The City of London has warned that a no-deal Brexit could crash the UK economy, as new stats show the financial sector accounts for over 10% of all UK tax.
Finance firms in the UK paid £75bn in tax last year, according to a report by PwC and commissioned by the City of London Corporation. The figure is up 4% on 2017 and represents 10.9% of all UK taxes. The rise was driven by the period being the first full year of the bank corporation tax surcharge.
The City of London Corporation, which promotes the area as a financial hub, said that the figures demonstrate the importance of financial services to the UK.
The report’s authors also warned that this is being jeopardised by Brexit uncertainty, which is pushing banks to move assets and jobs out of the UK, and could hit future tax revenues from the sector.
Andrew Kail, head of financial services at PwC, said in a statement: “Our financial services sector is one of our world class industries and generates not only large tax revenues to fund vital public services but provides employment for millions of people, generates a significant trade surplus and most importantly provides key products and services that its customers rely upon on a daily basis.”
Catherine McGuinness, policy chair at the City of London Corporation, added that the figures highlight the need to protect the sector from the possible effects of Brexit.
“With Brexit edging ever closer, it is more important than ever that the UK remains competitive to safeguard the sector’s employment and tax base,” McGuinness said in a statement.
“It is crucial that we avoid a no-deal Brexit that could jeopardise financial stability and drive activity away from the UK.”
Foreign-based banks, the majority of which are investment banks, paid the highest proportion of tax out of any subsector, accounting for around 25% of all tax receipts.
The report did not name any specific banks but the likes of JPMorgan, Goldman Sachs, Citi, Bank of America, and Morgan Stanley all have large operations in London. The sector, which includes banking, insurance, and asset management, accounts for just over 25% of all employment taxes paid in the UK.
McGuinness said: “In particular, we need to secure a transition period, deliver a mutually-beneficial future trading relationship and ensure the sector has continued access to skilled talent.”
The City of London Corporation is the latest group to warn about the possible dire effects of a no-deal Brexit. Last week, the government said that a no-deal Brexit could shrink the UK economy by over 9% within 15 years, while the Bank of England said the economy could decline by 8% in the short-term under a no-deal scenario.
The City of London report notes that financial service companies have developed Brexit contingency plans that include “relocating operations to locations within the EU.”
“This has the potential to impact the future contribution from taxes,” the report notes.
On Monday, Bank of America completed the legal relocation of its European headquarters from the UK to Ireland, just one example of a Brexit contingency plan being executed.
Oscar Williams-Grut covers banking, fintech, and finance for Yahoo Finance UK. Follow him on Twitter at @OscarWGrut.