Budget 2021: Banks to save £4bn over five years from cut in surcharge tax
The financial sector has previously warned that without a cut to the tax, they would be left uncompetitive with international rivals.
Banks are set to save £4 billion in taxes over five years from a cut to the banking surcharge in April 2023, according to the Budget.
A surcharge of 8% was cut to 3% by Chancellor Rishi Sunak to “maintain the competitiveness of our financial services”, he said.
As a result, the amount paid by banks will fall by £220 million next year, £830 million in 2023/24; £975 million in 2024/25; £995 million in 2025/26 and £1.02 billion in 2026/27, the Budget Red Book states.
The financial sector has been lobbying hard for a cut to the tax, warning that the tax on institutions would leave them uncompetitive with international rivals, particularly in the US.
Mr Sunak had previously announced plans for a review of the tax in light of the rising corporation tax rate.
He told Parliament: “The overall rate of corporation tax on banks will in 2023 increase from 27% to 28%, and will remain higher than the rates paid by other companies.
The Chancellor added: “Small challenger banks are improving banking competition which is good for the sector and good for consumers, so to help them I will also raise the annual allowance to £100 million pounds.”
This is a rise from the current threshold of £25 million before the surcharge kicks in, adding around 35 banking groups who will fall out of the scope of the surcharge completely.
Banks currently pay 27% tax on their profits, made up of 19% corporation tax and 8% bank surcharge.
The Treasury said: “We are not only retaining a bank surcharge, we are also retaining other bank-specific taxes and interventions.
“By keeping the bank surcharge in place from 2023, we will ensure that banks will continue to pay a higher rate on their profits than most other business.
“As well as the bank surcharge, we also have the Bank Levy, a charge on banks’ balance sheet liabilities.”
It added: “If the surcharge remained the same, from 2023 banks would have had to pay an effective rate of 33% on profits, higher than the rate in New York, US (26%), Frankfurt, Germany (32%) or France (29%, but intending to reduce to 25.8% by 2022), making UK bank taxes a major global outlier.”