The UK financial services sector made an increased contribution to the public finances during the year to March 2011, even as the economy continued to suffer the effects of the European sovereign debt crisis, according to a new report for the City of London Corporation by PricewaterhouseCoopers (PwC).
The industry contributed an estimated £63.0bn to UK government taxes in the 2010/11 financial year, accounting for 12.1% of the total UK tax take. The study does not include the new bank levy paid for the first time in 2011 or the full impact of the 20% VAT rate.
This total has jumped by £9.6bn (18.0%) from the previous fiscal year due to increased levels of corporation tax, VAT and employment tax both borne and collected. The one-off bank payroll tax, charged on 2009 bonuses, was paid in this year totalling £3.4bn. However, the bank levy was introduced after the study’s period closed and the 20% VAT did not take full effect in the period.
Stuart Fraser, policy chairman at the City of London Corporation, said: “At a time when the City’s value is being questioned, both in the UK and in Europe, these figures highlight the huge fiscal contribution it continues to make even in this extremely challenging economic environment. The industry continues to be resilient but the ongoing sovereign debt crisis highlights potential dangers ahead. In light of recent political events, it should be remembered that London is Europe’s leading international financial and business centre, and the success of UK-based financial services is integral to the success of our counterparts across the Channel. Key to this is maintaining a vibrant single market that fosters jobs and growth across Europe.
“That is why we must be wary of crossing a tipping point when it comes to taxation. The European Commission’s own impact assessment highlighted that between 70% and 90% of all derivatives trading could move outside of Europe if a financial transaction tax was implemented. We must continue to make the case that such a move would hurt the City, and hurt Europe.
“Domestically, a stable and sustainable tax regime is essential to ensuring the perception of our international competitiveness is not damaged. Greater clarity as to when the 50p tax rate will be lowered would help to reassure internationally mobile firms that the UK is committed to promoting a welcoming business environment,” he concluded.
The research uses the PwC Total Tax Contribution Framework. The data provided by 43 UK financial services companies, across the range of sub-sectors, has been extrapolated to estimate the total tax take for the financial services sector as a whole.
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