IMF tells UK to explain how it will pay for higher defence spending

A call for openness on defence funding

The International Monetary Fund has told the British government to be open with the public about how higher defence spending will be paid for. Britain faces an annual bill of £11 billion ($14.6 billion) to lift military expenditure to a target of 3% of gross domestic product, and the fund says departmental cuts will be needed to cover it. The warning comes before Chancellor John Healey's first Budget, set for 28 October, and Healey succeeded Rachel Reeves in the post. The IMF's chief economist, Silvana Tenreyro, argued that the government has already begun its fiscal consolidation.

The UK has already started the (fiscal) consolidation path.

Growth forecast and the spending path

The IMF now expects UK gross domestic product to grow 1.3% this year, up from its previous forecast of 1%.

The Scotsman's commentary says that, despite global turmoil and high energy prices, Britain is doing relatively well, though inflationary pressures could change that. Tenreyro told Healey that the plan to bring day-to-day spending in line with tax revenues by 2029-30 must continue, despite pressure to spend more on defence. A Scotsman column argues the defence budget must rise without costing the UK credibility with markets, and that spending cuts are the only real option because taxation and borrowing are already at historically high levels. The same column urges approval of North Sea oil and gas schemes such as Rosebank, citing a new report that puts their economic value at £10.8 billion over the next decade. It warns that rejecting such projects could lead to electoral defeat for the party committed to net zero, replaced by one that would abandon the policy entirely.

Tax burden and wealthy investors

The IMF says Labour is raising taxes at the fastest pace in the Western world. Projections cited by The Telegraph put Britain's tax burden at a peacetime high of 41.9% of GDP by the start of the next parliament, as repeated tax rises hit households and businesses. Expectations of a capital gains tax increase have made the issue the top concern for wealthy Britons, who are moving to avoid being caught by any rise before the 28 October budget. Investors are seeking to take advantage of the current 24% higher-rate capital gains tax before any change takes effect.

Markets and the political debate

Legal & General, the £1.2 trillion ($1.6 trillion) firm described as Britain's largest asset manager, is hedging its government bond purchases against a renewed selloff in global debt markets. A New Statesman commentary argues that Britain's pursuit of cheap goods has left it dangerously exposed on national security, and that Healey faces a series of painful dilemmas in his first Budget. The commentary recalls that John Maynard Keynes wrote in March 1931 about a revenue tariff, at a time when Britain still regarded itself as the world's great free-trading nation. The Budget is due on 28 October, and the IMF has urged the government to keep its spending path intact.