A stern warning

The IMF delivered an embarrassing blow to the UK government

An extraordinary IMF note castigated the UK government's tax cuts.
UK prime minister Liz Truss and chancellor of the Exchequer Kwasi Kwarteng 
UK prime minister Liz Truss and chancellor of the Exchequer Kwasi Kwarteng 
Photo: Dylan Martinez (Getty Images)
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The International Monetary Fund (IMF) issued an extraordinarily critical statement of the UK’s growth plans, which largely relies on unfunded tax cuts, on Tuesday (Sept. 27). It’s the latest blow to the Trussonomics school of thought espoused by the three-week old UK government.

“We do not recommend large and untargeted fiscal packages at this juncture, as it is important that fiscal policy does not work at cross purposes to monetary policy,” an IMF spokesperson told Reuters, raising concerns about the tax cuts’ effect on inequality in the country.

Prime minister Liz Truss and chancellor of the Exchequer Kwasi Kwarteng unveiled the largest tax cuts in half a century, confident that these would propel GDP growth as per the doctrine of “trickle-down economics,” which the IMF rejected in 2015. But the government did not present any forecast on how the cuts would contribute to growth, or how the ensuing losses to the public purse would be funded. This raised concerns about inflation spikes and increased public borrowing at a time of high interest rates, as well as possible cuts to public services.

As markets pummeled the pound, Kwarteng put up a silent show in front of a BBC camera crew, but rumors of an argument with Truss began to emerge. The pair reportedly disagreed on whether a statement was needed to calm the markets, with Truss insisting no reassurance was needed. Both Downing Street and the Treasury denied reports of any quarrel. A meeting between Kwarteng and City of London bankers is nonetheless scheduled for today, so the chancellor will have a chance to further explain his position—and perhaps get some feedback as well.

Kwarteng will have an opportunity to heed the IMF warning and adjust course on Nov. 23, when he’s set to present an “update on growth plan implementation,” as the Treasury calls it. This will essentially be a more official version of the mini-budget presented last week, but this time, it will feature a forecast from the Office for Budget Responsibility.


“The nature of the UK measures will likely increase inequality. The Nov 23 budget will present an early opportunity for the UK government to consider ways to provide support that is more targeted and reevaluate the tax measures, especially those that benefit high income earners.” —An IMF spokesperson

Brief history: How did we get here?

Apr. 19: An IMF forecast warns that the UK is set for the slowest growth and most persistent inflation among all G7 countries in 2023.

Sept. 6: Liz Truss is appointed prime minister after making tax cuts a key campaign policy. She made no secret of her belief that it’s fair for rich people to gain the most from tax breaks.

Sept. 23: Kwasi Kwarteng, Truss’s chancellor of the Exchequer, presents a so-called mini-budget that reverses tax increases by his predecessor and also removes the highest bracket of the tax system, a 45% slab starting from £150,000 ($160,000). The pound begins to fall against the dollar.

Sept. 26: Several UK lenders suspend their fixed-rate mortgage products, concerned about future inflation and interest rate hikes.

Sept. 27: The IMF warns the UK to change its course.

Nov. 23: Kwarteng will present his update on the mini-budget, complete with a fiscal forecast.


“Large unfunded tax cuts are credit negative. [They will] lead to structurally higher deficits amid rising borrowing costs, a weaker growth outlook and acute public spending pressure stemming from the pandemic and a decade of austerity.” —Moody’s note, quoted in Bloomberg

By the digits:

$500 billion: Losses that the UK markets have sustained since Liz Truss became prime minister.

$1.035: The value of the pound on Sept. 26, in the aftermath of Kwarteng’s mini-budget—the lowest exchange rate against the dollar ever since the pound went decimal half a century ago. It has since recovered to about $1.07 at the time of writing.

2,500: Number of UK millionaires who will benefit the most from the abolition of the highest tax break, saving over £1 billion.

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