Business The IMF and Moody’s make the UK’s tax cut ugly for being...

The IMF and Moody’s make the UK’s tax cut ugly for being inflationary and increasing inequality

Archive – FILED – 24 June 2016, United Kingdom, London: The British Union Jack, flies in front of the Big Ben, the clock face of the Elizabeth Tower. The refurbishment of London’s Big Ben tower and clock will be finished next year, the British parliament – Michael Kappeler/dpa – File

The International Monetary Fund (IMF) and the credit rating agency Moody’s have criticized the fiscal program announced last week by the United Kingdom, which includes a large tax cut, because they consider that it is inflationary and that it will increase inequality.

The British Executive announced on Thursday a reduction in taxes on income, dividends and social contributions, among other stimulus programs, such as the cap on energy prices. It also decided to reverse a planned rise in corporate income tax and completely eliminate the highest bracket in income tax, the one paid by higher-income individuals, in addition to removing the cap on bonuses for senior managers.

“We are closely monitoring recent economic events in the UK and are in contact with the authorities,” the IMF said in a statement.

“Given the elevated inflationary pressures in many countries, including the UK, we do not recommend large, untargeted fiscal packages at this time, as it is important that fiscal policy does not work in the opposite direction of monetary policy. In addition, the nature of the UK measures will likely increase inequality,” the Washington-based multilateral body has criticized.

Likewise, he has urged the British Executive to take advantage of the presentation of the annual budget on November 23 to “re-evaluate” tax measures, especially those that benefit higher-income individuals.

On the other hand, Moody’s believes that the tax cuts “will lead to larger structural deficits amid rising borrowing costs, lower growth prospects and severe public spending pressures from the pandemic and a decade of austerity.”

In any case, the risk rating agency considers that the cap on energy prices will reduce inflationary pressures in the short term. Moody’s estimates that the increase that would have occurred in October would have added up to two percentage points to the inflation rate, which was around 10% in August.

Increased needs and declining tax revenues have led Moody’s to expect the UK budget deficit to exceed 6% of gross domestic product (GDP) over the next two years. Public debt will stand at 104% by 2026, from the current 100%.

However, the agency has indicated that there are upward risks for the debt, since the State faces spending pressures both due to high inflation rates and due to the needs of areas such as health, education or transportation, which are still dealing with pressures. related to the pandemic “and the legacy of a decade of austerity”.

Source: Europa Press

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