IMF sounds alarm on UK tax cut plans

[muriel_volestrangler]

The UK government should reconsider its plan for tax cuts, the International Monetary Fund has said, warning that the measures are likely to fuel the cost-of-living crisis.

In an unusually outspoken statement, the IMF said the proposal would be likely to increase inequality and add to pressures pushing up prices.
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The Truss government's growth plan centres on tax cuts for the better off, in the hope it will benefit wider society by boosting investment, innovation and job creation.

But a 2020 study by academics at the London School of Economics examined the impact of such policies in wealthy countries over five decades - and found they failed to significantly boost growth or jobs. They were more likely, the study claimed, to widen the gap between rich and poor.

https://www.bbc.co.uk/news/business-63051702

Link to tweet

"Almost two-thirds of the personal tax cut gains go to the richest fifth of households, who will be better-off on average by £3,090 next year. Strikingly, almost half will go to the richest 5 per cent, while the poorest half of households will gain just £230 on average next year."

I don't think I've seen anyone outside the Tory party or its loyal papers say the chancellor's ideas have any basis. And many inside say they haven't, as well. He's been in the job 3 weeks, of which 2 were the pause for the queen's funeral, and he already has lost all credibility.

[muriel_volestrangler]

1. Bank of England launches emergency intervention in markets after Kwarteng mini-budget

Threadneedle Street said it was taking urgent steps to buy long-dated UK government bonds, beginning immediately in an attempt to stabilise the market.

Taking evasive action less than a week after the chancellor announced £45bn in unfunded tax cuts, the Bank said it would undertake temporary and targeted purchases in the gilt market on financial stability grounds.
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The Bank said it would buy bonds on “whatever scale is necessary” to calm markets, after the collapse in sterling to the lowest level in history on Monday and a dramatic rise in the UK’s borrowing costs to the highest level since the 2008 financial crisis.

“Were dysfunction in this market to continue or worsen, there would be a material risk to UK financial stability. This would lead to an unwarranted tightening of financing conditions and a reduction of the flow of credit to the real economy,” it added.

https://www.theguardian.com/business/2022/sep/28/bank-of-england-launches-emergency-intervention-in-markets-after-kwarteng-mini-budget

Pound falls further after Bank of England's emergency move

The big drop in the pound after the Bank of England announced it would buy government debt to stabilise the economy comes after sterling spent a couple of days regaining value.

Sterling briefly collapsed to a 37-year low of $1.0327 on Monday following Chancellor Kwasi Kwarteng's mini-budget on Friday.

Afterwards, it hovered around the $1.07 and $1.08 mark.

But earlier today it was down to $1.06 following the International Monetary Fund's criticism of the UK's mini-budget.

The pound has since fallen further to $1.05.

https://www.bbc.co.uk/news/live/uk-politics-63056188

No British government has itself caused such a financial crisis before. Others have been unable to respond well to events, but this has all come from the Tories' ideological moves. Note that the Bank of England buying government bonds is an inflationary measure, which countries could get away with in the aftermath of the 2008 financial crisis, but this is being done at the same time as inflation caused by energy prices. This will screw the real-terms pay of the typical Briton.

Rachel Reeves, shadow chancellor of the exchequer, has responded to the Bank of England’s emergency intervention in the government bond market today.

"People will be deeply worried about the cost of their mortgage, about their pensions, and about the impact this will have on their cost of living.

This is a serious situation made in Downing Street and is the direct result of the Conservative Government’s reckless actions, which include tax cuts for the richest 1%.

Their decisions will cause higher inflation and higher interest rates - and are not a credible plan for growth."

https://www.theguardian.com/business/live/2022/sep/28/sterling-slumps-imf-urges-uk-reconsider-tax-cuts-stinging-attack-business-live?page=with:block-63343cda8f084e56bac57499#block-63343cda8f084e56bac57499