IMF Queries Gordon Brown's UK Tax Projections

by Jason Gorringe, Tax-News.com, London

10 December 2002

The International Monetary Fund has concluded its annual inspection of the UK economy with a warning that Gordon Brown's tax increases may be wasted. "It remains to be proved whether public funds may be spent without incurring significant inefficiencies," says the IMF's final report.

The IMF agrees that it was reasonable to respond to the demand for better public services, but says that the effectiveness of its response remains to be tested in practice. The report points particularly to the danger that public sector wage demands may eat up increased public spending, and that "the spillover to the private sector, in a tight labour market, may be greater than in the past."

The IMF's says the government should speed up public sector reform and suggests that public spending could be made more efficient through the broader application of user fees, "thus containing excessive consumption and avoiding the subsidisation of users from middle-to-upper income brackets".

The IMF forecasts growth of 2.25% to 2.5% next year, slightly below the Treasury's own forecast, revised down in last week's pre-Budget statement, but warns that there are "significant downside risks" to the forecast.

Like many UK economists, however, the IMF has its doubts about the Chancellor's forecasts for tax revenues, saying that the revenue projections underlying the government's borrowing forecasts are "more uncertain than in the past".

Recommended