A report that tells the UK government it faces a £30bn funding gap that cannot be filled by higher growth or extra borrowing is a blow to both the current chancellor and the next one.
Tuesday’s International Monetary Fund assessment of the UK economy and Whitehall spending argues that betting on the economy revving up over the rest of the decade will not be sufficient to pay for all the likely welfare bills associated with an ageing population.
Extra borrowing is also off the table, says the IMF, after it forecast a rise in the UK’s total public debt to 97% of annual national income.
If Jeremy Hunt listens to the policy wonks from Washington he must abandon any plans for eye-catching tax cuts ahead of the looming general election.
The IMF says Hunt can only justify a repeat of the March budget’s 2p national insurance cut if he can argue there will be a payback in extra growth and there are offsetting tax rises made elsewhere.
The Office for Budget Responsibility will prevent him from saying the first and Tory backbenchers will stop the second, leaving the chancellor with little to offer voters without distancing himself from the IMF.
There is an argument for ignoring the IMF, which was a cheerleader for austerity in the wake of the 2008 financial crash.
Back then, it supported most measures that brought down debt levels, though it was subsequently agreed by many economists that austerity denied governments the level of investment cash needed to spur future growth.
The IMF would argue that its latest Article IV review of the UK economy calls for a more nuanced response. Yes, it rejects extra borrowing in favour of higher tax receipts to pay for government spending, but the emphasis is on rebalancing and expanding the tax base rather than loading higher income tax or national insurance rates on households with modest incomes.
“Additional revenue should come from higher carbon and road-usage taxation, broadening the VAT and inheritance tax bases, and reforming capital gains,” the IMF said, raising more funds from, among others, older, richer people that drive big cars.
Likewise on the spending side, the IMF calls the triple lock on state pension payments into question. It baulks at a full-scale review that might call for the means testing of the state pension, bringing it into line with means-tested working age benefits, but says increases should be limited to a link with inflation.
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These are tough choices for any chancellor to make.
Rachel Reeves, who expects to take up residence in No 11 following a Labour victory, has repeatedly made the case for increased government spending without the need for higher borrowing or tax rises. She says the tax receipts that flow from higher productivity and faster economic growth will fill the void.
IMF boss Krystalina Georgieva argues there is no way to grow the economy in a way that can ease the pressure on the public finances. Growth is not enough.
Only one of them will be right.