UK urged to keep up pandemic spending as post-Brexit transition future looms

30 Oct 20

“Essential” support for companies and workers in the UK must continue if the economy is to recover from Covid-19 and meet the challenges of leaving the EU customs union and single market, the IMF has said.


Kristalina Georgieva, managing director of the IMF. Credit: European Union

Kristalina Georgieva, managing director of the IMF. Credit: European Union

Fund economists praised the UK government’s policy response, which the country’s National Audit Office said totals at least £210bn, for mitigating damage to the economy so far.

But they said GDP has still dropped dramatically, and an initial rebound faces “headwinds” from a second wave of the virus, rising unemployment and the end of a transition period with the EU at the end of the year.

Large schemes, such as a furlough programme aimed at keeping workers in jobs and an income support package for the self-employed, which had together cost £70bn by the start of October, have now either been closed or are being wound down.

But the IMF said the government must not withdraw fiscal support for the economy.

“Continued policy support is essential to address the pandemic and to sustain and invigorate a recovery,” IMF managing director Kristalina Georgieva told a press conference.

“We welcome that the authorities have committed to deliver it as long as necessary to manage expectations and boost confidence. The policy space exists to do this.”

Georgieva said programmes supporting jobs and firms should be kept in place until the economic impact of the virus subsides, in order to reduce long-term “scarring” and temper the harmful impact on equality.

“Therefore, we support an additional fiscal push, necessary to enhance the safety net, but also to boost public investment,” she said.

“It offers the opportunity to ‘build forward’ and address the UK’s climate targets, reduce regional inequality and help those who do end up losing their livelihood.”

To reverse the inevitable rise in the public debt ratio, the IMF said the UK should embark on “gradual” deficit reduction, although it warned this “should only come when the private sector begins to durably lead the recovery”.

The economists said the scope for spending cuts is limited after a decade of austerity, and “some adjustment of both tax bases and major rates appears inevitable”, adding that an expensive triple lock on state pensions that guarantees their value rises at least in line with inflation could be re-examined.

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