The International Monetary Fund has urged John Healey to target savings on pensions and welfare, instead of taxing Britain’s banks at the budget later this month. Helge Berger, deputy director of the IMF’s European department, was asked about bank taxes after the Guardian revealed Healey plans to tap the sector for additional revenue. Berger replied that given the UK’s current high tax-to-GDP ratio, it might be better to “put the emphasis” on cuts.
He said if additional tax revenue were needed, reforming property taxes or VAT might be a good place to start. He added: “Ultimately, 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.” As examples, he highlighted the pensions triple lock – which Labour has already said it will reform – and “better targeting [of] social benefits”, adding: “I think that’s where you would put the emphasis, rather than the tax that you mentioned.” Berger was speaking in Bangkok, where the IMF has held its annual meetings this week. City lobbyists have been out in full force, 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.
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. It suggested that reversing 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 than it would have otherwise been. He said 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%.
At the same time, 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. Collectively, the UK’s four largest lenders – HSBC, NatWest, Barclays and Lloyds – reported £29.2bn in profits over the first six months of the year, with almost half, £13.7bn, pledged to investors through dividends and share buybacks. Over the past five years, those banks have raked in £200bn in pre-tax profits.
Author and former banker Philip Augar said the banks were “enjoying boom conditions”, partly due to good management but partly due to economic conditions “not of their own making”. He said there was room for a “moderate increase in taxation” that would raise about £2bn to £3bn a year. While banks could not expect interest rates benefits to continue forever, Augar said that banks – including those that were bailed out in the 2008 financial crisis – could not have it both ways.
But when it hits really rocky times it expects the taxpayer to bail them out,” Augar said. Banks can’t be too big to fail and too big to tax.” Some banks have threatened to pull investment, 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. Jamie Dimon, who heads up the largest bank in the US, JP Morgan, said in May that he could scrap plans for a new £3bn London headquarters if the UK government became hostile towards banks.
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