Champagne in Canary Wharf: Sunak helps banks to save £4bn following Budget cut in surcharge tax
The cut to the banking surcharge, announced in today’s Budget, will help UK banks to save £4bn in the next five years.
A surcharge of 8 per cent was cut to 3 per cent by Chancellor Rishi Sunak to “maintain the competitiveness of our financial services”, he said.
As a result, the amount paid by banks will fall by £220m next year, £830m in 2023/24; £975m in 2024/25; £995m in 2025/26 and £1.02bn in 2026/27, the Budget Red Book states.
The financial sector has been lobbying hard for a cut to the tax, warning that the tax on institutions would leave them uncompetitive with international rivals, particularly in the US.
Sunak had previously announced plans for a review of the tax in light of the rising corporation tax rate.
He told Parliament: “The overall rate of corporation tax on banks will in 2023 increase from 27 per cent to 28 per cent, and will remain higher than the rates paid by other companies.
Small challenger banks are improving banking competition which is good for the sector and good for consumers, so to help them I will also raise the annual allowance to £100m pounds.Rishi Sunak today
This is a rise from the current threshold of £25m before the surcharge kicks in, adding around 35 banking groups who will fall out of the scope of the surcharge completely.
Banks currently pay 27 per cent tax on their profits, made up of 19 per cent corporation tax and 8% bank surcharge.
The Treasury said: “We are not only retaining a bank surcharge, we are also retaining other bank-specific taxes and interventions.
“By keeping the bank surcharge in place from 2023, we will ensure that banks will continue to pay a higher rate on their profits than most other business.
“As well as the bank surcharge, we also have the Bank Levy, a charge on banks’ balance sheet liabilities.”
It added: “If the surcharge remained the same, from 2023 banks would have had to pay an effective rate of 33 per cent on profits, higher than the rate in New York, US (26 per cent), Frankfurt, Germany (32 per cent) or France (29 per cent, but intending to reduce to 25.8% by 2022), making UK bank taxes a major global outlier.”