View all newsletters
Sign up to our newsletters

Support 110 years of independent journalism.

  1. Business
  2. Economics
2 August 2011

The IMF’s warnings to Osborne

Tax cuts and further QE will be needed if growth remains weak, says the IMF.

By George Eaton

The IMF’s latest assessment of the British economy is in and although the body has once again endorsed Osborne’s Plan A, it does so with several notable caveats. Ajai Chopra, the IMF mission chief to the UK, writes in a blog that the government should respond quickly with “further quantitative easing” and “temporary tax cuts” if it looks as though the economy is headed for a “prolonged period of weak growth, high unemployment and subdued inflation.” It’s important to add that the IMF says it currently doesn’t expect this happen but Vince Cable – who has called for “more radical” forms of QE – may have found an ally.

Then there’s the fact that the body says Osborne could miss his target of eradicating the structural deficit by the end of this Parliament. It forecasts that “the cyclically-adjusted current budget” will “just reach balance” in 2015-16 (a year later than Osborne expects) but adds that there is “little margin for error”.

In perhaps the most important passage in the document, the IMF notes that “consolidation has so far relied heavily on tax hikes and the phase-out of stimulus. As consolidation becomes more reliant on structural spending cuts going forward, implementation challenges may rise.” In other words, deficit reduction could become even harder as the cuts come to dominate (Osborne split the pain 73:27 between cuts and tax rises).

But what of the implications for growth? It’s worth highlighting another IMF study which found that, contrary to neoliberal wisdom, austerity programmes invariably lead to reduced output. The body looked at 170 examples of fiscal policy stretching back to the 1930s and concluded: “Our estimates suggest fiscal consolidation has contractionary effects on private domestic demand and GDP.”

Select and enter your email address Your weekly guide to the best writing on ideas, politics, books and culture every Saturday. The best way to sign up for The Saturday Read is via saturdayread.substack.com The New Statesman's quick and essential guide to the news and politics of the day. The best way to sign up for Morning Call is via morningcall.substack.com Our Thursday ideas newsletter, delving into philosophy, criticism, and intellectual history. The best way to sign up for The Salvo is via thesalvo.substack.com Stay up to date with NS events, subscription offers & updates. Weekly analysis of the shift to a new economy from the New Statesman's Spotlight on Policy team. The best way to sign up for The Green Transition is via spotlightonpolicy.substack.com
  • Administration / Office
  • Arts and Culture
  • Board Member
  • Business / Corporate Services
  • Client / Customer Services
  • Communications
  • Construction, Works, Engineering
  • Education, Curriculum and Teaching
  • Environment, Conservation and NRM
  • Facility / Grounds Management and Maintenance
  • Finance Management
  • Health - Medical and Nursing Management
  • HR, Training and Organisational Development
  • Information and Communications Technology
  • Information Services, Statistics, Records, Archives
  • Infrastructure Management - Transport, Utilities
  • Legal Officers and Practitioners
  • Librarians and Library Management
  • Management
  • Marketing
  • OH&S, Risk Management
  • Operations Management
  • Planning, Policy, Strategy
  • Printing, Design, Publishing, Web
  • Projects, Programs and Advisors
  • Property, Assets and Fleet Management
  • Public Relations and Media
  • Purchasing and Procurement
  • Quality Management
  • Science and Technical Research and Development
  • Security and Law Enforcement
  • Service Delivery
  • Sport and Recreation
  • Travel, Accommodation, Tourism
  • Wellbeing, Community / Social Services
Visit our privacy Policy for more information about our services, how New Statesman Media Group may use, process and share your personal data, including information on your rights in respect of your personal data and how you can unsubscribe from future marketing communications.
THANK YOU

George Osborne has consistently argued that the cuts will increase confidence and that excessive state spending is “crowding out” private investment. But the IMF’s conclusions suggest that “expansionary fiscal contraction” is, in the words of Larry Summers, “every bit as oxymoronic as it sounds”.

Content from our partners
The promise of prevention
How Labour hopes to make the UK a leader in green energy
Is now the time to rethink health and care for older people? With Age UK

Select and enter your email address Your weekly guide to the best writing on ideas, politics, books and culture every Saturday. The best way to sign up for The Saturday Read is via saturdayread.substack.com The New Statesman's quick and essential guide to the news and politics of the day. The best way to sign up for Morning Call is via morningcall.substack.com Our Thursday ideas newsletter, delving into philosophy, criticism, and intellectual history. The best way to sign up for The Salvo is via thesalvo.substack.com Stay up to date with NS events, subscription offers & updates. Weekly analysis of the shift to a new economy from the New Statesman's Spotlight on Policy team. The best way to sign up for The Green Transition is via spotlightonpolicy.substack.com
  • Administration / Office
  • Arts and Culture
  • Board Member
  • Business / Corporate Services
  • Client / Customer Services
  • Communications
  • Construction, Works, Engineering
  • Education, Curriculum and Teaching
  • Environment, Conservation and NRM
  • Facility / Grounds Management and Maintenance
  • Finance Management
  • Health - Medical and Nursing Management
  • HR, Training and Organisational Development
  • Information and Communications Technology
  • Information Services, Statistics, Records, Archives
  • Infrastructure Management - Transport, Utilities
  • Legal Officers and Practitioners
  • Librarians and Library Management
  • Management
  • Marketing
  • OH&S, Risk Management
  • Operations Management
  • Planning, Policy, Strategy
  • Printing, Design, Publishing, Web
  • Projects, Programs and Advisors
  • Property, Assets and Fleet Management
  • Public Relations and Media
  • Purchasing and Procurement
  • Quality Management
  • Science and Technical Research and Development
  • Security and Law Enforcement
  • Service Delivery
  • Sport and Recreation
  • Travel, Accommodation, Tourism
  • Wellbeing, Community / Social Services
Visit our privacy Policy for more information about our services, how New Statesman Media Group may use, process and share your personal data, including information on your rights in respect of your personal data and how you can unsubscribe from future marketing communications.
THANK YOU