The City is a mixed blessing despite paying £75.5bn in tax

We are being encouraged to show a little love to the financial sector but relying on one industry – a mobile and capricious one at that – for so much revenue may not be too clever, says James Moore

The financial services industry gives a lot... but then it takes rather a lot too (AFP)

Sceptical of the City and its outsize position in UK plc? Here’s a number for those that are: it pumped £75.5bn into the chancellor’s coffers last year.

That’s according to the analysis that the City of London Corporation and PricewaterhouseCoopers like to put out at this time of year.

It is, we are told, a new record. But only just. Last year the industry’s tax contribution amounted to £75bn. That said, when you consider the uncertainty it has been grappling with from digital disruption and Brexit, any increase at all represents a considerable achievement.

There are some interesting wrinkles if you drill down into he numbers. Corporation tax receipts, for example, fell for the first time since 2014. This suggests that the sector is either a) becoming less profitable or b) better at avoiding a levy that big financially sophisticated businesses have got very good at avoiding.

On the other hand, revenue from employment taxes increased. About 1.1 million people (3 per cent of the workforce) are in financial services.

However, they pay 11.6 per cent of the employment taxes levied in Britain because quite a few of them get paid quite a lot. Keen to zap your student debt? You know where to go, if you can put up with answering “banker” when people ask your occupation.

The reason for these numbers being put out – fortuitously just a day after High Pay Day, which turned the spotlight on corporate CEOs and the fact that by 5pm on 6 January they have already made what the average worker makes in a year – is because they're designed to send a message.

Look at the contribution we make. More than £1 in every £10 swept up by the Treasury. That’s a lot of schools and hospitals. See, if you love the City, the City will love you back. Group hug, everyone!

So is it time to give the City a little more love, especially with Brexit looming?

“The UK must remain competitive to safeguard the sector’s employment base and significant tax contribution. The sector is vital to supporting prosperity right across the country,” said Catherine McGuinness, policy chair at the City of London Corporation, of the figures. So yes it is! Especially the government. There’s no better love to have than that of the government.

There is another way to look at the figures, another argument you can deploy.

It is that relying on one industry for £1 in every £10 of tax you generate isn’t terribly clever, particularly when that industry is a mobile one, led by people who aren’t averse to using their clout to make threats.

You want an example of that? Recall how HSBC made a big fuss about upping sticks to Hong Kong a while back. That’s not a threat that it would find so easy to table today, but you get my drift.

The City sucks talent out of the rest of the economy (see the above point about student debt), and has played a major role in the vast gulf in prosperity between the north and the south of England. And don't even get me started on the financial crisis. While its tax revenues are indeed handy, it is in many ways a mixed blessing.

Chancellor Sajid Javid, a former banker himself, will, however, be aware of the numbers and the message.

I’d imagine that he’ll do what he can to keep the City sweet, as successive governments always have done, because his bosses want to spend money on the NHS and the north, and someone has to pay for it when Brexit is posing a grave threat to the economy and thus taxation receipts.

I wouldn’t be at all surprised if regulators were told to take, shall we say, a lighter touch with that aim in mind, not least because there are already signs of job vacancies drying up in the financial centre, and the signals it's been sending out are not happy ones.

The figure, the announcement that accompanied it, the report and the quotes: they’ll serve their purpose.