The government’s decision to cut the banking surcharge is costing the public purse £29 million a week, according to a new report published by the Trades Union Congress (TUC) on Saturday 18 November.
Tories cutting taxes for bankers
The report estimates that the Treasury will lose “at least” £1.5bn annually over the next four years as result of the change introduced by Rishi Sunak when he was Chancellor.
Earlier this year, the surcharge was cut from 8% to 3%. This lower tax rate has allowed banks to make huge profits from rising interest rates and cushioned them from the increase in corporation tax rates that came in this year.
While other businesses have seen their corporation tax rates rise by up to 6%, banks have seen an extremely modest rise of 1% thanks to the cut in the surcharge.
As a result banks are paying a lower rate of corporation tax than before the financial crisis.
Huge loss in tax revenue via the bank surcharge
The TUC branded the decision to cut the surcharge as a “Tory tax break” for banks that will “starve the public finances of much-needed funds”.
The union body says the estimated loss in tax revenue over this year alone could be more than £2.5bn.
The UK’s four biggest banks – HSBC, Barclays, Lloyds and Natwest – have reported combined pre-tax profits of more than £41bn for the first three quarters of 2023, as a result of rising interest rates.
This is a nearly 400% increase on the same period in 2020, before rates started rising, and suggests the big four could be on track to make record annual profits of around £50bn this year.
Taxing excess profits
The report lays out options for taxing excess profits in the banking sector. These include:
- Reversing the cuts to the bank surcharge. This would set the surcharge at 8% and the overall corporation tax rate at 33%. This would raise £6-6.5bn over four years.
- Raising the bank surcharge to 10% to create an overall tax rate on bank profits of 35%. This would raise £7.5bn-£8.1bn over four years.
- A windfall tax bank surcharge of 35% to match the levy on energy companies. This would create a total corporation tax rate of 60%. This would raise £26bn-£28bn over four years.
- Reversing cuts to the Bank Surcharge and Bank Levy so that they collect the same total revenue in real terms as they did in 2016/17. This would raise £15bn over four years.
The TUC says a national conversation is needed about taxing wealth and excess profits more fairly in the UK.
Britain’s tax system: no longer fit for purpose
The TUC says Britain’s tax system is no longer fit for purpose. TUC polling published in September revealed huge support across the board for windfall taxes :
- Three quarters (75%) of the public support a windfall tax on banks’ excess profits – including 76% of Conservative 2019 voters.
- 4 in 5 (80%) support a windfall tax on energy companies’ profits – including 81% of Conservative 2019 voters.
- 7 in 10 (69%) support a windfall tax on large online retailers’ excess profits (like Amazon).
The TUC has already called on the government to equalise capital gains tax with income tax which could raise over £10bn – and it has supported a bigger windfall tax on energy companies.
Political choices
Commenting on the report, TUC General Secretary Paul Nowak said:
At a time when our schools and hospitals are crumbling Rishi Sunak has given a huge tax break to banks.
Banks have enjoyed eye-watering profits over the last year – and this tax cut means they have cashed in on soaring interest rates and families’ mortgage misery.
The Prime Minister’s decision to reduce the surcharge has starved our public finances and our public services of much-needed funds at the worst possible time.
This boils down to political choices. Whether its slashing taxes for banks or gifting bankers unlimited bonuses – this is a government more interested in rewarding excess wealth than in governing for the public good.
Simon Youel, Head of Policy and Advocacy at Positive Money, said:
There’s never a justification for handing tax cuts to banks whilst the public endures a cost of living crisis. But this move is particularly hard to swallow when banks are reaping windfall profits from the same higher interest rates pushing households to the brink of destitution.
The reason special taxes on banks were introduced after the financial crash was to reflect the greater risks they pose to our economic stability than other corporations. That risk hasn’t gone away.
We wholeheartedly support the TUC’s calls for reversing cuts to the bank surcharge and bank levy to redress the unequal impacts of interest rate increases.
Featured image via Wikimedia
