By Alex Brummer of The Daily Mail
Gordon Brown was warned last night to raise the retirement age above 65 and introduce NHS charges to tackle the soaring state deficit.
In a devastating intervention, the International Monetary Fund called for radical changes to the pension system and spending cuts that go far beyond the plans outlined by the Prime Minister this week.
The global watchdog said root and branch changes to public sector spending would be necessary to ‘help keep a lid on the debt’ and restore financial stability.
The IMF’s broadside is highly unusual ahead of an election and reflects grave concern at the debt mountain built up by the Brown government.
The public reprimand will rekindle memories of the humiliation of the Callaghan government in 1976 when the IMF forced massive budget cuts on Britain to deal with the collapse of the pound.
Treasury ministers privately admit that the budget deficit is expected to rise to £200billion this year – £25billion more than the Chancellor predicted in the Budget.
That is the equivalent of £3,257 of debt for every man, woman and child, or £9,457 for the average family.
Oliver Blanchard, the IMF’s top economist, told a press conference at a joint annual meeting with the World Bank that the next British government will ‘have to take measures that improve the medium-term debt outlook’.
He added: ‘That means reforms of the retirement system, that means reform of the healthcare system.’
The IMF said that radical reform of pensions should lead to a rise in the national retirement age from 65 and save billions of pounds.
And they called for politicians to target ‘unfunded’ final salary public-sector pension schemes which will potentially cost the the Exchequer up to £1trillion.
Mr Blanchard said reform was vital, adding that it would be ‘a joke’ if the Government settled instead for new fiscal rules that might be torn up at times of crisis.
The IMF estimated that by next year Britain’s debt will represent 81.7 per cent of output.
Even with planned cuts and tax increases, it predicted a figure of 98.3 per cent by 2014.
There was a glimmer of hope for Alistair Darling in that the IMF raised Britain’s growth forecast for next year to 0.9 per cent from 0.2 per cent.
The Chancellor’s March budget went for a more optimistic 1.25 per cent.
The upgraded UK forecast was accompanied by caution that unemployment will continue to rise from 7.6 per cent of the workforce this year to 9.3 per cent next year. That would see three million without jobs.
The IMF also warned that Britain risks a new house price slump, despite an apparent recent market upturn. Their global outlook pointed to ‘ further large declines’.
In a bid to ease public concerns, senior Cabinet sources have revealed that Labour plans to make spending cuts and asset sales worth £75billion, taking an axe to major defence projects and the pay of judges, top civil servants and NHS managers.
Asked yesterday whether his spending plans were credible, Mr Brown told Five News: ‘Absolutely. I’ve offered a deficit reduction plan. We’ve raised the top rate of tax. National insurance will rise by half of 1 per cent and we’ll be cutting costs.
‘There will be further announcements about how we sell off more than £16billion of assets. I have been absolutely straight with the British people.’
But Philip Hammond, Tory Treasury spokesman, said: ‘It is increasingly clear that Labour have no plan to tackle the debt crisis they created.
‘At their conference this week they showed absolutely no recognition of the size of the problem, and refused to be straight with people about the fact that their own Treasury documents show they are planning cuts to spending on public services.
‘Labour still won’t come clean with the British people.’
Full article by Alex Brummer of The Daily Mail