The International Monetary Fund has urged Chancellor John Healey to consider reforms to pensions, welfare and the tax system rather than make higher taxes on banks his first choice in the forthcoming Budget.
Speaking at the IMF and World Bank annual meetings in Bangkok on Friday 16 October, Helge Berger, deputy director of the IMF’s European Department, said Britain had scope to improve its public finances by modernising property taxation, widening the base of VAT and targeting social benefits more effectively.
IMF raises concerns about Britain's tax burden
Berger said UK tax revenues were already equivalent to roughly 40 per cent of economic output, historically high by British standards. He suggested that relying increasingly on additional tax rises could become less productive and that ministers should consider changes to expenditure alongside revenue measures.
Among the examples he identified were removing the state pension triple lock and better targeting social benefits. The triple lock determines annual increases in the state pension by reference to inflation, average earnings growth or a minimum percentage, whichever is highest.
His comments were policy advice from the IMF, not an instruction to the British government. The Fund did not say a bank tax increase was impossible or would necessarily prevent lending; rather, it argued that other options should take priority.
Chancellor faces pressure over bank profits
The intervention comes ahead of Healey's Budget on 28 October. The Chancellor has pledged not to increase the main rates of income tax or National Insurance contributions but has left open the possibility of changes to the surcharge on bank profits.
The existing bank corporation tax surcharge stands at 3 per cent. Reports have suggested ministers are considering increasing it to 8 per cent, although no final decision has been announced.
Banking industry representatives argue that higher sector-specific taxes could discourage investment and reduce lending. UK Finance has cited commissioned research projecting economic costs from such an increase. Those figures are forecasts advanced by the industry, not established outcomes.
Supporters of higher bank taxation counter that lenders have reported substantial profits and should contribute more to the public finances. They also point to the financial support received by parts of the banking sector during the 2008 crisis.
Political choices remain with ministers
Prime Minister Andy Burnham has separately indicated support for changing the pension triple lock, with potential savings intended to help fund social care. The government is also examining aspects of working-age welfare spending, but those reviews are not expected to conclude before this month's Budget.
The IMF also acknowledged Britain's recent efforts to reduce borrowing and its objective of balancing day-to-day spending against revenues by 2029–30. Its intervention therefore focused on the composition of future fiscal decisions rather than calling for an immediate acceleration of deficit reduction.
Neither a new bank tax nor specific welfare or pension cuts have been enacted by the IMF's remarks. The government's decisions will become clearer when the Chancellor presents his Budget to Parliament.