“Whilst the IMF has on the one hand claimed a ‘soft landing’ is in sight and upgraded growth forecasts from 0.5% to 0.7% in 2024, it remains downbeat about longer term prospects, citing weak labour productivity and higher than expected sickness levels, as the number of economically inactive due to sickness has topped 2.8m. Labour markets are rightly a real focus of its attention, with persistently high wage inflation potentially acting as a barrier to faster and deeper interest rate cuts, amidst skills shortages, higher inactivity and an ageing population. The IMF rightly highlights that migrant numbers are offsetting this to some degree, even as current policies leave many well-qualified migrants unable to have their credentials recognised in the antiquated UK system.
“Encouraging the Treasury to expand the tax net to the tune of £30bn by re-working road taxation, broadening the VAT and inheritance tax base and reforming property taxation, the IMF want to see higher tax receipts to offset the challenge of a growing burden on the public purse, and one it does not believe the UK can currently afford. With taxation already at multi-decade highs at a time of crumbling service provision, news of potentially higher taxes simply to pay for departments at their existing service levels will be bleak reading to many. However, the writing has been on the wall for several years and should come as no surprise to the Treasury, which simply holds itself to fiscal rules that dictate it must bring down borrowing as a percentage of GDP over a rolling five-year basis, a D-day that continuously drifts away and leaves public finances in a permanent state of deniable distress.
“The question will be whether the government that takes the reins by early 2025 is ready to be honest with the public that the UK faces a difficult choice – either accept higher taxes are here to stay, for effectively no improvement in service levels, or expect an awful lot less from the state. The reality is of course that no politician is likely to be brave enough to admit this – meaning the UK economy is likely to struggle on with inadequate funding for over-ambitious services and leave voters in a perpetual state of frustration.”
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