London to ‘reconsider’ tax cuts

Dhe International Monetary Fund (IMF) has reprimanded the new British government’s debt-financed tax cut decisions. London should “reconsider” the plans, especially those for high-income earners, an IMF spokesman said when asked by journalists. “Given the heightened inflationary pressures in many countries, including the UK, we do not recommend large and untargeted financial packages at the moment,” the IMF official said on Tuesday evening. The criticism is the next setback for the government of Liz Truss, whose Finance Minister Kwasi Kwarteng announced a major package of around £45 billion in tax cuts on Friday.

The previously weak exchange rate of the pound has since fallen again because concerns are growing on the capital markets about the rising British deficits in the state budget and in the current account. That happened on Monday morning lb at 1.037 dollars, the lowest exchange rate against the dollar for a good 37 years. Although the pound recovered somewhat after the brief crash, the unrest is still great. British government bonds lost value, the yield for the ten-year rose to around 4.3 percent to its highest level since 2008.

Some economists expect the British currency to be worth just one dollar soon. Former US Treasury Secretary and Harvard economist Larry Summers called Britain’s fiscal plans “totally irresponsible” and wrote that the pound is likely to fall to par with both the dollar and the euro. The British central bank is also heavily criticized. Economists accuse it of raising interest rates too slowly to fight inflation.

Tax cut plans ‘likely to increase inequality’

The IMF spokesman expressed a differentiated but clear criticism. The fund understands the intention of the London government to help families and companies in the face of the energy price shock and to strengthen growth with supply-side reforms. However, the tax cut plans would disproportionately help high earners and “probably increase inequality”.

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