IMF bank tax advice to UK: cut pensions and welfare spending instead, says Berger
The IMF has urged Chancellor John Healey to find savings in pensions and welfare rather than taxing Britain's banks at the budget later this month, with the fund's Helge Berger arguing that taxes at roughly 40% of GDP are already historically high for the UK.
IMF bank tax advice to UK: cut pensions and welfare spending instead, says Berger
What the IMF recommended
The IMF's advice on the question of a bank tax uk ministers are weighing ahead of the budget is that the fiscal adjustment should come from spending, not from the banking sector. Helge Berger, deputy director of the IMF's European department, said the chancellor should target savings on pensions and welfare instead of taxing Britain's banks at the budget later this month.
Berger was speaking in Bangkok, where the IMF held its annual meetings that week.
"I think that's where you would put the emphasis, rather than the tax that you mentioned."
Why spending, not taxes
Berger's reasoning rested on the UK's tax burden. With taxes running at roughly 40% of GDP - historically, for Britain, a high number - he argued that balancing the measures on the spending side makes good sense.
He pointed to concrete areas where savings could be found:
- The pensions triple lock, which Labour has already said it will reform
- Better targeting of social benefits
And if the government did need additional revenue from taxation, Berger suggested that reforming property taxes or VAT might be a good place to start rather than a bank levy.
The bank tax on the table
Berger was asked about bank taxes after the Guardian revealed that Healey plans to tap the banking sector for additional revenue at the budget. The chancellor has not confirmed the details, but the question put to the IMF followed directly from those reports.
The industry's warnings
The banking industry has been lobbying against any increase ahead of the budget. UK Finance chief executive David Postings sent a letter to Healey, copied to Prime Minister Andy Burnham, on 12 October - days before news of the planned tax hike broke. The letter said the budget should avoid increases in bank-specific taxes, because they would risk constraining the sector's ability to lend and invest.
City lobbyists have warned that higher taxes could force banks to throttle lending, hit the economy and push jobs and operations abroad. Research commissioned by UK Finance put numbers on those warnings:
- Reversing the Tory cuts to the bank surcharge, taking it back to 8% from 3%, would leave annual UK GDP £1.2bn lower in real terms by 2029-30
- Lending would likely be £10.4bn lower in 2029-30 than if the surcharge were held at 3%, with banks issuing fewer business loans and mortgages
The decision on whether to tax banks or cut spending will come at the budget later this month.
