The International Monetary Fund has advised UK Chancellor John Healey to focus spending cuts on pensions and welfare rather than imposing new taxes on British banks in the upcoming budget.
Helge Berger, deputy director of the IMF’s European department, addressed bank taxation following reports that Healey plans to draw extra revenue from the financial sector. Speaking in Bangkok during the IMF annual meetings, Berger noted that with the UK tax-to-GDP ratio hovering near 40%, placing emphasis on spending restraint makes sense. With taxes roughly at 40% of GDP – historically, for Britain, a high number – then of course balancing these measures on the fiscal [spending] side, doing a bit more there, makes good sense.”, he added: “Ultimately.
Berger suggested reforming property taxes or VAT if additional revenue is strictly necessary, but highlighted the pensions triple lock—which Labour intends to reform—and better targeting of social benefits as preferred alternatives to bank levies.
Meanwhile, financial sector lobbyists have cautioned that increased levies could restrict lending, slow the wider economy, and push institutions to relocate operations overseas. David Postings, chief executive of UK Finance, wrote to Healey and Prime Minister Andy Burnham on October 12, citing commissioned research that argued reversing Tory reductions to the bank surcharge back to 8% from 3% would lower real UK GDP by £1.2bn annually by 2029-30. Warning the government that higher taxes could force banks to throttle lending, hitting the economy and even forcing some lenders to move jobs and operations abroad, city lobbyists have been out in full force. In a letter sent to Healey and copied to the prime minister, Andy Burnham, on 12 October, days before news of the planned tax hike broke, the chief executive of UK Finance, David Postings, shared research commissioned by the lobby group. “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. According to while banks could not expect interest rates benefits to continue forever, Augar, Banks – including those that were bailed out in the 2008 financial crisis – could not have it both ways. 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 but Augar, The government needed to see past the bluster. “There seems to have been a coordinated campaign by the big international banks who have businesses in Britain – JP Morgan, Citigroup, Santander, HSBC and others.
Postings added that business loans and mortgages would drop by £10.4bn by the end of the decade if the surcharge is not held at 3%. Conversely, analysis of HMRC corporate tax receipts by the TUC indicates the Treasury has already lost £6bn over three years following the 2023 surcharge reduction. 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%.
Major lenders have posted strong returns driven by high interest rates, directing billions toward shareholder dividends and share buybacks. The four largest UK lenders—HSBC, NatWest, Barclays, and Lloyds—reported £29.2bn in pre-tax profits during the first half of the year, dedicating £13.7bn to investors, and accumulating £200bn in pre-tax profits over the past five years. 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.
Former banker Philip Augar argued that lenders are experiencing boom conditions and can accommodate a moderate tax increase generating £2bn to £3bn annually. He maintained that major banks expect taxpayer bailouts during downturns while resisting contributions during prosperous periods. 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.
Despite warnings from major institutions—including US-based JPMorgan, whose head Jamie Dimon stated in May that hostility could jeopardize plans for a £3bn London headquarters—Augar contended that international banks rarely relocate following tax adjustments.
