The International Monetary Fund has urged John Healey to target savings on pensions and welfare, instead of taxing Britain’s banks at the upcoming budget later this month.
Helge Berger, deputy director of the IMF’s European department, addressed bank taxes following disclosures that Healey plans to tap the sector for additional revenue during the annual meetings held this week in Bangkok.
Berger noted that given the UK’s current high tax-to-GDP ratio, it might be better to put the emphasis on spending cuts. He suggested that if additional tax revenue were necessary, reforming property taxes or VAT could serve as a viable starting point.
He added that with taxes sitting at roughly 40% of GDP—a historically high figure for Britain—balancing measures on the fiscal and spending side makes good sense. As examples, he highlighted the pensions triple lock, which Labour has already indicated it will reform, alongside better targeting of social benefits.
Meanwhile, City lobbyists have warned that higher levies could force lenders to throttle lending, harm the economy, and drive jobs and operations abroad. In a 12 October letter sent to Healey and copied to Prime Minister Andy Burnham, UK Finance chief executive David Postings highlighted commissioned research. “The UK’s banking sector already makes a vital contribution to the wider economy,” Postings’ letter said. “To sustain this vital contribution, the budget should avoid any increases in bank-specific taxes, as this would risk constraining the sector’s ability to lend and invest.”. According to “The prime minister has, The burden of taxation has to fall on those with the broader shoulders, and at the moment, it’s hard to think of a sector where the shoulders are much broader than the banking sector,” Augar told the BBC’s Today programme on Friday.
The findings indicated that reversing Conservative cuts to the bank surcharge from 3% back to 8% would leave annual UK GDP £1.2bn lower in real terms by 2029-30. Furthermore, lending for business loans and mortgages would drop by £10.4bn compared to holding the surcharge steady. According to he, It would also see banks issue fewer business loans and mortgages, with lending likely to be £10.4bn lower in 2029-2030 than if the surcharge was held at 3%. Banks have been reporting strong profits, largely off the back of high interest rates, with bosses subsequently increasing banker bonus pots and handing billions of pounds to shareholders, at the same time.
Conversely, TUC analysis of HMRC corporate tax receipts shows the Treasury has already lost £6bn over three years following the surcharge reduction in 2023. Major lenders like HSBC, NatWest, Barclays, and Lloyds collectively reported £29.2bn in profits over the first six months of the year, pledging nearly half to investors. According to collectively, the UK’s four largest lenders – HSBC, NatWest, Barclays and Lloyds –, £29.2bn in profits over the first six months of the year, with almost half, £13.7bn, pledged to investors through dividends and. Those banks have raked in £200bn in pre-tax profits, over the past five years. Banks can’t be too big to fail and too big to tax.”.
Former banker and author Philip Augar argued that lenders are enjoying boom conditions and that a moderate tax increase raising £2bn to £3bn annually is justified. He stated that the banking sector cannot expect taxpayer bailouts during rocky periods while demanding special treatment during boom cycles. But when it hits really rocky times it expects the taxpayer to bail them out,” Augar said. “When it hits boom times, it expects some kind of special treatment. “But they always say this, [and] they rarely move. With a moderate increase in taxation or some other form of getting money from the banks, then the business will remain in the UK.”, i think that if the chancellor judges this right.
While international executives like JP Morgan head Jamie Dimon have previously cautioned against a hostile regulatory environment, Augar dismissed these warnings as bluster. Supporters of the proposed tax maintain that banks were bailed out by taxpayers during the 2008 financial crisis and retain the capacity to pay more now. And potentially jobs, from the UK if it hikes taxes, with lobby groups noting smaller overall tax charges in rival financial centres like Frankfurt, Dublin and Amsterdam, some banks have threatened to pull investment. According to jamie Dimon, who heads up the largest bank in the US, JP Morgan,, In May that he could scrap plans for a new £3bn London headquarters if the UK government became hostile towards banks.
