Benjamin Franklin, one of the founding fathers of the United States, wisely noted that only two things are certain in life: death and taxes.
Unfortunately, his observation – or at least half of it – no longer holds true today. When it comes to banking, uncertainty on tax has become a serious concern.
Banks have been singled out for a number of punitive tax hikes in recent years. The Bank Corporation Tax Surcharge, announced in the chancellor’s Budget this summer, was the fifth new bank-specific tax measure introduced in as many years.
A new report published today – based on independent PwC analysis commissioned by the BBA – shows that the tax contribution of the UK banking sector in 2014 rose to £31.3bn.
In fact, the contribution of the six main UK banks jumped by 55 per cent in the first four years of the last Parliament.
On the face of it, this looks like good news. After all, everyone agrees that banks should pay more than their fair share to finance public services.
But this increased contribution has been driven by tax hikes rather than a return to pre-recession levels of profitability. We are now at a tipping point.
Tax uncertainty jeopardises the sector’s international competitiveness, and threatens the ability of banks to best serve their customers as well as support growth across the country.
Banks, like all businesses, need a stable and transparent tax system so that they can plan for the future.
But BBA analysis shows that the UK government has introduced £40bn in additional industry-specific taxation over a period of a decade.
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.
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 industry as a whole employs half a million people across the UK. JP Morgan, for example, is the biggest private sector employer in Bournemouth.
But we should not take this for granted. International banks have already started moving jobs overseas to rivals such as New York, Hong Kong and Singapore.
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.
As the sector slowly returns to health, its Corporation Tax bill is expected to rise substantially from currently low levels. This will add further weight to arguments against the surcharge.
The Treasury should make clear that it is a temporary, supplementary tax rather than a permanent feature of the fiscal landscape.
This should be part of a broader shift away from taxation on balance sheets to taxation on profits.
As the UK’s leading export industry, banks play a crucial role in driving the economy forward. Nobody is arguing that they should not pay a fair amount of tax.
But banks need the certainty necessary to invest in the UK for the long term. A return to Franklin’s maxim would be a step in the right direction.