UK banking sector contributed £31.3bn to economy in 2014
Despite the negative column inches still being directed at banks, new research has illustrated the huge impact that the sector has on the UK economy.
The study, carried out by PwC on behalf of the British Bankers’ Association, reveals that the banking sector contributed an estimated £31.3 billion in taxes borne and collected – equivalent to 5.5 per cent of government receipts – in the year to March 2014.
Twenty-nine banks – comprising 92 per cent of employees in the sector – contributed data to the study, which focused on two areas: taxes borne (representing a company’s own contribution in taxes) and taxes collected (those administered by a company on behalf of the government, such as income tax deductions under PAYE).
How is this money being contributed?
The report does far more than place a figure on the banking sector’s total tax contribution; it also examines how this tax is being paid.
Surprisingly, it shows that irrecoverable VAT is a larger source of banking tax than corporation tax and the bank levy put together. In fact, corporation tax makes up just 11.4 per cent of all taxes borne by the industry – for every £1 paid by banks in corporation tax, £7.80 in other taxes is borne. Furthermore, over half of the total contribution came from employment taxes, which are now five per cent higher than pre-recession levels.
Of the overall £31.3 billion contribution, two-fifths – or £13.2 billion – stemmed from total taxes borne, including corporation tax, the bank levy, employment taxes borne, irrecoverable VAT and other taxes borne. The remainder (£18.1 billion) came from employment and other taxes collected.
The importance of accurate information on bank taxation
The amount of tax paid by banks in the UK is a topic of great public interest in the wake of the economic downturn.
The issue formed a key part of chancellor George Osborne’s 2015 Budget, which included the announcement that banks would be forced to pay an additional £1.6 billion to the Treasury over the next five years as part of a new tax on profits. In response, a group of challenger banks argued that the move would compromise their ability to lend money to small businesses.
Given the glare of the public eye, it is extremely helpful to acquire a clear picture of exactly what tax is being paid by the UK’s banks.
Andrew Packman, total tax contribution leader at PwC in the UK, commented: “This study yields data that has not been previously available and gives a clearer picture of how the banking sector’s substantial tax contribution to the exchequer is generated.
“In the current tax environment, with the taxation of the banking sector under considerable scrutiny, providing robust data regarding its contribution is important in informing both policy decisions and public debate. There’s a lot of interest in how banks are taxed. Having the full picture of all the taxes that banks bear is important for this debate.”
Simon Hunt, UK banking and capital markets leader at PwC, added: “At a time when the banking sector continues to rebuild its reputation, this study provides an important reminder of the significant role our banks continue to play in contributing to the UK economy, both through direct taxation and as a large employer.”