UK banking industry set to become ‘less competitive’ as taxes surge to new highs
The amount of tax paid by UK banks to the government rose in the last financial year, a new report has shown, as the financial industry warns that continued high tax rates could threaten the UK’s competitiveness.
The banking sector contributed £41bn in the year to March, up £2.2bn from the previous year, according to the annual report from PwC for banking trade body UK Finance.
This figure, driven by corporation tax and employment taxes, represents 4.6 per cent of total government tax receipts for the period and is the highest since PwC began its reports in 2014.
An increase in corporation tax implies higher profitability across the banking sector.
In 2023, the total tax rate for a bank in London was 45.5 per cent, higher than New York and Dublin at 27.9 per cent and 32.4 per cent respectively.
London’s rate is slightly lower than Frankfurt and Amsterdam (both 46.8 per cent) but expected to be considerably higher than EU countries in 2024 due to the scrapping of the European Single Resolution Fund, an emergency rescue pot.
EU banks have been contributing to the fund since 2016, but it is expected to reach its target by 2024.
As a result, PwC forecast that London’s tax rate in 2024 could be seven percentage points higher than Frankfurt, the location with the second-highest rate.
Next Wednesday’s autumn statement is unlikely to feature any big ticket tax cuts despite the UK’s finances being in a slightly better position than expected, experts have told Morning Wire
Opponents to high tax measures argue that they reduce competition in the UK by influencing financial services companies to move to countries with a lower tax burden.
“Maintaining the competitiveness of the sector at a time of heightened geopolitical and economic disruptions is important in fostering economic growth and promoting greater investment into the wider UK economy,” said Andy Wiggins, PwC’s total tax contribution and tax transparency leader.
“However, PwC analysis shows that, from a tax perspective at least, the UK is currently on course to become a less competitive location for banks compared to other financial centres.
“This is driven by the increase in the rate of corporation tax coupled with sector-specific taxes such as the bank levy and bank surcharge.”
David Postings, chief executive of UK Finance, said that London’s bank tax rate “is something that needs to be considered in terms of the UK’s international competitiveness”.