Britain ‘reaches peak tax’ warns IMF - as Andy Burnham says economy ‘does not work’

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The fund was broadly supportive of the Chancellor’s economic plans, but warned that the UK government would need to limit welfare to balance the country’s books.

The organisation said the country now had “limited space” to raise taxes further, due to being up against “a set of economic realities” that could restrict the possibility for further tax hikes or borrowing to stabilise public spending.

The IMF warned that Andy Burnham becoming the Prime Minister could further risk the country losing the confidence of financial markets.

It came as the Mayor of Greater Manchester, discussed austerity in a speech as part of his bid for the Makerfield by-election.

He said the UK had been on the “wrong path for most of the last 40 years” and said the by-election was a chance to have a “much bigger debate about how politics needs to change”.

He said the economy does not work for the majority of “working people” and that the system has “syphoned wealth… into the hands of those for whom life was already very good."

"It created an economy that didn’t work for most working people," he said. "It led to the loss of good jobs, the decline of our high streets, and the neglect of our towns. It led to people paying over the odds for the daily basics, energy, housing, water, transport.”

Read more: Andy Burnham 'is not the messiah' warns MP who gave up his seat in bid to put him in Parliament

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In an attempt to steady the nerves of investors, Mr Burnham said he would stick to borrowing rules, but did not commit to supporting the Chancellor’s current plan.

Last year, Mr Burnham triggered uncertainty in the markets after announcing that Britain must not be “in hock to the bond markets”.

He previously advocated for nationalising energy and water as part of a wider push for greater public control of British industries.

The IMF went on to mention that the current government risked “domestic uncertainty”, which threatened future growth and investment.

Taxes are currently set to rise to a record 38.5pc of GDP ahead of the next parliament, after a series of tax hikes by Chancellor Rachel Reeves. The fund warned that any further increases in taxes would begin to hurt growth.

The IMF said: “Beyond the planned tax ratio increase until 2030, staff analysis suggests that the long-term scope for further revenue increases is becoming limited unless more fundamental tax reforms are envisaged.

“The scale of rising spending pressures and limited tax space implies that a growing share of the adjustment will likely need to come from expenditure restraint in the longer term.”

The fund recommended the Chancellor make it a priority to control “the rising welfare bill”, and advised the government to keep its plan to cut borrowing to help “protect fiscal credibility”.

The UK is already up against a series of fiscal challenges alongside the Iran War – pressure to increase defence spending, which could demand the equivalent of 6pc of GDP, or £180bn, to balance the books by 2050.

The IMF has previously advised that the government do away with its triple lock on the state pension.

Instead, it recommended that the rising welfare bill be controlled by “improving the targeting” of benefits and focusing on treatment rather than financial handouts.

The Office for Budget Responsibility, the Government’s tax and spending watchdog, has already warned that higher taxes risk constraining growth.