Cutting taxes ‘would be a mistake’, senior IMF official warns

The International Monetary Fund’s (IMF) UK head has warned against tax cuts, suggesting they might boost inflation.

The issue has been central to the Conservative Party leadership contest, with candidates clashing over whether to cut tax.

Amid soaring inflation, Mark Flanagan said debt-financed tax cuts at the current time “would be a mistake”.

Speaking to BBC News on July 7, the day that Boris Johnson resigned to trigger the leadership contest, the IMF’s top official said, if anything, the tax ratio needed to be lifted.

Mr Flanagan added: “At some point you have to decide, do we want to invest in the climate transition? Do we want invest in digitalisation? Do we want to invest in skills for the public.

“Well, if you do you need the resources to do it. And the way to realise those resources is to lift the tax ratio a little bit.”

Mr Flanagan said that tax cuts may even boost inflation by strengthening spending.

Cutting taxes has been a key issue for the No 10 hopefuls, with candidates clashing over it on Sunday night in the latest televised debate.

The former Chancellor, Rishi Sunak, has been criticised by other candidates including Liz Truss and Penny Mordaunt for arguing against tax cuts.

Ms Truss attacked Mr Sunak’s record in the Treasury, while Ms Mordaunt said limited tax cuts she advocated were not inflationary.

Mr Sunak accused Ms Truss of peddling “something-for-nothing” economics and said in response to Ms Mordaunt’s fiscal borrowing proposals: “Even Jeremy Corbyn didn’t go that far.”