London: Chancellor of the Exchequer Jeremy Hunt plans to cut a surcharge on UK bank profits, effectively shielding them from the bulk of an increase in the country’s corporate tax rate as the government tries to preserve the competitiveness of Britain’s finance industry.
UK banks currently pay an 8 per cent surcharge on profits on top of the corporation tax rate of 19 per cent. With corporation tax due to rise to 25 per cent from April, Hunt intends to cut the surcharge to 3 per cent, said two officials familiar with the matter, who spoke on condition of anonymity because no final decisions have been taken.
It means that the overall tax rate on bank profits would still rise - to 28 per cent from 27 per cent - but to well below the 33 per cent level they faced if Hunt didn’t touch the surcharge. The City of London had warned it risks losing out to other financial centers such as Dublin and New York if the bank tax rate had risen that much.
A Treasury spokesperson declined to comment on tax measures ahead of a fiscal event.
Hunt is expected to include an announcement on the bank surcharge when he sets out a package of more than 50 billion pound ($57 billion) of spending cuts and tax increases on November 17, as Rishi Sunak’s government tries to stabilize Britain’s public finances after former premier Liz Truss’s disastrous tenure.
Banks in the UK have been paying extra taxes for more than a decade to reflect taxpayer support they received during the 2008 financial crisis. A levy on their balance sheets has raised almost 25 billion pound since it was introduced in 2011, while the surcharge has generated just over 8 billion pound since 2016.
When Sunak first announced his plan to increase corporation tax to 25 per cent in 2021 - when he was still Boris Johnson’s chancellor - he also pledged to cut the bank surcharge to 3 per cent, leading to speculation that would happen this time.
But executives in the city had also worried that pressure to patch Britain’s fiscal hole, laid bare in the market turmoil triggered by Truss’s economic plans, would mean Sunak and Hunt might not act on the surcharge.
In his statement next week, Hunt is expected to announce other measures including an expanded windfall tax on the profits of energy firms, freezing foreign aid and increasing capital gains tax. The chancellor is also mulling making more Britons pay the top rate of income tax.