Banks’ gripes about tax changes are just hot air
Given the way its corporation tax rate is going, Britain may soon be seen as the world’s the biggest offshore corporate tax haven. We might even have to rename Henley-on-Thames Zug-on-Thames after the Swiss City (and canton) that hedge funds, mining companies and other entities none to keen on paying tax call home.
Of course, Switzerland is a relatively small country. The UK is in the big boys’ club when it comes to economies and it will be interesting to see how its fellow members respond.
But there is one sector that won’t enjoy the fruits of the Chancellor’s largesse: banking. It is going to face an 8 per cent surcharge on its profits as the price for the end of the hated banking levy, which is charged on their global balance sheets and is seen as having chased business away from Britain. Its replacement with the profits surcharge still produced some gnashing of teeth. But it’s worth noting that even after it has been charged UK banks will still pay a lower rate of tax on their profits than banks in France, Germany or the US. They will also be paying a lower rate of corporation tax than they did as recently as in 2011.
So they have less cause for complaint that you might think, particularly when you consider that the extra tax represents, in effect, an insurance premium paid to the taxpayers who will have to bail them out of they go bad. The big question is how much the new charge will net for the Treasury. One of the reasons for the repeated increases to the banking levy was that it yielded rather less than the Chancellor, George Osborne, hoped it might. He says the profits surcharge will realise more. But will it? The problem with taxes based on corporate earnings is that multinational entities have, with the assistance of their clever accountants, found any numerous ways to shift profits from high tax economies to lower tax ones.
Banks are nothing if not innovative and at least two of Britain’s big ones – Barclays and HSBC (assuming it stays here) – are firmly in the multinational camp. Royal Bank of Scotland operates in a number of overseas territories and even Lloyds has a presence. Can you see where I’m going with this?
