National insurance reduces risks that worsen debt burdens

The International Monetary Fund (IMF) has raised concerns about the UK’s £20 billion tax cut on national insurance rates, warning of potential consequences for the country’s public finances. In its latest assessment, the IMF forecast a rise in the UK’s debt burden over the next five years, casting doubt on the government’s ability to meet its budget targets.

According to the IMF, the UK government debt ratio is expected to continue rising until the end of this decade, reaching 98 percent of GDP by 2029. These projections challenge the government’s claims that debt levels would decline within the next five years, as set out in the chancellor’s budget line.

Although the IMF’s calculations for UK debt levels differ from those of the Office for Budget Responsibility, both forecasts indicate a continued rise in debt beyond 2024. The Chancellor’s budget rule calls for a reduction in the debt ratio by the end of a period of five years. .

The IMF has consistently warned against tax cuts that reduce government revenues and limit spending on essential public services. Particular emphasis was placed on the Conservatives’ recent decision to cut national insurance contributions, a move estimated to cost the Treasury £20 billion.

While Chancellor Jeremy Hunt has defended tax cuts as a means to boost economic growth and ease pressure on living costs, the IMF warns that such measures could worsen the debt trajectory in the medium term. Hunt, who is currently in Washington for the IMF’s spring meetings, has defended the benefits of lower taxes to boost dynamism in the British economy.

The IMF’s broader assessment also underlines the global risks associated with high debt levels, with public debt expected to reach 100 percent of GDP globally by 2029. The organization emphasizes the need for policy measures to address expenditure and revenue imbalances in major economies such as the United Kingdom. , the US, Italy and China.

In response, Labor shadow chancellor Rachel Reeves reaffirmed the party’s commitment to maintaining the existing fiscal rule, with the aim of reducing the debt ratio within five years. Conversely, Hunt and the Conservatives have been criticized for manipulating fiscal rules by financing short-term tax cuts with promises of long-term government spending cuts.