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LONDON (Reuters) – Britain will review a tax surcharge on bank profits as it threatens the industry’s ability to compete against rivals in the United States and European Union, finance minister Rishi Sunak said on Wednesday.
Sunak said in his annual budget statement that he was launching the review so the combined tax burden on banks did not rise significantly after a planned increase in corporation tax to 25% from 2023, from 19% currently.
The 8% surcharge, calculated on the same basis as corporation tax, raised 1.5 billion pounds ($2.1 billion) for the government in the 2019-20 financial year.
The review follows years of lobbying by banks against taxes levied directly on them, but any relaxation could risk public criticism at a time when millions of Britons are struggling financially in the pandemic.
“We welcome the review of the bank surcharge which has long placed UK headquartered firms at a disadvantage to those in New York and in Asian centres,” said Miles Celic, CEO of finance lobby group TheCityUK.
Fellow industry group UK Finance urged the government to widen its review to include the banking sector’s total tax burden.
The surcharge is separate to the more lucrative levy on bank balance sheets, which raised 2.5 billion pounds last fiscal year.
Leaving the surcharge unchanged would make UK taxation of banks “uncompetitive and damage one of the UK’s key exports”, the government said in its budget document.
Changes will be laid out in the autumn and legislated for in the forthcoming Finance Bill 2021-22, the document said.
Finance bosses have previously warned that Britain’s tax receipts from its huge financial services sector are set to fall from this year due to the impact of Brexit and further fallout from the pandemic.
A study by the City of London Corporation, which administers the capital’s financial district, calculated the sector made a tax contribution of 76 billion pounds ($106 billion) in the year to March 2020.
The 135 billion pound financial sector accounts for more than 10% of UK tax receipts.
($1 = 0.7165 pounds)
