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Jeremy Hunt warned off further tax cuts as IMF insists more money needed for NHS, schools and social care
30 January 2024, 15:39
Jeremy Hunt has been warned against more tax cuts because the government needs more money for the NHS, social care and education.
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The chancellor has been hinting he could offer more relief for squeezed Brits after cutting National Insurance contributions.
Speculation has grown that he could cut income tax by up to 2p in March's Spring Budget.
But the IMF's chief economist has warned that the need to spend on public services meant he would advise against shredding tax bills.
"There is a need to put in place medium-term fiscal plans that will accommodate a very significant increase in spending pressures," Pierre-Olivier Gourinchas said on Tuesday.
"In the case of the UK, you might think of spending on healthcare and modernising the NHS; spending on social care; on education; you might think about critical public investment to address the climate transition; but also to boost growth."
The government must balance how much it gets from tax with spending to ensure it doesn't borrow itself into more debt, he added.
Lewis Goodall on council tax increases and NI cuts
"In that context we would advise against further discretionary tax cuts as envisioned and discussed now," Mr Gourinchas said.
The National Insurance cut, which was announced in November but kicked in this month, will cost just under £10bn in the 2028 tax year, according to the Office for Budget Responsibility's forecasts.
The government has borrowed less than expected, so there could be headroom to cut taxes in the next budget.
But debt relative to the size of Britain's economy is at its highest level since the 1960s.
Mr Hunt said: "It is too early to know whether further reductions in tax will be affordable in the Budget, but we continue to believe that smart tax reductions can make a big difference in boosting growth."
Conservatives have argued that tax cuts are needed in some parts of the economy to boost growth.
The IMF forecasts the UK's economy will grow 0.6% this year and 1.6% next, making it the second worst performer in the G7 in 2024, and the third-worst next year.
However, critics of recent economic forecasts would point to how the economy has performed better than some expectations recently.
Britain's own Office for National Statistics revised its figures for the 2019-2021 period, saying the economy actually grew by 0.6% instead of the 1.2% contraction it previously estimated.
That revision led to the IMF downgrading Britain's growth in 2025 by 0.4 percentage points because of the "reduced scope for growth to catch up" after the pandemic knocked down economic activity.
Labour's shadow chief secretary Darren Jones said: "This is yet more evidence of 14 years of Conservative economic failure.
"The Tories have left Britain with high debt, flatlining growth, high taxes and working people worse off.
"It's time for change. We need an election now to give the British public the chance to vote for a changed Labour Party that will change Britain for the better."