RACHEL Reeves must hike taxes, scrap the triple lock or charge for the NHS, an influential finance watchdog warned today.
The International Monetary Fund said the Chancellor must make deeply unpopular decisions to tackle soaring debt, sky-high borrowing costs and weak growth – all made worse by an ageing population and ballooning pensions bill.
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In a damning new report, the IMF declared Ms Reeves and future chancellors must either whack up taxes, axe pillars of the welfare state like the triple lock or make patients pay to see a doctor.
It also argued government finances should only be probed once a year to avoid “overly frequent” changes to policy.
Currently the Office for Budget Responsibility assesses if the Treasury is on course to meet its borrowing commitments twice a year.
The watchdog said: “Unless the authorities revisit their commitment not to increase taxes on ‘working people’, further spending prioritisation will be required to align better the scope of public services with available resources.”
The IMF suggested replacing the pensions triple lock with a policy of indexing the state pension to the cost of living.
It also argued access to benefits and public services could be more intensely means tested, with higher income households paying for the likes of the NHS.
The IMF’s economic update, published on Friday, acknowledged the Chancellor’s earlier attempts at welfare reform.
But since it was written on July 1, Sir Keir Starmer caved to rebels on his own benches, watering down plans to tackle the ballooning disability benefits bill.
That U-turn blew a £5bn hole in the government’s budget.
The IMF said such reforms were “critical” to stop the public finances spiralling further.
The watchdog also warned that Ms Reeves must stick to tough fiscal plans or risk disaster if the economy falters or interest rates spike.
It warned political pressure from MPs for more spending could further derail the public purse.
And the IMF found that planning reforms to spur housebuilding also face fierce resistance – but failure to unleash a building boom would damage growth.
The latest update from its economists predicted sluggish growth of just 1.2 per cent this year and 1.4 per cent in 2026, and warned of the risk of “stagflation” – the nightmare scenario of rising prices and a stagnant economy.
Despite the grim forecast, Ms Reeves insisted the IMF’s report backed her plans.
She said: “Our fiscal rules allow us to confront those challenges by investing in Britain’s renewal.
“We’re committing billions of pounds into improving transport connections, providing record funding for affordable homes, as well as backing major projects like Sizewell C to drive economic growth.
“There’s more to do, and that’s why we’re slashing unnecessary red tape and unblocking investment to let British businesses thrive and put more money in working people’s pockets.”
Responding to the report, Shadow Chancellor Mel Stride said: “Rachel Reeves has already fiddled her fiscal targets to allow her to borrow hundreds of billions more over this parliament.
She has loosened the rules and then constantly teetered on the brink of breaking them.
“In a context where the Chancellor’s credibility is already in tatters, changing the goalposts a second time would run real risks with market confidence.”