The boss of Britain’s trade association for financial services has warned Rachel Reeves against hiking taxes on banks at next week’s Budget.
David Postings, chief executive of UK Finance, said London’s banking sector risked becoming less competitive with European peers if it were to face additional taxes.
Speaking at a dinner for City execs at the Guildhall, Postings said: “The industry has an effective tax rate of 46.6 per cent.
“For our specimen bank the base level of corporation tax is 25 per cent. There is then a surcharge added just because it is a bank, and then a further levy just because it is a bank. This is all before national insurance and other employment costs and irrecoverable VAT.
“Bank taxation is an emotive subject but my argument is that a healthy, growing, banking sector produces high quality jobs. 369,000 jobs at the last count. The banks directly, and the colleagues they employ, together account for £1 in every £25 raised in tax. Put another way that is £120m a day.
“The Chancellor is faced with some tough choices on the 26th and the industry is proud to play its part in financing the important work of the government. All I ask is that we pause, and in the same way we need to think carefully about capital we do so about taxation.”
Bank tax back on the cards
Postings’ remarks come as Britain’s banking giants are back in the Budget crosshairs as Chancellor Rachel Reeves mulls a tax raid on lenders’ profits.
Banks had been expected to be spared from a tax grab in the forthcoming Budget due to Reeves’ inclination to protect the financial services sector, following a concerted lobbying effort by top finance chiefs.
But while the Treasury is said to be hesitant to hike the banking levy – an annual tax on the balance sheet liabilities and equity of firms – the government is reported to be ruminating raising the surcharge that sits on top of corporation tax.
Postings also urged the Chancellor to allow the financial services sector to increase its risk appetite in a bid to encourage economic growth.
The UK Finance chief said: “Is it any wonder that UK economic growth is weaker than we would all like? What is in it for a firm or indeed an individual in a firm to take additional risk? Is it any wonder that we have seen increased financial exclusion?”
“No one wants some kind of knee jerk swing to a much higher risk environment, or a regulatory race to the bottom. What we seek, is a data driven and reasoned debate that acknowledges what is obvious – the capital and associated regulatory regime is inhibiting lending and growth.
“We need to find a way to unlock the UK’s potential for the sake of the whole country. Capital is a good place to start.”