The financial services sector contributed £71.4 billion in tax last year, highlighting the potential hit to UK government coffers if Brexit results in restricted access to the EU’s single market.
A report by the City of London Corporation and accountancy giant PwC shows that nearly a quarter of financial services’ turnover in the last financial year “went straight to the public coffers,” and accounted for 11.5 per cent of the UK’s total tax receipts for the 12 months to March.
The sector arguably stands most to lose as negotiations loomMark Boleat
It marks the sector’s highest tax total in the report’s nine-year history, thanks in part to corporate tax reforms that delivered £8.4bn in the last financial year, and the bank levy that saw lenders pay out £3.4bn over the same period.
But those contributions hang in the balance ahead of Brexit negotiations with the EU. Financial firms have become increasingly concerned about their ability to trade with Europe if the UK government opts for a “hard Brexit” and pulls Britain out of the single market.
They are waiting with bated breath to discover whether the UK can hold on to “passporting” rights that allow lenders to trade freely across EU. Restricted access could hit revenues and subsequently impact tax payments.
Financial services currently employ 1.1 million people across the UK, amounting to 3.4 per cent of the national workforce – with the average employment tax per worker reaching £32,000.
Mark Boleat, policy chairman for the City of London, said: “In light of the UK’s decision to leave the EU, these new findings not only demonstrate the significant contribution made to government revenues, but are also key in helping us to understand the potential impact of Brexit on different sub-sectors within financial services.”
“As one of the UK’s biggest service exporters, it’s understandable the sector also contributes a considerable amount of tax. Despite this, the sector arguably stands most to lose as negotiations loom. It makes it clear the argument that government should be engaging with firms as it approaches talks with the remaining EU 27, and the pulling of the political trigger.”
His comments come amid fears that rival financial centres like Dublin, Frankfurt and Paris could end up siphoning off some of the City’s business and capitalising on the uncertainty surrounding Brexit.
But a survey released by Synechron and TABB Group last month showed that 72 per cent of UK financial service executives see London reigning supreme as the regional financial centre in five years’ time – despite Brexit.
Firms would also have to consider the costs of moving house. Synechron previously found that it would costs £50,000 per employee to relocate staff from London to another financial hub in Europe.
Chancellor Philip Hammond and Brexit Secretary David Davis met with leading bankers and insurance chiefs earlier this week – including Lloyd’s of London boss Inga Beale, London Stock Exchange Group chief Nikhil Rathi and Barclays chairman John McFarlane – in a bid to reassure them about the government’s plans to protect the City after Brexit.
In a joint statement, Hammond and Davis said: “As the UK exits the EU, we are determined that our country remains a great place to invest and to do business.
“We want the best deal for trade in UK goods and services, including our world-leading financial services industry. That is why these meetings, where we listen closely to the sector’s views on the potential impact and opportunities offered by us leaving the EU, are so important.
“Our financial services sector makes a crucial contribution to our economy and we will work together to ensure it continues as the hub for both Europe and the rest of the world.”