Taxes should rise to pay for the government’s £20bn a year boost for the NHS, said the International Monetary Fund (IMF) as it urged Britain to not take chances with public finances.
Currently, Britain’s national debt remains “relatively high”, and reducing this level “is important to create buffers that will allow the public finances to weather future shocks,” the IMF warned. The Treasury will welcome the recommendations, as it is intent on shrinking the debt as a share of GDP, and is expected to announce a rise in taxes in the autumn budget, to pay for the NHS cash boost.
In June, Prime Minister Theresa May announced that the NHS would receive a £20bn increase in its budget from 2023, equivalent to a 3.4% rise.
However, the proposals from the IMF may have gone further than Chancellor Philip Hammond would have liked. It reported that the UK had effectively run out of spending that could be cut, so it should raise taxes to meet the demands of an aging population.
Its proposals include aligning tax treatment for the employed and self-employed, “scaling back preferential VAT rates”, migrating from stamp duty to a land value tax and removing the “tax bias towards debt” in interest relief. Previous attempts to harmonise employment tax, by Hammond, and VAT rates, by George Osborne, bumped into opposition and were ultimately reversed.
The IMF said: “The increase in public health spending should be financed from new revenue sources and offsetting spending cuts elsewhere.”
Furthermore, the fund added that savings could still be found in NHS efficiencies, while also eliminating the “triple lock” on pensions.
Also, Theresa May’s claim that the NHS boost would be funded by a “Brexit dividend” was dismissed, with the IMF stating that there would be no dividend, as the fiscal costs of Brexit would outweigh reclaimed budget contributions of £10bn a year.
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