IMF advises UK against increasing bank taxes
The International Monetary Fund has cautioned the UK against increasing taxes on the banking sector, advising that public expenditure should be reduced instead, reports BritPanorama.
Chancellor John Healey is reportedly evaluating a tax increase on bank earnings in the upcoming Budget to address the fiscal pressures facing the Government. However, an economist at the fund urged Mr Healey to focus on limiting state outlays as he prepares to balance the books ahead of his statement on October 28.
Speaking at a press conference during the institution’s annual meeting in Bangkok, Thailand, Helge Berger, deputy director of the IMF’s European department, addressed questions about potential bank tax hikes. He indicated that previous budgets had involved increasing Government revenue.
Berger stated, “Ultimately, there’s a moment where this becomes less productive, but there’s still areas where Britain can make additional fiscal headroom available: modernising the property tax, broadening the tax bases of sales-oriented taxes like the VAT. These are good examples.” He further noted, “We wouldn’t recommend increasing the labour tax. That’s not a good thing for labour supply.”
He highlighted that taxes are currently around 40% of GDP, a historically high number for Britain, suggesting that balancing revenue-side measures with expenditure reductions makes sense.
In previous discussions, Berger mentioned, “There are various things we have talked about there in the past: removing the triple lock, better targeting social benefits.”
The Chancellor is reportedly considering reversing a reduction in the surcharge banks pay on their profits from 8% to 3%, which was introduced by his predecessor Jeremy Hunt, according to reports. Trade unions and think tanks have repeatedly called for the tax increase, estimating it could raise more than £2 billion a year.
TUC general secretary Paul Nowak stated, “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 TUC advocates for an increase in the surcharge to 16%, which could generate £24 billion in tax revenues over four years.
The Institute for Public Policy Research recommended generating £1 billion from a temporary surcharge on commercial banks’ windfall profits, as part of measures to raise an additional £16 billion to assist struggling households.
Additionally, the think tank asserted that these proposals would aid in rebuilding the Chancellor’s fiscal buffer, estimated to have decreased by up to £15 billion since spring. Rachel Reeves had rejected the idea of a tax rise when she was Chancellor, concerned it could drive away investment from Britain, a sentiment echoed by City groups.
A UK Finance spokesperson commented, “A strong banking sector is essential to a strong UK economy. An increase in bank taxes at the Budget would weaken the UK’s competitiveness, discourage investment and job creation, and work against the Government’s ambition to deliver growth in every postcode.”
Louise Hellem, chief economist at the Confederation of British Industry, stressed the need for the Budget to “avoid measures that would undermine competitiveness or weaken incentives to invest,” given that the business tax contribution is already at a record share of receipts.
Mr Healey has warned the public to be prepared for a tough Budget on October 28, promising to support families and businesses amidst rising costs of living, despite increased Government borrowing due to inflation fears stemming from the US’s conflict with Iran.
Meanwhile, Mr Healey faced criticism for an upbeat online video showing him and Foreign Secretary Ed Miliband tasting snacks in a tuk tuk in Bangkok just weeks ahead of the Budget.
