Rishi Sunak will cut the bank profit tax surtax in next week’s budget by more than 60% in a bid to keep the City of London competitive globally in the wake of Brexit.
Chancellor to reduce surtax from 8% to 3% from April 2023, according to people with knowledge of the budget, as he seeks to keep banking activity in the UK at a time of corporate tax rates higher.
Sunak announced in his March budget that he intends to increase general corporate tax rates from 19% to 25% starting in 2023. However, he admitted that if the current rate of increase continues, it “would make the bank taxation uncompetitive and would hurt one of the key exports ”.
Banks currently pay a 27 percent tax on their profits, consisting of 19 percent corporate tax plus the 8 percent surtax. The rate is broadly in line with other financial centers, notably New York and Paris.
Chancellor to say that unless he cuts the surtax, the overall UK corporate tax rate for banks after 2023 would not have been competitive with banks facing a combined rate of 33% . Instead, starting in 2023, their combined rate will increase slightly to 28 percent – 25 percent corporate tax plus a 3 percent surtax.
Sunak will argue that the UK is the only major financial center to levy a specific surcharge on bank profits. The City of London says the financial services industry – including its staff and clients – contributes £ 75.6 billion a year in taxes.
A Treasury spokesperson said: “We do not comment on fiscal policy outside of budgets.”
Last month, John Glen, Minister of the City, signaled the reduction in the surtax when he told the Financial Times: “To be competitive, we have to have competitive tax rates – and that’s what the chancellor thinks. “
This followed Sunak’s pledge in March to review the 8% surtax on the sector, which was originally introduced by former Chancellor George Osborne in 2015.
The move will be welcomed by the financial sector, which has lobbied heavily against the surtax on profits above £ 25million since its inception. Last year, the recharge raised £ 1.5bn.
The chancellor’s colleagues said he sought in his Oct. 27 budget to ensure that banks continue to pay their fair share while maintaining competitiveness and protecting jobs.
However, Sunak could be the subject of criticism from opposition politicians for reducing the bank surcharge in a time of strained public finances. This month a temporary £ 20 per week increase in universal credit was removed.
Thousands of jobs and over a trillion pounds of assets have been shifted to competitors such as Frankfurt, Paris and New York since the UK lost unrestricted access to the EU market at the start of the year.
Amsterdam has already overtaken the City as the premier venue for trading in euro-denominated equities and derivative contracts and a row has arisen over whether EU banks should continue to rely on long-term the vast UK clearing houses.