IMF downward growth revision would mean the tax take falling by £150m a week

RF says active fiscal and monetary policy needed to mitigate impact of any post-Brexit downturn

The IMF’s revised outlook for GDP growth in the UK would mean the tax take falling by around £150m a week, presenting a huge challenge to the new Chancellor, the Resolution Foundation said today (Tuesday) in response to the latest IMF World Economic Update.

The IMF has downgraded UK GDP growth by 0.2 percentage points to 1.7 per cent in 2016, and by 0.9 percentage points to 1.3 per cent in 2017. This would shrink the size of the economy by £21bn by next year. Should tax revenues as a share of GDP remain constant this would reduce the annual tax take by £7.8bn, or by £150m a week.

Matt Whittaker, Chief Economist at the Resolution Foundation, said:

“There is huge uncertainty around the UK’s economic prospects in the wake of the decision to leave the EU, though most agree there will be a short-term hit to growth.

“The IMF outlook today, while less pessimistic than many of the projections we’ve had from the City, reiterates the scale of the task facing the new Chancellor when he sets out his Brexit Budget this Autumn. A £21bn reduction in the size of the economy alone would reduce the tax take by £150m a week.

“With living standards still showing the effects of the 2008 financial crisis, any reduction in growth in will have profound implications for Britain’s households. Those on low to middle incomes face the double hit of slower wage growth and a tighter benefit squeeze in the face of an inflation spike.

“Younger citizens too look vulnerable. Those in their 20s have fared particularly badly over recent years and face the prospect of earning less over their lifetime than their parents did – the first time any generation has experienced such a reverse.

“The precise scale of the Brexit fall-out remains highly uncertain at this stage – especially over the longer-term – but it’s clear that the government will need to put those on low and middle incomes at the heart of its response if is to achieve the new Prime Minister’s mission of ensuring that Britain is a ‘country that works for everyone’.”