- The IMF says Britain should consider spending reforms rather than rely on higher taxes on banks.
- Unions and think tanks argue a higher bank surcharge could raise billions of pounds.
- Banks and business groups warn further sector-specific taxes could deter investment and weaken competitiveness.
The International Monetary Fund (IMF) has urged Britain to consider cutting public spending rather than raising taxes on banks, as the Government weighs options to strengthen its finances ahead of the October 28 budget.
Chancellor John Healey is reportedly considering reversing a reduction in the bank tax surcharge, but the IMF has suggested that spending reforms should play a greater role in balancing the public finances.
Helge Berger, deputy director in the IMF’s European department, addressed the issue at a press conference in Bangkok, Thailand, during the fund’s annual meetings. He said Britain’s tax take, at roughly 40 per cent of gross domestic product (GDP), was historically high and argued that revenue-raising measures needed to be balanced against action on spending.
Berger pointed to modernising property taxation and broadening the tax base for consumption taxes such as value-added tax (VAT) as potential ways to raise revenue. He also cautioned against increasing taxes on labour, saying they could discourage people from working.
On spending, he highlighted possible changes to the state pension triple lock and better targeting of social benefits.
“Ultimately, with taxes roughly at 40% of GDP, that is historically for Britain a high number,” Berger said, adding that the IMF would place greater emphasis on expenditure measures than on the proposed bank tax increase.
Bank tax debate intensifies
The Chancellor is reportedly considering reversing the reduction in the bank surcharge from 8 per cent to 3 per cent, introduced by former Conservative chancellor Jeremy Hunt.
Trade unions and think tanks have repeatedly called for a higher levy, arguing that banks should contribute more to public finances. The Trades Union Congress (TUC) has called for the surcharge to rise to 16 per cent, claiming this could raise £24 billion over four years.
TUC general secretary Paul Nowak said: “The Treasury has already lost £6 billion in revenue from the Tories’ senseless bank tax cut – now it’s time to make sure banks pay their fair share.”
The Institute for Public Policy Research has also proposed a temporary surcharge on commercial banks’ windfall profits. The measure forms part of a package the think tank says could raise an additional £16 billion to help struggling households.
The organisation has argued that the Chancellor’s fiscal buffer has fallen by up to £15 billion since the spring, adding to pressure on the Government to find room in its finances.
However, banks and business groups have warned that increasing the surcharge could make the UK less attractive to investors. UK Finance said a higher bank tax would weaken competitiveness, discourage investment and job creation, and conflict with the Government’s growth ambitions.
Louise Hellem, chief economist at the Confederation of British Industry, said the budget should “avoid measures that would undermine competitiveness or weaken incentives to invest”.
She added that businesses were already contributing a record share of tax receipts and argued against further sector-specific taxation, particularly for a banking sector that already faced a higher tax rate than some competing international financial centres.
The debate highlights the choices facing the Government as it seeks to support households and businesses amid cost-of-living pressures while maintaining control of public finances. The October 28 budget will reveal how the Chancellor intends to balance demands for additional revenue with concerns over investment, growth and spending.
