Rishi Sunak is said to have reduced the UK tax surcharge on bank profits from 8% to 3% in next week’s autumn budget in a bid to boost the City of London’s competitiveness after Brexit.
The change is expected to come into effect in April 2023 and is intended to act as a countermeasure to the planned corporate tax hike for UK’s largest businesses from 19% to 25%.
Banks already pay 27 percent tax on their profits, after the current 8 percent surtax, with this figure set to rise to 33 percent after the future corporate tax increase.
The 27 percent rate is similar to the tax rate paid by banks in other financial centers.
The Chancellor has said in the past that this 33% tax rate would make the UK uncompetitive for financial services companies and could hurt the city’s global standing, especially after Brexit.
The Financial Times reports that Sunak will say in its budget that the UK is the only global financial center to impose an additional surcharge on the banking sector and that it should be cut.
Sunak said in March he was reviewing the 8% bank tax, which was introduced by former Chancellor George Osborne in 2015.
A Treasury spokesperson said: “We do not comment on fiscal policy outside of budgets.”
The city lost its broad access to EU markets after the UK left the bloc’s single market and customs union this year, resulting in a flow of share trading activity to Amsterdam.
Financial services companies have also moved 7.600 jobs and Â£ 1 trillion in assets from London to European capitals since 2016, according to accounting firm EY.
Two government reviews this year have outlined a series of regulatory changes recommended to improve the city’s competitiveness, now that the UK is no longer bound by EU financial services rules.
Among the recommendations are changes to the stock listing rules to attract more tech unicorns to go public in the UK, allowing Spacs to list in London and reducing capital requirements for insurance companies.
The Treasury also launched a study last week on how to make it easier for listed companies to attract secondary capital through rights issues.
City AM revealed last week that Sunak will not drop the EU cap on bankers’ bonuses as part of the regulatory overhaul.
The cap limits bankers’ bonuses to 100 percent of their fixed salary or to double with the explicit approval of shareholders.