Britain should cut public spending rather than raise taxes on banks, the International Monetary Fund (IMF) has warned.
Chancellor John Healey is reportedly considering raising the tax on bank profits at the Budget, as a means of dealing with the Government’s spending challenges.
But an IMF economist suggested Mr Healey should instead look at curbing spending as he seeks to balance the books ahead of his statement on October 28.
Helge Berger, deputy director in the IMF’s European department, was asked about the prospect of a hike in bank taxes at a press conference in Bangkok, Thailand, where the influential financial institution is holding its annual meeting.
He told reporters: “I think the last two fall budgets had programmes that involved increasing Government revenue.
“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.
“We wouldn’t recommend increasing the labour tax. That’s not a good thing for labour supply.
“But ultimately, with taxes roughly at 40% of GDP, that is historically for Britain a high number, then of course you know balancing these revenue-side measures on the expenditure side, doing a little bit more there makes good sense.
“There are various things we have talked about there in the past: removing the triple lock, better targeting social benefits.
“So I think that’s where we would put the emphasis rather than on the tax that you mentioned.”
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 Tory predecessor Jeremy Hunt, according to a report in the Guardian.
The tax increase has been repeatedly suggested by trade unions and think tanks, with estimates it could raise more than £2 billion a year.
TUC general secretary Paul Nowak said: “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 called for an increase in the surcharge to 16%, saying that could raise £24 billion in tax revenues over four years.
The Institute for Public Policy Research this week recommended generating £1 billion from a temporary surcharge on commercial banks’ windfall profits among a package of measures to raise an extra £16 billion to help struggling households.
The think tank, which has been influential in Labour policy-making, said the proposals would help rebuild the Chancellor’s fiscal buffer which it estimated has dropped by up to £15 billion since the spring.
Rachel Reeves rejected the idea of the tax rise when she was chancellor for fear it would drive away investment from Britain, and City groups have now made the same warning.
A UK Finance spokesperson said: “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, said the Budget should “avoid measures that would undermine competitiveness or weaken incentives to invest”.
“With the business tax contribution already at a record share of receipts, that means avoiding further sector-specific taxation, including on a banking sector already facing a higher tax rate than competing international financial centres.”
Mr Healey has warned the public to be prepared for a tough Budget on October 28.
He and Prime Minister Andy Burnham have promised to help families and businesses with cost-of-living pressures, even as Government borrowing costs have soared due to fears over inflation driven by the US’s war with Iran.
Meanwhile, Mr Healey was criticised for an upbeat online video showing him and Foreign Secretary Ed Miliband tasting snacks in a tuk tuk in Bangkok less than two weeks before the Budget.