IMF warns that Osborne may need to delay cuts

UK should consider slowing "planned adjustment" if growth continues to disappoint, says the IMF.

It's only Tuesday but this has already been a bad week for George Osborne. Yesterday it emerged that the structural deficit could be £12bn higher-than-expected, now the IMF, hitherto a strong supporter of the Chancellor's economic strategy, has slashed its growth forecasts for the UK, and has warned that Britain, the US and Germany (all countries where governments can borrow at historically low rates) should "consider delaying some of their planned adjustment" if growth continues to fall short of expectations. In other words, Osborne might well need a "plan B".

Just a month ago, the IMF said that the UK should only consider slowing its deficit reduction plan if it looked as though the economy was headed for a "prolonged period of weak growth, high unemployment and subdued inflation." But now it suggests that weaker-than-expected growth would be justification enough. The consensus, however slowly, is beginning to turn against Osborne and against extreme austerity.

The IMF now predicts that the UK will grow by just 1.1 per cent this year (down from an earlier forecast of 1.5 per cent) and by 1.6 per cent in 2012 (down from 2.3 per cent). If the fund is right, growth will be worse than in 2010 and significantly lower than the OBR's forecast of 1.7 per cent. The IMF has now cut its 2011 UK growth forecast four times in the last year (from 2 per cent, to 1.7 per cent, to 1.5 per cent, to 1.1 per cent). There is every likelihood that it will do so again. The "grey skies" that Vince Cable spoke of yesterday are looking even greyer today.

George Eaton is political editor of the New Statesman.

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Is anyone prepared to solve the NHS funding crisis?

As long as the political taboo on raising taxes endures, the service will be in financial peril. 

It has long been clear that the NHS is in financial ill-health. But today's figures, conveniently delayed until after the Conservative conference, are still stunningly bad. The service ran a deficit of £930m between April and June (greater than the £820m recorded for the whole of the 2014/15 financial year) and is on course for a shortfall of at least £2bn this year - its worst position for a generation. 

Though often described as having been shielded from austerity, owing to its ring-fenced budget, the NHS is enduring the toughest spending settlement in its history. Since 1950, health spending has grown at an average annual rate of 4 per cent, but over the last parliament it rose by just 0.5 per cent. An ageing population, rising treatment costs and the social care crisis all mean that the NHS has to run merely to stand still. The Tories have pledged to provide £10bn more for the service but this still leaves £20bn of efficiency savings required. 

Speculation is now turning to whether George Osborne will provide an emergency injection of funds in the Autumn Statement on 25 November. But the long-term question is whether anyone is prepared to offer a sustainable solution to the crisis. Health experts argue that only a rise in general taxation (income tax, VAT, national insurance), patient charges or a hypothecated "health tax" will secure the future of a universal, high-quality service. But the political taboo against increasing taxes on all but the richest means no politician has ventured into this territory. Shadow health secretary Heidi Alexander has today called for the government to "find money urgently to get through the coming winter months". But the bigger question is whether, under Jeremy Corbyn, Labour is prepared to go beyond sticking-plaster solutions. 

George Eaton is political editor of the New Statesman.