IMF tells Brown: 'Spend less or tax more'

GORDON BROWN's rose-tinted view of the British economy was challenged last night by the experts of the International Monetary Fund. They urged him to cut spending or raise taxes to restore his famous prudence to the public finances.

In its annual verdict on the British economy, the Washington-based IMF disputed the growth forecasts in the Chancellor's pre-Budget report earlier this month. It said the British economy would grow by 2.5% to 2.75% against Mr Brown's central figure of a 3.25% expansion.

The IMF says 'private consumption growth is expected to fall modestly as house prices decline' and warns that a freefall in residential values would be one of the big risks to Labour's economic policy. Much of the IMF's report card focuses on the deterioration in the public finances.

The organisation believes that Mr Brown has been too optimistic in predicting tax receipts and says that if his budget rules are not broken in the current economic cycle, they will be in the next.

In an unusually tough comment, the IMF experts say 'the fiscal position has deteriorated substantially in recent years'. They question whether recovery will take place. The IMF's comments came just 24 hours after the Government revealed that Britain borrowed £9.6bn in November, the biggest-ever monthly amount.

Ironically, the IMF's adverse report card was issued while Mr Brown, who heads the organisation's top policy body, was in the US urging the Americans to put their own house in order.

The IMF says it would prefer the Government to solve its borrowing problems by cutting spending. But if this provded politically difficult, taxes should be raised to deal with the budget black hole expected by the experts to reach £40bn in the year ending April 2005.

The report suggests 'user fees' on items such as roads and health as a means of increasing efficiency and revenue. But if more revenues are required, it proposes that Mr Brown should broaden the tax base rather than increasing taxes on earnings.

The Chancellor is also urged to strengthen his forecasting of the public finances if prudence is to be maintained. The IMF urges the use of more realistic economic assumptions and calls for more outside scrutiny of the forecasting. This echoes the proposal made by Tory Shadow Chancellor Oliver Letwin earlier this month.

Despite the IMF's criticisms, the Treasury noted last night that the report also says Britain's economy 'remains strong and stable'.