City of London seeks tax reform, trade deals in lobbying push

The City of London has put tax and trade reforms among its wishlist for the finance industry, setting out its priorities ahead of the government’s Nov. 17 economic package.

Total tax on banks in the UK -- including corporate tax, an industry surcharge and other levies -- is 44.9%, notably higher than New York at 29.4% and Dublin at 30.2%, according to a report from TheCityUK lobby group. There “needs to be reform to the UK bank levy,” and the government “should also reconsider the status of the banking surcharge,” the report said.

The call for a “stable and predictable tax regime that is simplified and streamlined for financial services” comes with Rishi Sunak’s government seeking to identify £50 billion ($57.2 billion) of spending cuts and tax increases. 

Chancellor of the Exchequer Jeremy Hunt has said he would raise corporation tax to 25% from April. Banks are currently paying an 8% surcharge on their profits. Unless Hunt reduces the surcharge, lenders will be taxed at 33%, up from 27% now. They also pay an annual levy on certain balance sheet liabilities, which is expected to raise £1.3 billion this tax year. 

Banks in the UK have been paying extra taxes for more than a decade to reflect taxpayer support they received during the 2008 financial crisis. Rising interest rates are expected to boost profits at their lending arms, potentially making them a tempting target for windfall taxes along with the country’s oil and gas giants. 

The lobby group also laid out other priorities, including regulatory reform and speeding trade agreements with other financial centers. The government should “rapidly finalize” a pending agreement with Switzerland and use it as a model to secure more trade with other leading financial centers such as Japan and Singapore.

Call-In Power

The proposed introduction of a ministerial power to overrule regulators in matters of significant public interest should be “tightly defined and used as a last resort,” the report said. “Regulators’ operational independence is a key factor underpinning the UK’s competitiveness in financial services. It is important, therefore, that UK and international market participants continue to have confidence in the day-to-day operational independence of the UK regulators.”

The government is considering introducing a so-called call-in power to the Financial Services and Markets Bill which would give ministers the power to overrule regulators. But regulators have warned that it could undermine their authority.

Other recommendations in TheCityUK’s plan include:

• Implementing regulatory reforms including ring fencing, fintechs and wholesale markets
• Securing a UK-US digital economy agreement to boost the UK’s position as a hub for digital assets
• Looks to establish a cross-listing link with India to build capital markets connectivity