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Summary
- Brexit and coronavirus pandemic dim the prospects of UK finance tax contributions this year, says a City of London Corporation report.
- The country’s financial sector paid taxes worth £75.6 billion in 2020, but the collections could drop this year.
- If the economic recovery is slower than previously expected, the growth of financial services sector will also get impacted.
A report released by the City of London Corporation has stated that the amount of tax contribution from the British financial sector for 2020-21 is uncertain due to the double blow of the pandemic and Britain’s exit from the European Union. The sector holds importance for the overall tax kitty as it accounts for nearly 10 per cent of the total receipts. The City of London Corporation is the capital city’s municipal governing body.
The sector’s tax contribution for the year ending March 2020 was £75.6 billion almost the same as in 2019, £75.5 billion. Consulting firm PwC has estimated in a report that the sectoral receipts could ease down in a range of between £71.1 billion and £75.7 billion for FY 21. The report is titled annual survey of total tax contribution made by the UK financial services.
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It is worth noting that the UK’s new trade deal with the EU does not cover financial services. The sector’s exports to the bloc were around £26 billion per annum in recent years. However, a part of this activity has already moved to the EU, the report mentioned.
Apart from a significant contributor to taxes, the financial services sector of Britain employs 3 per cent of the national workforce and generates nearly 7 per cent of its economic output. The PwC report has concluded that if the economy recovers at a slower pace than earlier expected, due to Brexit and ongoing coronavirus restrictions, the financial services sector’s growth will suffer as well.
Tax hike on cards
Media reports suggest that concerned about the falling tax collections, the UK treasury is mulling over introducing an ‘excessive profits tax’ in the forthcoming budget that could hit companies including Amazon. The new tax collections are expected to help cover up for the lost receipts as a result of the Covid-related shutdowns.
Leading high street retailers have also called upon Rishi Sunak, chancellor of the exchequer to levy an online sales tax on e-commerce retailers.
Additionally, the chancellor is looking at raising the wealth tax, capital gains tax, and the inheritance tax to pay for the ongoing pandemic spending. The national borrowings are expected to touch a whooping figure of £400 billion for FY 21, making up for the largest ever non-wartime budget deficit for the UK.
If media reports are to be believed, the inheritance tax could be doubled from 40 to 80 per cent. Market experts do agree that given the poor position of the national finances, some sort of tax hike is inevitable.
