UK bank tax: restrained approach echoes market’s reservation on earnings
Christmas is approaching but UK banks must feel as if they are still on Santa’s naughty list. After a decade in the doldrums, the gift of rising interest rates has arrived, boosting net interest income. But the pleasure could be shortlived. UK chancellor Jeremy Hunt is reportedly preparing to source much-needed government revenues from the coffers of banks in order to fill a fiscal gap of at least £40bn.
A tax on an unpopular sector may appear the easiest solution. To some, UK banks are mere utilities. But as conduits of capital through the economy, more taxes on them further clogs the financial system. For shareholders, a potential single-digit percentage hit to earnings offers little consolation.
As it stands, banks pay an effective tax rate of 27 per cent, comprising 19 per cent corporation tax and 8 per cent bank surcharge. On top of this, there is an existing bank levy on certain liabilities. With corporation tax set to rise to 25 per cent, even a reduction in this surcharge will mean an increase. If lowered to 5 per cent, the effective tax rate goes to 30 per cent.
This story originally appeared on: Financial Times - Author:Tax Cognition
