Unpredictable, excessive taxes and regulation on UK banks are jeopardising their international competitiveness, according to a joint study produced by the British Bankers’ Association (BBA) and PwC.
The study – based on independent PwC analysis commissioned by the BBA – estimates that the UK banking sector contributed a total of around £31.3bn in taxes last year. It claims that ‘punitive’ tax hikes and complex levies pose a risk to jobs and growth.
The BBA comments that banks have been singled out for a number of punitive tax hikes in recent years. The Bank Corporation Tax Surcharge, announced in UK Chancellor George Osborne’s Budget this summer, was the fifth new bank-specific tax measure introduced in as many years. Prior to this, the contribution of the six main UK banks rose by 55% in the first four years of the coalition government to 2014.
“From 2010 to 2020, banks will have faced an extra £4bn a year in taxes on top of the tens of billions of other taxes that they already pay,” says the BBA.
“Much of the sector is internationally mobile. Foreign-headquartered banks paid just over half of the total tax contribution last year, at £16bn, while UK-headquartered banks contributed £15.3bn.
“The chancellor sent a welcome signal in July by announcing reductions in the Bank Levy over the next six years so that it will no longer penalise global UK banks after 2021. This was offset, however, by the Corporation Tax Surcharge, which means the industry – including many smaller banks – will be paying a far higher rate of Corporation Tax overall than other industries.”
However, Andrew Marshall, partner at consultancy firm Crossbridge queried some of the conclusions drawn by the study.
“The suggestion that the competitiveness of the British banking sector has been negatively affected when compared to its international counterparts due to regulatory impositions does not necessarily hold true,” he commented.
“Relatively high levels of domestic debt and equity markets which funnel significantly greater business flows to US banks are likely to be the most significant cause of a current lack of competitiveness by British banks internationally.
“[The study] does highlight the importance of having robust internal structures, processes and management in order to be agile and respond more effectively to regulation. Getting your house in order and improving transparency and ease of oversight enables banks to operate in a sound and effective manner, and in a way which can be more easily evidenced.
“Such efficiencies can only help banks become more competitive internationally, in spite of the current regulatory landscape.”
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