IMF Warns Britain Has Limited Scope for Further Tax Rises – NATIONAL NEWS

The International Monetary Fund has warned that Britain is reaching the limit of how much it can raise taxes without damaging economic growth, as pressure grows on the Government to bring down borrowing and control public spending.

In its latest assessment of the UK economy, the IMF said there was now “limited fiscal space” for further tax increases and suggested that future efforts to balance the public finances would need to rely more heavily on spending restraint.

The organisation said long-term pressures including an ageing population, rising welfare costs, defence spending and net zero commitments were placing increasing strain on public finances.

The warning comes after a series of tax increases introduced by Chancellor Rachel Reeves, with the overall tax burden forecast to rise to 38.5 per cent of GDP by the start of the next parliament.

While the IMF broadly backed some of the Government’s economic plans, it cautioned that there was only limited room for further revenue raising without affecting growth and investment.

“Beyond the planned tax ratio increase until 2030, staff analysis suggests that the long-term scope for further revenue increases is becoming limited unless more fundamental tax reforms are envisaged,” the IMF said.

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The fund added that “a growing share of the adjustment will likely need to come from expenditure restraint in the longer term”.

The IMF also urged ministers to focus on controlling welfare spending, including by improving how benefits are targeted. It repeated previous recommendations for reforms to the state pension triple lock and said more emphasis should be placed on treatment and employment support.

According to official forecasts, total welfare spending, including pensions, is expected to rise sharply over the coming decade.

Luc Eyraud, the IMF’s mission chief for the UK, said policymakers needed to recognise the economic constraints facing many advanced economies.

“These structural realities define the limits of policy choices and must be fully recognised in designing future policies,” he said.

The IMF also warned that political uncertainty and continued instability in the Middle East could affect economic confidence and growth.

It said a prolonged conflict involving Iran could lead to higher food and energy prices, adding to inflationary pressures and potentially forcing the Bank of England to keep interest rates higher for longer.

Despite the concerns, the IMF slightly upgraded its growth forecast for the UK economy in 2026 from 0.8 per cent to 1 per cent after stronger than expected growth earlier this year.

Responding to the report, Ms Reeves said the Government remained focused on economic stability.

“Putting our stability at risk when signs of progress are emerging would leave families and businesses worse off,” she said.

“Instead, this Government is getting on with the job of building an economy that is stronger, more resilient, and prepared for the future.”

What do you think? Do you believe Britain can afford higher taxes, or do you think households and businesses are already paying enough? Should the Government focus more on cutting spending and welfare costs instead of increasing the tax burden further? Let us know your views in the comments.