(Commonwealth_ UK) The UK banking sector has reported a record tax contribution of £44.8 billion for the financial year ending in March, as detailed in an analysis conducted by PwC for the trade group UK Finance. This figure marks a significant increase from last year’s £41 billion and represents the highest tax contribution recorded since the analysis began a decade ago. The government now receives approximately 4.7% of its total tax revenue from banks.
The analysis, which included data from 41 banks operating both domestically and internationally, revealed that £24.1 billion of the total tax came from direct sources. This encompasses corporation tax, the bank levy, a surcharge on bank profits, and employer taxes. Higher interest rates, which have enabled major banks like Lloyds and HSBC to report record annual profits, were largely responsible for the increase in direct tax contributions. Additionally, a one percentage point increase in the combined corporation tax and surcharge rate to 28% for the latest financial year contributed to this rise. Of the total tax contribution, £20.7 billion originated from taxes collected on behalf of employees, such as income tax and national insurance.
The report highlights a widening disparity between tax contributions from UK banks compared to their counterparts in other global financial centers. PwC’s modeling indicated that the total tax rate for a bank operating in London was 45.8%—significantly higher than the 27.9% for banks in New York. Other leading European financial hubs also reported lower total tax rates, with Dublin at 28.8%, Frankfurt at 38.6%, and Amsterdam at 42.0%. The suspension of contributions to the European Union‘s Single Resolution Fund, which ceased collecting fees in 2024 after reaching its target level, largely influenced these reductions.
Looking ahead, London’s total tax rate is projected to remain the highest among the analysed financial centres through 2025. As the UK government prepares to announce its upcoming budget statement, speculation is growing regarding potential tax increases aimed at addressing public finance shortfalls.
Gary Greenwood, a research analyst at Shore Capital Markets, emphasized the need for careful consideration by the government regarding any potential bank tax hikes. He noted that while increased taxation on banks may not face significant public opposition, the current tax burden is already relatively high on an international scale. He cautioned that further increases could hinder the government’s efforts to stimulate economic growth. David Postings, Chief Executive of UK Finance, underscored the importance of the overall tax environment for investment decisions and economic growth, highlighting its impact on the UK’s international competitiveness.
