I've been taken aback in recent months by the number of international bank executives who have been telling me just how damaging the UK’s bank taxation policies are. The global banks constantly review where they base their business around the world. They carry out detailed cost-benefit analyses in pounds and pence, or dollars and cents, about which country is the best place for them to operate in.
As a result of the tax regime in the UK, some banks have begun to move work and jobs to other parts of the world. Yesterday’s Budget was keenly anticipated by bankers here in the UK and across the globe.
The bankers I have spoken to since the chancellor delivered yesterday’s speech have mixed views. There was much to welcome, but plenty that raised concerns.
The bank levy will gradually fall over the next six years, and will be restricted to UK – not global – balance sheets from 2021. That will be good news for large UK investment banks looking to compete overseas.
It’s right that banks pay their fair share and repay society for their past mistakes – but the government needs to dispel the perception that it is after retribution.
So while we are pleased that it will reduce the damage caused by the bank levy, bankers are unsurprisingly unhappy about the new special corporation tax surcharge of 8 per cent that the banks will pay. Because the threshold is much lower than for the bank levy, this means it will create more losers than winners. Around 30 banks pay the levy at the moment. Hundreds may be liable for the new charge. In particular, it will disproportionately affect challenger banks in our industry – smaller players that do not threaten the UK’s financial stability. Shares of some of those players were hit yesterday. In all, the net effect of these changes will be that banks pay an extra £1.7bn in addition to the £27bn they were already expecting to pay through the Bank Levy.
The government has repeatedly said that it aims to have “the most competitive corporate tax regime in the G20”, that is stable, predictable and non-discriminatory. They have largely achieved this – just not for banks. The bank levy has been raised nine times since it was introduced in 2010. The government has now introduced five new bank-specific tax measures in as many years, costing billions. It’s that sort of treatment that recently led one UK chief executive of a foreign bank to tell me that the modus operandi of the British government was comparable to that of “an African dictatorship”.
So we would like the government to conduct a strategic review of the way this vital industry is taxed, to ensure that the UK remains a competitive place for banks to do business. If policy-makers get round the table and work out the impact of these taxes on banking in the UK, and develop a proper roadmap, we can make sure that Britain remains one of the biggest financial centres in the world.