The International Monetary Fund (IMF) has advised against pre-election tax cuts in the UK, expressing concern over a potential £30 billion gap in public finances. The IMF’s annual report on the UK economy assessed the current spending plans as unrealistically low, highlighting the need for “difficult choices” to address fiscal challenges.

The IMF criticized Chancellor Jeremy Hunt’s decision to cut national insurance contributions (NICs) by 2% in the previous autumn and March budgets. The organization warned that further tax reductions could exacerbate the fiscal imbalance unless they are offset by credible growth-enhancing and deficit-reducing measures. Suggested measures include increasing the scope of VAT, road pricing, and reforms to inheritance and capital gains taxes.

Despite potential fiscal challenges, the IMF has upgraded the UK’s economic growth forecast from 0.5% to 0.7% for 2024, predicting a “soft landing” for the economy post-recession. Growth is expected to reach 1.5% in 2025, supported by easing inflation and improving financial conditions.

The report also outlined concerns regarding the sustainability of current spending plans, especially concerning public health and social care services. It suggested that to stabilize public debt, the government would need to raise revenue or make equivalent savings of about £30 billion by 2029-30.

The IMF expects inflation to return to the Bank of England’s 2% target by early 2025, indicating potential for interest rate cuts later this year. The report concludes that without significant structural reforms, including improvements in labor productivity and addressing high inactivity levels, the UK’s long-term economic growth prospects remain subdued.