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IMF urges Rishi Sunak to consider raising wealth taxes

written by Bella Palmer
wealth-taxes

The report said key indicators such as wage hikes, price plans by companies, and expectations for inflation shown by surveys and implied by markets all ‘flashed red at present’

Chancellor Rishi Sunak has been urged by the IMF to consider raising taxes on those ‘who have benefited most from the pandemic’ as it warned of inflation risks facing the UK economy.

It suggested that levying ‘windfall or wealth taxes’ now could be one way for the chancellor to address ‘demand-supply imbalances’ when he unveils latest budget forecasts next month.

The idea of targeting the better-off would be to shift spending by those ‘most likely to consume’ to the future, the IMF said.

It also suggested the government raising more revenues in the short term to invest in a beefed-up version of its ‘build back better’ growth agenda later.

The recommendations came in the Washington-based International Monetary Fund's annual review of the UK.

It said: The outlook suggests that growth will remain strong in 2022, but so too will price pressures and risks.

The report said key indicators such as wage hikes, price plans by companies, and expectations for inflation shown by surveys and implied by markets all ‘flashed red at present’.

It backed the idea of the Bank of England steadily increasing interest rates to 1-1.5% to help bring inflation back to its 2% target over the next couple of years.

But the report also said fiscal policy - that is, the government's tax and spending plans - could play a key role, potentially relieving the pressure to hike rates.

Too fast an increase in interest rates could threaten the recovery, the IMF said.

But too slow a pace could allow greater ‘second-round effects’ - that is, a spiral in which the initial impact of inflation prompts workers to demand higher wages and companies to pass on higher costs in the form of price increases.

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