Banks will get a reprieve in Jeremy Hunt’s upcoming Autumn Statement as the chancellor looks set to cut the so-called surcharge tax on the sector.
The future of the surcharge, introduced in 2016 as an additional levy on excess profits on the sector after receiving taxpayer support through the financial crisis, has been uncertain for many months, as the government looks to balance growth in the City with the need to generate revenue in a tough economic climate.
Rishi Sunak was set to cut the rate of the tax, which superseded the bank payroll tax and bank levy in 2009 and 2011 respectively, from 8% to 3% while he was chancellor to offset the impact of increasing corporation tax on banks’ overall financial burden.
His successor Kwasi Kwarteng then indicated he would reverse the cut in his ‘mini-budget’, arguing that banks had been offered support elsewhere in his package, which included scrapping planned corporation tax hikes.
READ Make post-Brexit rules more competitive for City banks, government told
With corporation tax rises now back on the table, Jeremy Hunt will again push through the cut, the Telegraph and Bloomberg report, meaning the overall tax burden on banks will only rise 1% when corporate tax increases from 19% to 25% in April.
Cutting the rate from 8% to 3% would cost the Treasury around £1bn by the financial year ending April 2027, according to government costing documents.
The Treasury has been approached for comment.
In a report earlier this week, lobby group The CityUK said the surcharge should be reconsidered, and was “not originally intended to be permanent”.
The idea of keeping the City competitive in the wake of Brexit has long occupied policymakers, who are currently driving through a raft of other reforms through the Financial Services and Markets bill aimed at deregulation.
Banks themselves have seen profits hit by a slowdown in the dealmaking in recent months. Hunt is also likely to push ahead with plans to scrap the cap on bonuses in the sector, telling parliament that the measure had not been effective at curbing risk-taking or generating revenues for the Treasury.
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