The tax contribution of Britain’s financial services industry hit its highest since the global crash seven years ago — despite the corporation tax paid by banks and financial institutions halving over the period.
Financial services business are estimated to have paid £66.5 billion in employment, corporation and other levies in the latest tax year, according to a survey by PricewaterhouseCoopers commissioned on behalf of the City of London Corporation.
The tax take is up about £900 million on the previous period and the largest amount collected since 2007, when financial services paid £67.8 billion.
Then more than 40 per cent of the burdenreflected corporation tax. Today the figure has dropped below 20 per cent, while employment taxes and national insurance contributions make up 33.5 per cent of the total compared with 21.3 per cent seven years ago.
Andrew Packman, head of tax transparency at PwC, said: “The policy of successive governments has meant that the burden of tax on companies has shifted from profit-based taxes to other business taxes, and this is particularly significant for financial services.”
As well as the shift toward employee contributions, banks today must pay an industry levy after the introduction of the bank balance sheet tax five years ago by George Osborne.
The bank levy made up nearly 7 per cent of the total tax take from the financial services sector in the latest year at £2.7 billion, a £500 million increase on the previous tax year.
Mark Boleat, policy chairman at the City of London Corporation, said the financial services industry had made an “outsize” contribution to the public purse. “These figures show the enormous value of the financial services sector in underpinning the wider economy, the government’s spending programme, and public services,” he said.
● Small business loans backed by the Bank of England and the Treasury jumped by £700 million in the third quarter as banks, including Lloyds Banking Group and Royal Bank of Scotland, used a government scheme to increase lending to SMEs.
A net £700 million was lent to SMEs across Britain through the Funding for Lending scheme (FLS) in the three months to the end of September compared with £400 million in the previous quarter, with RBS making £290 million of new loans to smaller companies, while Lloyds extended £275 million of net new lending to the sector.
The FLS was set-up three years ago amid fears that smaller businesses were finding it difficult to borrow in the wake of the financial crisis and banks and building societies retrenched as they attempted to rebuild their balance sheets.
According to the latest figures from the Bank of England published yesterday, a total of £63.6 billion has been drawn down by lenders using the programme, which initially was allowed to fund loans supporting new mortgage and SME lending, before being subsequently limited to small businesses because of fears about the overheating housing market.
As at the end of September, a net £26.2 billion was being borrowed through the FLS once repayments were taken into account. The biggest user of the scheme is Lloyds, with £16 billion of outstanding FLS loans, an amount that led Investec analysts to dub the programme “Funding for Lloyds” in a note to clients last month.
Last week the Bank and the Treasury confirmed that the FLS would be extended for a further two-year period. Officials said that the extension would provide banks with greater flexibility to use their allowances under the scheme and help to support business lending.
The Bank of England expects to phase out the scheme gradually, with banks encouraged to fund their loans books entirely with private funding sources rather than using publicly backed lending.
The British Bankers’ Association, the lobby organisation of the financial services industry, said yesterday that the FLS had continued to “drive economic growth and create jobs”.
“Borrowers should be confident about applying to their banks for finance,” the BBA said. “While the proportion of SMEs feeling confident that their bank will approve a borrowing request has steadily grown from 60 per cent, the SME Finance Monitor shows that eight out of ten businesses applying for loans and overdrafts are actually successful.”