UK banks will still be stung by a higher tax rate on their profits even though Chancellor Rishi Sunak confirmed he will slash the bank surcharge.
Sunak told the House of Commons today that the bank surcharge will drop to three per cent from eight per cent in 2023.
However, the increase in the headline rate of corporation tax to 25 per cent by 2023 will mean UK banks will pay more taxes on their profits even with the reduction in the surcharge.
“The overall corporate tax rate on banks will, in 2023, increase from 27 per cent to 28 per cent. And will remain higher than the rate paid by other companies,” Sunak said.
The slash comes as research by PwC found the total tax rate on London-based banks will be higher than fellow international finance hubs New York, Frankfurt and Amsterdam.
UK banks would be taxed almost twice as heavily than those based in Ireland even if the bank surcharge was set at three per cent, according to PwC.
Even if the surcharge was scrapped entirely, the UK’s banking tax regime would be more punitive than its Western finance rivals.
Andrew Packman, total tax contribution and tax transparency leader at PwC, said: “The tax contribution from the banking sector continues to be significant, but the UK is on course to become less competitive from a tax perspective and therefore a less attractive banking location compared to other financial centres.”
Last year, UK banks paid £1bn in bank surcharge payments and a further £2.2bn in bank levy payments.
More to follow.