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News, gossip and insight from PoliticsHome Editor Paul Waugh

The IMF's Plan B - more cuts, not fewer

Given his monotone delivery and dry-as-dust econom-ese, John Lipsky proved today just why he'd never get the top job at the IMF - even if he was a European.

But while a Lagarde (and a DSK) would have the gallic flourish, Lipsky delivered the most important thing of all for George Osborne: a steadfast refusal to say the UK needs a Plan B.

In fact, Lipsky was so determined not to undermine the Chancellor that he refused to define the "prolongued period of weak growth" that could trigger a remotely hypothetical Plan B. "I wouldn't want to get into any false precision about definitions..." is how he put it.

The IMF report does indeed set out what it thinks would need to happen if, perish the thought, both its economists and those at HMT get their forecasts and policies wrong.

Yet the answer is not a Keynesian/Ballsian injection of more fiscal stimulus or public spending. It is the opposite: temporary tax cuts and more quantitative easing by the Bank of England.

Should the worse come to the worse, I note that the IMF also says that even deeper welfare cuts would be needed.

The key passage in the IMF report is this:

"...tax cuts are faster to implement and more credibly temporary than expenditure shifts and should be targeted to investment, low-income households, or job creation to increase their multipliers.

"Simultaneous adoption of deeper long-run entitlement reform [my italics] would be desirable to safeguard fiscal sustainability and market confidence..."

In the huddle after today's press conference, no one at the Treasury would go anywhere near commenting on any of this stuff, insisting that this was the IMF's recommendation, not the Government's.

Yet I suspect that some Tory MPs may renew their calls for tax cuts or even a full-bloodied reversal of Labour's 'jobs tax' ie National Insurance rise.

Lipsky even fuelled the cause of some such as Fraser Nelson who have long argued that actually the current Coalition spending cuts don't go far enough.

In the Q&A, he pointed out today: "The level of public spending as a percentage of GDP in our forecast has reduced by about half a per cent of GDP as compared to the previous fiscal year. However, it remains very far above the pre-crisis levels of spending and represents a long-term high in spending. It's important to maintain that perspective"

The IMF's a lot of things. But Keynesian it 'aint.

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