IMF urges Rachel Reeves to raise taxes and rein in spending to stabilise UK public finances

The International Monetary Fund has called on Chancellor Rachel Reeves to introduce tax rises and tighten government spending in the next budget, warning that delaying such measures could worsen the UK’s fiscal problems.

In a previously released section of the *Comptroller* report, the Washington-based organization highlighted the UK and US as countries whose borrowing rates have risen beyond pre-pandemic levels, raising concerns about the sustainability of their national debt.

“With debt risks higher in most countries and debt growing faster than in the pre-pandemic years in the large countries (the UK and the US), postponing adjustments will only increase the size of the correction required,” the IMF warned.

Reeves is expected to announce a series of tax rises during his first Budget on October 30, with possible changes such as making employer pension contributions subject to National Insurance and raising capital gains tax rates. She and Labor leader Sir Keir Starmer stressed the need for “difficult decisions” to bring public finances under control, although they also committed to increasing public sector investment to drive economic growth.

Labor claims to have inherited a £22bn fiscal deficit from the previous Conservative administration, a figure exacerbated by existing fiscal plans drawn up by former Chancellor Jeremy Hunt. These plans include real budget cuts of £20 billion to vulnerable government departments.

The Institute for Fiscal Studies (IFS) estimates that taxes must rise by £25 billion a year to avoid a return to austerity, which Labor has pledged to prevent.

The International Monetary Fund estimates that global debt is expected to exceed $100 trillion (93% of global GDP) this year, criticizing governments for failing to control their public financial resources. The report stressed that fiscal policies have increasingly tended towards increasing government spending, which has contributed to increased uncertainty in fiscal policy and increased political resistance to tax increases.

In its election statement, the Labor Party ruled out increasing major income-generating taxes such as income tax, national insurance, and value-added tax, which together represent 75% of public income. However, the IMF has cited increasing spending pressures caused by the green transition, aging populations, and security needs as increasing challenges for governments around the world.

This call from the International Monetary Fund comes at a time when developed countries, including the United States and France, suffer from ballooning deficits. The United States is expected to run a deficit of $1.8 trillion this year, partly due to subsidies provided by the inflation-reducing law. France, which faces a deficit of about 6% of GDP, recently presented a budget that includes tax increases and spending cuts of 60 billion pounds to address its debt.

The International Monetary Fund stressed that there is a strong case for focusing fiscal policies on debt sustainability and rebuilding financial margins “now rather than later.”

In response to the IMF warning, a Treasury spokesman said: “The government has been honest about the scale of the challenge we inherited from the previous administration, including the £22 billion black hole in the public finances. The budget will be built on the rock of economic stability, including The strong fiscal rules outlined in the statement include moving the current budget into balance, so that day-to-day costs are covered by revenues, and declining debt as a share of the economy by year five.

As Reeves’ Budget approaches, it is clear that the balance between addressing fiscal challenges and stimulating growth will shape the direction of UK economic policy in the months and years ahead.