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Osborne 1 IMF 0

After all the fuss the International Monetary Fund has made over the past month about the need for the UK to change course on austerity, about how George Osborne’s policies are “playing with fire”, one might have expected a harsh verdict from the Fund in its annual survey of the UK today.
In reality, the report is far less stern on the Chancellor than many had anticipated. Yes, there’s plenty of verbiage about the problems facing the economy: about the fact that growth has disappointed, that per capita income is still 6% below the pre-crisis peak, that risks facing the economy remain significant, and that the financial system remains in poor health.
However, the critical parts of the document – those that deal with the Chancellor’s fiscal plans – are far more measured, far less critical, than the Fund’s previous comments might have indicated.
For one thing, the report seems far more focused on slight shifts to the timing of various spending measures (bringing forward capital investment) rather than recommending a massive spending blitz. Rather than saying that Mr Osborne should replace his plans with an alternative, it says he should consider “Further modifying the composition of consolidation to boost growth”. It mentions a couple of possible options on this front: “reducing marginal effective corporate tax rates” or “introducing tax allowances for raising equity”. However, crucially it mentions that these should be offset by higher taxes on property and more VAT-raising measures.
In other words, the report itself doesn’t call for a significant further fiscal stimulus beyond what the Chancellor has already committed to: it is more a case of rearranging the deck of cards rather than throwing it out entirely.
This is not to say that everything the report has to say on UK economic policy is positive – or without interesting recommendations: it warns that under Help To Buy – the Chancellor’s controversial mortgage guarantee scheme, “there is a risk that, in the absence of an adequate supply response, the result would ultimately be mostly house price increases that would work against the aim of boosting access to housing.” It suggests that the Bank of England should consider giving more forward guidance on interest rates and should regulate loan-to-value ratios – something it has stopped short of so far.
However, many of the more radical recommendations some had speculated would be in – that Osborne should switch to a plan B with more discretionary fiscal stimulus; that the Government should sell off its stakes in the nationalised banks as soon as possible – simply haven’t turned up.
That this is the case is a testament largely to an aggressive behind-the-scenes lobbying operation by the Treasury to try to persuade the Fund’s analysts, who have been in the country for the past fortnight, that they have underestimated the growth-friendly elements of Osborne’s plan. The Chancellor will be delighted that after the criticism he faced in Washington last month, the Fund has quietly toned down its critical stance.

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