Jeremy Hunt should ignore the IMF’s tax cut warning

Government borrowing is lower than had been forecast. The economy needs some form of a boost. And perhaps most of all there is an election within a few months. There are plenty of reasons why Chancellor Jeremy Hunt might want to cut taxes slightly in his spring Budget, and perhaps even once more by the autumn.

But hold on. The International Monetary Fund (IMF) has just said it would be ‘fiscally irresponsible’. Well, perhaps. And yet, the IMF’s record on forecasting is very poor, and it is also very committed to a high-tax, big-state economic model. On that basis, Hunt should just ignore it, and cut taxes anyway.

Apart from an urgent phone call from the Argentine Finance Ministry, there is perhaps nothing the IMF hates more than a British chancellor cutting taxes. After seeing off the unfortunate Kwasi Kwarteng in 2022, accusing him of increasing inequality, it is now looking to stop any more modest reductions in the tax burden from his successor this year.

In its latest assessment of the global economy, the IMF has ‘advised the UK against any further tax cuts’, arguing that longterm spending commitments, and the need to invest more in the health service and infrastructure meant the government needed to squeeze more money out of the country instead of less. This is a warning to Hunt: tweak a few tax rates, and he will be back in the middle of a sterling crisis just as Liz Truss was.

Hunt shouldn’t pay any attention to the IMF. It has consistently underestimated UK growth, putting it at the bottom of the G7 rankings, only to be forced to revise its numbers when the actual figures are available.

What the UK really needs to do right now is reform a tax system that is so large and so complex that it is crushing the life out of the economy, destroying incentives to work, and deterring investment. We won’t be able to break out of that doom loop easily. But we should at least make a start. Thanking the IMF for its advice, but firmly rejecting it, would be a good place to start.