Ace Breaking News – IMF Warming Against U.K State Hand – Outs as Budget Looms by Szu Ping Chan Economics Editor
Good morning from Bangkok, where the International Monetary Fund (IMF) has issued a stark warning over state handouts.
Soaring energy costs and weak growth mean politicians’ ability to fund giveaways is “reaching its limits”. The IMF is particularly concerned about the rich world’s borrowing binge, with Britain in its sights.
In some ways, Silvana Tenreyro, the IMF’s chief economist, handed the UK a gold star. Britain “stands out” for its efforts to balance the books, she said at a press conference moments ago.
So, a pat on the back for Britain’s new Chancellor? Not quite.
Tenreyro, a former Bank of England rate-setter, tempered her praise with a pointed warning. “The UK has already started a path to fiscal consolidation … and the message for the UK is just simply staying the course and continue on that trajectory.”
That is easier said than done.
John Healey is under immense pressure to give households and businesses some “breathing space” from the fallout of the war in the Middle East. The danger is that temporary relief becomes permanent, leaving the Treasury with yet another bill it cannot afford.
Britain has form here. George Osborne froze fuel duty in 2010, and it has remained frozen ever since, costing the Exchequer an estimated £120bn in lost revenue. More unfunded spending would undermine the very fiscal discipline the IMF is urging Britain to maintain.
A widely expected tax raid on banks risks inflicting further damage on growth, making it harder to repair the public finances in the first place. The IMF’s message is clear: Britain has made a start, but the finish line is not yet within sight.
The “homework” for Healey and others is to find a way to move from “just coping to rebuilding” without turning temporary relief into a permanent drain on the public purse.
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