IMF tells Healey to target pensions and welfare, not banks

The International Monetary Fund has urged the chancellor, John Healey, to find savings in pensions and welfare rather than raising taxes on Britain's banks in this month's budget.

Helge Berger, deputy director of the IMF's European department, was asked about bank taxes after the Guardian reported that Healey plans to raise more from the sector.

"Taxes roughly at 40% of GDP"

"Ultimately, with taxes roughly at 40% of GDP, historically, for Britain, a high number, then of course balancing these measures on the spending side, doing a bit more there, makes good sense," Berger said, speaking at the IMF's annual meetings in Bangkok.

He pointed to the pensions triple lock, which Labour has said it will reform, and "better targeting of social benefits". If more tax was needed, he suggested reforming property taxes or VAT.

The banks' case

City lobbyists have warned that higher taxes could force banks to cut lending. In a letter to Healey and the prime minister, Andy Burnham, UK Finance's chief executive, David Postings, cited research suggesting that restoring the bank surcharge to 8% from 3% would leave annual GDP £1.2bn lower by 2029-30, and lending £10.4bn lower.

Some banks have threatened to move investment and jobs abroad, pointing to lower taxes in Frankfurt, Dublin and Amsterdam. JPMorgan's chief executive, Jamie Dimon, said in May he could scrap plans for a new £3bn London headquarters if the UK became hostile to banks.

The case for a tax

Supporters of a bank tax point out that the four biggest UK lenders, HSBC, NatWest, Barclays and Lloyds, made £29.2bn in profits in the first half of this year, and pledged £13.7bn of it to shareholders. TUC analysis suggests the Treasury has lost £6bn since the surcharge was cut in 2023.

The author and former banker Philip Augar said banks were "enjoying boom conditions", partly because of high interest rates. "Banks can't be too big to fail and too big to tax," he told the BBC. "They always say this, and they rarely move."

What is the bank surcharge?

The bank surcharge is an extra tax on banks' profits, on top of corporation tax, introduced in 2016. It was cut from 8% to 3% in 2023 when corporation tax rose to 25%. Banks have benefited from higher interest rates since 2022, which widen the gap between what they pay savers and what they charge borrowers.

Birmingham's stake

Banking matters to Birmingham, where HSBC UK has its headquarters and thousands of people work in financial services. Any decision that affects banks' profits, lending or investment plans will be watched closely in the city.

Healey is expected to announce his decision at the budget on 28 October, alongside measures to help households and businesses with rising costs.