The IMF stated criticism towards the UK’s tax plan openly. The firm noted that Liz Truss’s government proposal would inflict soaring inflation as well as inequality. Exchequer Kwasi Kwarteng, a chancellor, revealed that the country’s highest tax package in 50 years is in the proposal last week.
Meanwhile, there has been a $45bn tax cut package, leading to more concerns that the government borrowing could escalate following interest rates and inflation. The IMF argued in a statement that the soaring inflation has become a challenge to many countries. The U.K. is no exception. The IMF stated that they do not recommend both large and untargeted fiscal packages to solve the problem.
Furthermore, the IMF noted that the purpose of fiscal policy might have the same purpose as monetary policy. Fiscal policies would use both government spending and tax policies to interfere with economic conditions or macroeconomic conditions. This is due to the demand for good and services, inflation, as well as economic growth. Monetary policy in this case is a tool to control the overall money supply, so that there should be ways in revising interest rates.
Following this case, the Bank of England has raised interest rates to battle inflation. This is at a 40-year high in the U.K. The British pound has collapsed following the big U.K borrowing costs. The Bank of England then, proposed emergency intervention later by noting the recent dysfunction. Then, the financial institution would instead buy long-dated U.K. government bonds for the tax plan on a necessary scale in order to keep market conditions under control.