Britain’s financial services sector contributed a record £75.5bn in tax in 2019, according to a new report on behalf of the City of London Corporation, amounting to 10.5 per cent of all government tax receipts.
The report, carried out by accounting giant PwC and released today, highlighted the value of financial services to the UK economy. Across the country the sector employs around three per cent of the UK workforce but contributed 11.6 per cent of all UK employment taxes thanks to significantly higher average salaries.
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The figures will also put pressure on ministers to consider the importance of financial and professional services in a post-Brexit trade deal with the EU.
Catherine McGuiness, policy chair at the City of London Corporation, told City A.M.: “We mustn’t allow our enthusiasm to strike an early trade agreement either with the EU or with other partners around the world to lead us to a position where we accept a very flimsy trade agreement when it comes to services.”
The £75.5bn figure was only a slight increase from the £75bn collected in the year to March 2018, reflecting a challenging year for the sector. It was a notable slowdown from the £2.9bn growth in tax contributions seen between 2017 and 2018.
PwC’s report showed that of the 2019 figure, £33.4bn was paid by companies directly. The other £42.1bn was paid by employees through income tax and customers through levies such as VAT.
The amount of corporation tax financial services firms paid fell by 9.5 per cent year on year, meaning the sector paid less than it did in 2008. McGuiness said this was a “worry” and said it was due to the lower profitability of firms. Global trade tensions, political uncertainty and persistently low interest rates have created challenging conditions for much of the sector.
Barney Reynolds, head of financial regulation at law firm Shearman & Sterling, said he was positive about the trade negotiations with the EU. He said the City is “not only important to the UK, it’s an important global asset”.
Henry Parkes, senior economist at the Institute for Public Policy Research, said the report suggested the UK economy is “overly hooked on the finance sector”, however, and needs to “diversify”.
McGuinness said the City was about to face another challenging year. “We obviously will lose some EU-facing business but we need to make sure we make up for it in other ways,” she said.