The IMF warned that "with debt risks elevated in most countries and debt growing at a faster pace than in the pre-pandemic years in large countries (United Kingdom, United States), postponing adjustments would only make the required correction larger." This indicates a pressing need for immediate fiscal policy changes to manage rising national debts and prevent further economic challenges.
Chancellor Rachel Reeves is expected to unveil tax hikes in her first budget, which might include reforms like changing employers' pension contributions and increasing capital gains tax. Both Reeves and Labour leader Sir Keir Starmer acknowledge the need for "tough decisions" while still committing to bolster public sector investments to stimulate economic growth.
The IMF highlighted the UK's fiscal challenges, emphasizing that "delaying tax increases and spending cuts could exacerbate public finance issues," indicating a crucial need for the government to act swiftly to mitigate potential economic crisis.
Labour has inherited a £22 billion shortfall from the previous administration, compounded by existing fiscal strategies which include steep cuts to departmental budgets. The IFS estimates that raising taxes by £25 billion annually is essential to avoid a return to austerity.
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