tax, employee national insurance or VAT.

The tax burden is already set to hit a new high as a proportion of GDP after the last Budget imposed a £41billion increase – the biggest on record for a single package.

The IMF highlighted the 'difficult decisions' facing Chancellor Rachel Reeves in its latest assessment of the UK's position
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The IMF highlighted the ‘difficult decisions’ facing Chancellor Rachel Reeves in its latest assessment of the UK’s position

The report pointed to medium-term pressures from the aging population, suggesting that unless more revenue is raised the pensions triple lock could have to be axed, or NHS services means-tested

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The report pointed to medium-term pressures from the aging population, suggesting that unless more revenue is raised the pensions triple lock could have to be axed, or NHS services means-tested

The IMF praised Ms Reeves for committing to stick to her fiscal rules, and suggested her plans struck a balance between ‘supporting growth and safeguarding fiscal sustainability’.

The watchdog also commended reforms to curb benefits costs. However, since the assessment was penned the government has humiliatingly dropped the proposals in the face of a Labour revolt.

The report said: ‘While the UK has scope to raise revenue, which is lower than in some G7 peers, its revenue ratio is close to a post-WWII high.

‘Unless the authorities revisit their commitment not to increase taxes on ‘working people,’ further spending prioritization will be required, to align better the scope of public services with available resources.

‘The authorities have already embarked on this process through recent reforms to incapacity and disability benefits, but other avenues for savings need to be considered.

‘In particular, the triple lock could be replaced with a policy of indexing the state pension to the cost of living…

‘Access to public services could also depend more on an individual’s capacity to pay, with charges levied on higher-income users, such as copayments for health services, while shielding the vulnerable. There may also be scope to expand means testing of benefits.’

The public sector borrowed £20.7billion last month, far higher than the £17.6billion analysts had pencilled in

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The public sector borrowed £20.7billion last month, far higher than the £17.6billion analysts had pencilled in

The tax burden is due to hit a new record high as Labour tries to cover spending

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The tax burden is due to hit a new record high as Labour tries to cover spending

Ms Reeves said: ‘Today’s IMF report confirms that the choices we’ve taken have ensured Britain’s economic recovery is underway, and that our plans will tackle the deep-rooted economic challenges that we inherited in the face of global headwinds.

‘Our fiscal rules allow us to confront those challenges by investing in Britain’s renewal.

‘We’re committing billions of pounds into improving transport connections, providing record funding for affordable homes, as well as backing major projects like Sizewell C to drive economic growth.

‘There’s more to do, and that’s why we’re slashing unnecessary red tape and unblocking investment to let British businesses thrive and put more money in working people’s pockets.’

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