The UK’s Financial Services sector will soon enjoy more “competitive tax rates”, according to comments made by City Minister John Glen.
It is thought that in its October Budget the government plans to slash the eight percent surcharge that has been levied on the sector since 2015.
In his main Budget in March, Chancellor Rishi Sunak announced plans to raise corporate tax from 19 to 25 percent in 2023, partly to offset the damage to the economy caused by the pandemic.
However, this led financial analysts to warn that the City risks becoming uncompetitive, with a combined tax rate of 33 percent (25 percent plus the eight percent surcharge).
Post Brexit, some City business has been lost to Amsterdam, Frankfurt, and Paris, with some banks also moving assets out of the UK.
In July, Sunak said in his annual speech at the Mansion House that the combined tax burden on banks should not exceed the current rate of 27 percent – 19 percent corporate tax, plus the eight percent industry surcharge.
This suggests that the government may reduce the surcharge to two percent in October, although this has not been confirmed by the Treasury.
However, such a move would be controversial, coming in the wake of the Treasury announcing rises in National Insurance and a cut in Universal Credit, which are widely considered to have shifted the tax burden unfairly onto the lowest earners.
In an interview with the FT, Glen added that he planned to revise the limit on bank bonuses, which was introduced by the EU in the wake of the 2008-09 financial crisis.
“To be competitive, we need to have competitive tax rates, and that’s what the Chancellor currently has in mind,” he said, signalling increased UK divergence from EU rules.
“What I want is an efficient and effective Financial Services market in the context of the global market,” he added, claiming that this would play a key role in the government’s ‘levelling up’ agenda – despite that agenda so far raising the tax burden on the poor.