Raising bank tax is not best choice for UK budget, IMF says

IMF Says Raising Bank Tax Isn't Best Choice for Upcoming UK Budget

IMF Recommendations and UK Fiscal Policy Ahead of the Budget

By David Milliken

IMF's Advice for UK Tax Policy

BANGKOK, Oct 16 (Reuters) - British finance minister John Healey should favour property tax reform, broader sales taxes and better-targeted welfare spending ahead of raising taxes on banks or workers in his annual budget this month, the International Monetary Fund said on Friday.

Praise for Recent Fiscal Policy

The IMF praised British fiscal policy at its annual meeting in Bangkok this week for reducing borrowing over the past couple of years and for targeting a balanced budget, excluding long-term investment, by 2029/30.

Potential Tax Changes in the Upcoming Budget

Healey has promised to stick to a pledge not to raise the main rates of income tax or social security dues at his October 28 budget, but on Thursday he kept the door open to increasing a bank profit surcharge that raises £1 billion ($1.3 billion) a year.

IMF's Specific Recommendations

"There are still areas where Britain can make additional fiscal headroom available: modernising the property tax (system), broadening the basis of sales taxes like VAT. We would not recommend increasing labour taxes," the IMF's deputy director for Europe, Helge Berger, told a press conference.

Raising bank taxes was an option – and would not necessarily make it harder for large companies to get finance — but should not be the first choice, the IMF said.

UK Tax Revenue and Welfare Considerations

Record Tax Revenue Levels

The Fund also highlighted that British tax revenue had risen to a historically high 40% of the economy.

Balancing Revenue and Expenditure

"Ultimately, there's a moment where this becomes less productive.... Balancing revenue-side measures (with) measures on the expenditure side, doing a little more there makes sense: removing the 'triple lock', better-targeting social benefits," Berger said.

Government Plans for Welfare and Pensions

Prime Minister Andy Burnham has said that he will scrap the "triple lock" system that ensures state pensions outstrip pay growth, but he plans to use the savings to partially finance more generous social care for the elderly.

The government is also reviewing welfare payments to younger Britons outside the labour market and working-age adults with disabilities, though these processes will not conclude before this month's budget.

Additional Information

($1 = 0.7499 pounds)

(Reporting by David Milliken; Editing by John Mair)