The Treasury’s plan to extract more revenue from Britain’s banks is running into a hard operational question ahead of this month’s budget: should the fiscal machinery be adjusted through spending reform or fresh taxation? The International Monetary Fund has now weighed in, backing cuts rather than new levies.
Helge Berger, deputy director of the IMF’s European department, was asked about bank taxes after the Guardian revealed that John Healey plans to tap the sector for additional revenue. Given the UK’s current high tax-to-GDP ratio, Berger replied, it might be better to “put the emphasis” on cuts. If additional tax revenue were needed, he suggested, reforming property taxes or VAT might be a good place to start.
“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,” Berger said, speaking in Bangkok, where the IMF has held its annual meetings this week. He highlighted the pensions triple lock, which Labour has already said it will reform, and “better targeting [of] social benefits” as examples. “I think that’s where you would put the emphasis, rather than the tax that you mentioned,” he added.
Meanwhile, City lobbyists have pressed the operational case against the planned hike, warning the government that higher taxes could force banks to throttle lending, hitting the economy and even pushing 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 otherwise have been. Lending would also shrink, with banks issuing fewer business loans and mortgages, likely £10.4bn lower in 2029-2030 than if the surcharge was held at 3%.
“The UK’s banking sector already makes a vital contribution to the wider economy,” Postings’ letter said. “To sustain this vital contribution, the budget should avoid any increases in bank-specific taxes, as this would risk constraining the sector’s ability to lend and invest.”
By contrast, the counter-case rests on what has actually been delivered since the surcharge was cut. TUC analysis of HMRC corporate tax receipts shows the Treasury has already lost out on £6bn over the three years since the cut came into force in 2023. Over the same period, banks have reported 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”. There was room, he said, for a “moderate increase in taxation” that would raise about £2bn to £3bn a year. “The prime minister has said that the burden of taxation has to fall on those with the broader shoulders, and at the moment, it’s hard to think of a sector where the shoulders are much broader than the banking sector,” Augar told the BBC’s Today programme on Friday.
Some banks have threatened to pull investment, and potentially jobs, from the UK if taxes rise, 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. Further context on the IMF’s position can be found at https://www.theguardian.com/business/2026/oct/16/target-pensions-or-welfare-not-banks-imf-tells-john-healey.
Augar, however, argued that the government needed to see past the bluster. “There seems to have been a coordinated campaign by the big international banks who have businesses in Britain, JP Morgan, Citigroup, Santander, HSBC and others,” he said. “But they always say this, [and] they rarely move. I think that if the chancellor judges this right, with a moderate increase in taxation or some other form of getting money from the banks, then the business will remain in the UK.” While banks could not expect interest rate benefits to continue forever, he added that banks, including those bailed out in the 2008 financial crisis, could not have it both ways. “Banking is cyclical, it’s true. But when it hits really rocky times it expects the taxpayer to bail them out,” Augar said. “When it hits boom times, it expects some kind of special treatment. Banks can’t be too big to fail and too big to tax.”
With the budget due later this month, the chancellor must now decide whether the sector’s lending capacity or its record profits should carry the fiscal load.