Bank taxes making UK a ‘less competitive’ financial hub, PwC says
The UK’s banking sector contributed £1.7 billion more in taxes to the Government in the last financial year.
Your support helps us to tell the story
From reproductive rights to climate change to Big Tech, The Independent is on the ground when the story is developing. Whether it's investigating the financials of Elon Musk's pro-Trump PAC or producing our latest documentary, 'The A Word', which shines a light on the American women fighting for reproductive rights, we know how important it is to parse out the facts from the messaging.
At such a critical moment in US history, we need reporters on the ground. Your donation allows us to keep sending journalists to speak to both sides of the story.
The Independent is trusted by Americans across the entire political spectrum. And unlike many other quality news outlets, we choose not to lock Americans out of our reporting and analysis with paywalls. We believe quality journalism should be available to everyone, paid for by those who can afford it.
Your support makes all the difference.The UK’s banking sector contributed more taxes to the Government in the last financial year as concerns over the UK’s future competitiveness grow, according to a new report.
It comes as banks are bracing for new tax measures that could see a bigger chunk of their profits eaten up by fiscal policy.
Banks paid a total tax contribution of £38.8 billion in the year to April, representing a 4.7% share of the Government’s total receipts, according to the annual report by PwC for trade body UK Finance.
Collectively, banks contributed £1.7 billion more than the previous financial year.
The UK is currently on course to become a less competitive location for banks compared to other financial centres, driven by sector-specific taxes such as the bank levy, together with the increasing rate of corporation tax
But the share of total government receipts fell from 5.5%, which can be explained by the fact that the Government took in more money from VAT and employment taxes during the year.
In fact, the share of total receipts is the lowest level than in any year since the PwC first published a report in 2014.
Britain’s biggest banks pay more taxes than other UK companies because they have a surcharge on their profits as well as a levy on their balance sheets, on top of the standard 25% corporation tax that all businesses have to pay.
Noel Quinn, HSBC’s chief executive, admitted on Tuesday that the “tax burden” on the financial services sector is higher than other corporates, and said he would “hope” that there is not a further windfall tax on banks’ profits.
Former prime minister Liz Truss recently U-turned on previous pledges to keep corporation tax at a lower rate of 19%.
It means that, on top of the 8% surcharge, banks and lenders are set to see a third of their profits hoovered up by tax policies.
But Chancellor Jeremy Hunt is expected to deliver an update on the Autumn Statement in November, which could target banks with even greater taxes on their swelling profits.
People in the City have argued that the high tax measures reduce competition in the UK, because financial services companies are more inclined to move to countries where there is a lower tax burden.
PwC’s report highlighted that the tax rate in London is significantly higher than other global financial centres.
In 2022, the total tax rate for a bank in London was 45.3%, whereas it is just 27.4% in New York and 32.1% in Dublin.
London has a similar rate to Frankfurt and Amsterdam this year, but the latter two cities’ rates are set to fall by 2024 as a result of the European Single Resolution Fund being scrapped – which will wipe off an additional levy on EU banks’ balance sheets.
This shows a “growing disparity” between the European financial centres, PwC said.
Andrew Packman, PWC’s total tax contribution and tax transparency leader, said: “Maintaining the competitiveness of the UK banking sector internationally is an important consideration in fostering economic growth and supporting the broader economic recovery.
“However, the UK is currently on course to become a less competitive location for banks compared to other financial centres, driven by sector-specific taxes such as the bank levy, together with the increasing rate of corporation tax.”
Mr Packman added that he hopes the study will help to inform the debate over bank taxation by shedding light on the sector’s full contribution to Government finances.