The UK government should reduce the overall tax burden on its banks, as well as bolster fintech and future growth markets like ESG investing, to maintain its competitive edge and knock the US off the top spot for international financial centres, a new report has said.
Lobby group TheCityUK says a new strategy to “return the UK to being the world’s leading international financial centre within five years” is needed as the country prepares for a post-pandemic economic recovery and the ongoing impact of leaving the European Union.
“One of the greatest risks for any successful financial centre is complacency,” said the group’s chief executive Miles Celic in a statement published alongside the report on 7 September.
“The last decade has been one of growth for our industry, yet global competitors have grown faster,” added Miles. “However, with the right strategy in place and a clear focus on delivery, the UK can pull away once again from its competitors. It is an ambition that needs industry, government, and regulators to work together.”
The report, entitled ‘Making the UK the leading global financial centre: An international strategy for the UK-based financial and related professional services industry’, was developed through “extensive discussions” with the industry, representative bodies, regulators and government, TheCityUK claims.
One of its proposals is for the removal of the bank surcharge so that taxes on UK-based banks are in line with taxes on banks in other leading financial centres.
“UK tax rates should remain among the most internationally competitive in comparison to other G7 economies, as the matrix for competitiveness between rates, taxable base, administration and policymaking remains the same,” the report says.
“However, measures such as the increases in insurance premium tax, the introduction of the bank surcharge, the bank levy, non-deduction of conduct related charges and a more restrictive loss offset regime for banks means that the financial services sector is both one of the most highly-taxed sectors in the UK, and taxed considerably more than rivals in competitor financial centres.”
The report puts an example overall tax rate for a bank in London at 46.5%. It claims this is 13% higher than a New York-based bank. It adds the figure is also higher than peers in Hong Kong, Singapore and Frankfurt, but does not list a comparative figure.
“Taxes are not just about the rate,” said Celic, speaking to journalists during a virtual briefing. “If you look at what keeps a centre competitive when it comes to taxation, it’s a mix of things; the rate is obviously part of it but it’s also its predictability, its stability, its simplicity and its direction of travel.”
Another issue identified by the lobby group is the need to reduce processing times and costs for sponsorship visas for high-skilled workers coming into the UK. The end of the Brexit transition period on 31 December 2020 brought with it changes to immigration rules, with European Union citizens now having to apply for a visa to work in the UK.
Asked if he thought a post-Brexit system would allow for a free and easy visa system for the City, Celic said: “In the conversations we’ve had with the government…I think that is something that is absolutely understood.”
Citing the annually-published Global Financial Centres Index, produced by think tank and consultancy Z/Yen Partners, the report pinpoints 2018 as the last that the City was the leading international financial centre.
The UK needs “relentless focus”, the lobby group said, to “win back the prize of being the world’s leading international financial centre”.
The report identifies several factors that have contributed to the “decline” in the UK’s competitiveness, including the growth of new financial centres in Asia and the progress made by the United States.
To remedy this, the UK must bolster areas of competitive advantage such as the fintech sector, the report says, as well as strengthen areas such as data and technology, global ESG markets, international investment opportunities and risk management.
The report also urged the government to adopt the recommendations of Lord Hill’s Listings Review, to allow dual-class shares for businesses on London’s premium market.
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