UK banks still stung by largest tax raid even if bank surcharge is slashed

London will sting banks with the largest tax raid out of all of the world’s leading finance hubs even if the Chancellor slashes the bank surcharge at this week’s budget.

UK based banks will still be hit by a 46.5 per cent levy in 2024 even if Chancellor Rishi Sunak cuts the bank surcharge to three per cent as he is expected to do at the budget and spending review on Wednesday, research by PwC has found.

The total tax rate puts London above New York, Frankfurt and Amsterdam. UK banks would be taxed almost twice as heavily than those based in Ireland even if the bank surcharge was set at three per cent, according to PwC.

The 1.25 percentage point hike to national insurance, compounded by the corporation tax rate lifting to 25 per cent in 2023, will drive the UK total tax rate on its banking sector to 50.5 per cent without any change to the bank levy.

Andrew Packman, total tax contribution and tax transparency leader at PwC, said: “This study shows that the tax contribution from the banking sector continues to be significant, but the UK is on course to become less competitive from a tax perspective and therefore a less attractive banking location compared to other financial centres.”

Sunak is reportedly set to cut the bank surcharge on Wednesday from eight per cent in a bid to give the City a competitive edge over its international finance rivals. 

However, even if the levy was scrapped entirely, the total tax rate would still be higher than all over major international finance centres.

Last year, UK banks paid £1bn in bank surcharge payments and a further £2.2bn in bank levy payments.

The banking sector contributed £37.1bn to the public coffers last year, representing 5.5 per cent of government tax receipts. Tax income squeezed from the sector slipped £2.5bn over the last year, primarily driven by the damage inflicted on the UK economy by Covid-19 crisis, PwC said.

PwC calculates the total tax rate by measuring the cost of taxes borne directly by banks, such as corporation tax and employer national insurance contributions, in relation to profits.