An influential global organisation is urging Andy Burnham’s incoming government to avoid increasing public spending in the face of pressures such as rising household energy bills.
The International Monetary Fund (IMF) published a new report on the UK as Mr Burnham prepares to take the reins as the country’s new prime minister.
The Washington-based fund, which has around 190 member countries, said the Government should try to stay focused on its plans to grow the economy and stabilise debts in a more volatile world prone to shocks.
“This calls for a cautious approach to new fiscal pressures: the authorities should be very selective in accommodating new demands and reprioritise, while sticking to the deficit reduction plan,” the report read.
“Future spending reviews should focus on reallocating resources across departments, rather than increasing total spending.”
In particular, it urged the Government’s response to the Iran war energy shock to remain “tightly targeted, temporary and budget-neutral”.
This means avoiding universal support schemes like that introduced after the 2022 energy crisis, which capped annual energy bills for the typical household at £2,500.
“Broad-based measures, such as cuts in energy taxes, outright energy price caps, or generalised subsidies, should be avoided, as they are costly, difficult to unwind, and weaken price signals,” the IMF warned.
It also highlighted rising spending pressures from an ageing population, defence commitments and the transition away from fossil fuels.
The IMF has previously praised Chancellor Rachel Reeves’ fiscal strategy for striking a good balance between reducing the UK’s deficit and “growth-friendly spending” and investment into industries such as health and education.
But Ms Reeves appears to have conceded she will not stay on as Mr Burnham’s chancellor, though the presumptive next prime minister has not yet confirmed any Cabinet appointments.
Ed Miliband has been widely tipped as a possible successor for the key post.
Responding to the IMF’s report, Ms Reeves said: “We have the right economic plan to build a stronger, more secure Britain, with the IMF backing the choices I’ve made to put the country in a much stronger position than it was two years ago.”
