Chancellor of the Exchequer Rishi Sunak is preparing to announce a cut of several percentage points in the bank surcharge as soon as next month’s budget as he looks to limit any rise in the taxes paid by U.K. finance firms.
The reduction wouldn’t take effect until 2023, when a six percentage-point increase to corporation tax takes effect. When Sunak announced that change in his budget in March, he said that the surcharge -- an additional levy on bank profits -- meant “the implied overall tax rate for banks would be too high,” and promised to review it.
The surcharge could go down by a similar amount to the increase in corporation tax, a person familiar with the matter said. Speaking anonymously about unannounced plans, they said the Oct. 27 budget was a good opportunity to announce any change.
City Minister John Glen told the Financial Times on Monday that Sunak is “thinking very carefully” about tax rates for the financial service ahead of his budget. A spokesperson for the Treasury declined to comment further.
The prospect of a reduction comes at an awkward time for Prime Minister Boris Johnson’s Conservative government as it fends off criticism from opposition parties about the rising cost of living for ordinary Britons and the unwinding of coronavirus pandemic support measures.
Inflation is above the Bank of England’s target rate, and homeowners face large increases in energy bills next month, just as the government is ending a program to pay the wages of furloughed workers and a 20 pound ($27) a week uplift in universal credit benefit payments. Sunak has recently announced plans for a new 1.25% levy on ordinary taxpayers to pay for health and social care.
Sunak, a former banker and hedge fund manager, is also sensitive to the importance of the financial services industry to the U.K. economy. The sector employs more than a million people and contributes around a tenth of the Treasury’s tax receipts.
“We will review the surcharge, to make sure the combined rate of tax on the United Kingdom banking sector doesn’t increase significantly from its current level and to make sure this important industry remains internationally competitive,” Sunak said in his budget speech in March. The Treasury said at the time that changes would be legislated for in the 2021-22 finance bill.
The 8% surcharge was announced in 2015 by then-chancellor George Osborne, and it’s been in effect since January 2016. Osborne introduced the measure to ensure banks made a “fair contribution” to the exchequer as he gradually reduced a separate bank levy charged on balance sheet equity and liabilities of banks and building societies.
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