The IMF is less than impressed with Liz Truss and Kwasi Kwarteng’s first mini-budget. In the kind of admonishment you’d normally expect them to make about an emerging economy, they said, ‘the nature of the UK measures will likely increase inequality… [the government might want to] reevaluate the tax measures, especially those that benefit high income earners’.
This is a bizarre statement to make. The UK is substantially less unequal than the USA, and the inequality/growth relationship is not particularly strong for developed economies. Should the IMF be expressing concern that the American economy will be undermined by its low top tax rates?
The cut in the highest rate of tax from 45% to 40% has driven a huge amount of media coverage, but is expected to cost around £2bn a year once behavioural responses are taken into account. As the IFS notes, it may very plausibly end up costing nothing.
It does, however, run contrary to an interesting strain of thought that has begun to predominate the IMF’s guidance to Britain. In this analysis, what really matters is how equal a country is, rather than how well off rich and poor are. But if this were true then why are so many people leaving countries like Pakistan – fractionally less unequal than Britain – in the belief that they will live better lives in the UK?