Chancellor Rishi Sunak is reportedly planning to more than halve the tax surcharge on bank profits in next week’s Budget to help boost London’s competitiveness as a global financial centre.
Mr Sunak will announce a cut to the surcharge from 8% to 3% from April 2023 in his October 27 Budget, according to the Financial Times.
It comes ahead of a hike in corporation tax from 19% to 25% in 2023, which Mr Sunak had cautioned risks making “the taxation of banks uncompetitive”.
Banks currently pay 27% tax on profits, of which 19% is corporation tax and 8% the bank surcharge.
They would see their overall corporation tax charge surge to 33% in 2023, if the surcharge was not reduced.
But the expected reduction in the top-up tax would instead see their overall charge edge up to 28%.
Mr Sunak had already pledged to review the surcharge at the March Budget, while City minister John Glen last month flagged that the tax could be cut as he vowed to ensure Britain’s financial services sector would enjoy “competitive tax rates”.
Mr Glen also said at the time he would keep under review the bankers’ bonus cap as the UK looks to bolster the competitiveness of the City in the wake of Brexit, which has seen jobs and bank offices shift to rivals such as Frankfurt, Paris and New York.
The tax surcharge was introduced by former chancellor George Osborne on profits over £25 million in 2015, taking effect in January 2016, as cuts were made to the bank levy – launched in the wake of the financial crisis.
A spokesman for the Treasury said: “We’re not commenting on fiscal policy ahead of Budget.”
Deepesh Upadhyay, partner in tax at Eversheds Sutherland, said a move to cut the tax surcharge would be a “positive indication that the UK Government is wanting to keep UK banks and the City of London as competitive as possible, especially in a post-Brexit world”.
But he added: “With the increase in corporation tax in 2023, it is worth noting that UK banks will still end up paying more tax overall (28%).
“Whilst this rate of tax leaves UK banks in roughly the same position as banks in the US and France, it puts them in a less favourable position when competing with non-bank lenders based in lower-tax jurisdictions.”