Record tax take from financial services as City lobby group urges government to stop Brexit divorce bill penny-pinching

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Employment taxes are the biggest contributor to taxes generated by financial services (Source: Getty)

Businesses need urgent clarification on a Brexit transition deal rather than penny-pinching on the terms of Britain's so-called divorce bill, according to a top City lobbyist.

Catherine McGuinness, the influential policy chair of the City of London Corporation, told City A.M. the government should be prepared to cough up in return for a stronger hand in coming trade talks.

McGuinness said: “It’s very important, rather than haggling over every last penny, that they consider what they have to lose.”

Read more: Brexit minister dismisses Barnier's two-week divorce bill deadline

The size of any divorce bill has become a vital sticking point in Brexit talks around withdrawal issues, which the EU insists must be separate to talks on the future trade relationship. Brexit supporting government ministers including foreign secretary Boris Johnson have made their opposition to a large bill clear.

The call for a swift settlement came as the Corporation unveiled new figures showing the UK financial services sector accounted for a record tax contribution in the last financial year.

Government received £72.1bn in tax during the year to the end of March from financial services firms, the highest amount of tax paid during the 10 years the data has been collected, and likely the highest ever.

The study by accountants PwC of 50 companies, which employ almost two in every five employees in the sector, showed financial services taxes equated to 11 per cent of government receipts, enough to fund half the NHS budget.

Read more: City think-tank warns UK must cough up more money for a transition period

The figures are a timely reminder of “how important and significant” the City is to the UK economy, McGuinness said.

She said: “It underlines the urgency of striking a deal which works for the sector… at a time when we know banks are being forced into implementing contingency plans.

“Until we have a clear announcement on a transition they can rely on they’re not going to hold back” from moving jobs out of the UK, she added.

Finance bosses have warned that jobs will be moved from London if there is no progress on a transitional agreement by the end of the year.

The threat to jobs if banks do implement contingency plans could take a particularly heavy toll on UK public services, with £31.4bn of the total tax take accounted for by employment taxes, larger than both value-added tax and corporation tax payments combined.

Banks and other firms across the UK economy are nervously watching talks between the UK and the EU, as negotiators have failed to make the “sufficient progress” required by Brussels before crucial talks on the future trade relationship begin.

“The next few weeks will be critical,” McGuinness said. “People will be pushing buttons in the next few weeks.”

However, Eurosceptic Conservative MP John Redwood told City A.M. yesterday: “I don’t think you pay to talk. You only move forward on the basis of mutual goodwill and agreement.”

Read more: BoE official pushes for commitment to Brexit transition by Christmas

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