British banks have written to the government to ask for a review of the £35.4 billion tax regime ahead of the budget Oct. 29.
UK Finance, an industry body, has asked Chancellor Philip Hammond to look at bank-specific taxes after commissioning PricewaterhouseCoopers to study banks' tax contributions.
Though this study is not yet finished, UK Finance CEO Stephen Jones told the chancellor in a letter published on its website that U.K. banks are paying substantially more in real terms and in proportion of profit than in the years running up to the financial crisis. Banks operating in the U.K. contributed more than £35 billion in tax to the Exchequer in 2016 to 2017, the letter said.
This, it noted, is despite some banks significantly paring back their balance sheets in line with the objective of the bank levy — a tax on all U.K. banks' balance sheets aimed at maintaining financial discipline.
Jones also drew unfavorable comparisons with the U.S., where President Donald Trump's tax cuts have boosted U.S. banks. Brexit, too, is a factor, with UK Finance noting that the tax burden comes as banking groups are obliged to restructure and move some operations to offices within the EU.
Indeed, the Association of Foreign Banks, which represents banks such as JPMorgan Chase & Co. and Citigroup Inc., has said the biggest concern of its members is high taxes in the U.K.
Also, Barclays PLC Chairman John McFarlane has said that too much government regulation has stunted the growth of British banks, noting that by stock market value there were four British banks in the top 20 in 2005 while now there is only one. U.K. banks are vulnerable to takeovers as a result, he said.
UK Finance has commissioned an international comparative study of bank taxation, due for completion in the autumn. It believes that this study, taken along with the PwC report, will bolster the case for a review of bank tax charges.
The taxes it wishes to see reviewed by the chancellor include the corporation tax surcharge. This is an additional tax on banking levied at a rate of 8% on profits over £25 million.
Jones said that this tax was introduced in the summer budget of 2015 "to maintain a fair contribution from the banks” and argued that it is time for it to be reassessed. The total projected revenue from the surcharge has increased by more than 30% between 2016-2017 and 2020-2021.
The bank levy, introduced by the U.K. in 2010 jointly with France and Germany, was aimed at ensuring banking paid a fair contribution toward the costs borne by taxpayers in propping up the banking system during the financial crisis.
It has long been criticized by banks, which have suggested it should be scaled back as changes to the banking system since the financial crisis mean banks are less dependent on an implicit state guarantee. Jones' letter suggests the bank levy should be reviewed.
UK Finance also calls for changes to value-added tax rules. The letter also complains of a change in approach from the tax authorities who, he said, focus increasingly on the penalty regime as opposed to developing long-term relationships with taxpayers.