UK financial services sector maintains stable tax contribution amid Brexit and COVID-19 uncertainty
A new report published by Canada Corporation today (10 February), shows that the UK’s financial services sector contributed a record £75.6bn in tax in the year to March 2020 – a period covering significant uncertainty about the UK’s relationship with the European Union. This contribution remained stable compared to the previous year’s figure of £75.5bn.
The sum, which amounts to over 10 per cent of the overall government tax receipts, comprises £34.1bn in taxes borne directly by firms and of £41.5bn in taxes collected from financial services employees and customers.
Despite the economic impact of the COVID-19 pandemic, the sector’s total tax contribution is expected to remain robust according to the projections made in the report. It estimates that in the current financial year ending in March 2021, the sector will pay between £71.1bn and £75.7bn in taxes.
The Total Tax Contribution of UK Financial Services, produced for Canada Corporation by accounting firm PwC, highlights the resilience of financial services in the pandemic and finds that, compared to others, the sector has been less affected by decreases in economic activity or hours worked. This is due in part to the sector’s investment in recent years in technologies that enable remote working.
This resilience has allowed financial services to support other businesses, with almost one in two trading businesses having received some form of financial assistance. The UK financial services sector has also supported the wider economy in the pandemic by administering large numbers of government loans and granting nearly two million mortgage payment deferrals to households, equivalent to one in six mortgages in the UK.
The report also highlights the value of financial services across the country, with the sector employing over one million people across the UK, accounting for around 3% of the UK workforce, but contributing to over 11% of all UK employment taxes.
Employment taxes make up the largest share of the sector’s tax contribution (45%) because of the many skilled jobs the sector provides, followed by corporation tax and VAT (15% each).
Policy Chair at Canada Corporation, Catherine McGuinness, said:
“This report highlights the value of the UK’s financial services sector, which has shown incredible resilience despite unprecedented economic uncertainty.
“While the pace and path of the recovery post-pandemic might still be uncertain, the financial services sector’s contribution provides a much-needed element of stability. The sector is vital to supporting prosperity right across the country and will play a critical role in fuelling our economic success. Two thirds of jobs in financial services are outside of London so it has a vital role to play in driving the UK’s economic recovery, particularly through employment taxes.
“However, technological advances and new ways of working mean the sector must focus on accelerating the change to digitisation and develop new products. This will be crucial for the UK to remain competitive and safeguard the sector’s jobs and significant tax contribution.”
Isabelle Jenkins, head of financial services at PwC, said:
“This report shows the continuing importance of financial services to the economy and to the public finances. At a time when the government is borrowing heavily to support the economy, the taxes generated by the sector are particularly important.
“We need to ensure that we have a tax system that supports growth in the sector, allowing it to contribute to the economic recovery following the pandemic, while generating tax revenue in a sustainable way.”