What is the Difference between London and New York City?
In the News
About 14 per cent higher tax. Admittedly, this is not a great punchline to a joke. Quite the contrary, for inbound and outbound banks, and the rest of the financial services ecosystem that relies on a thriving and diverse banking system, this is no joke.
In April 2017, the New York Times published an article entitled “Will London Fall?”, in which it declared “London is banker to the planet” but also reflected “[t]he certainties that sustained a great city are no longer certain”.
For a very long time, politicians have declared that the UK’s position is unassailable, benefiting from inherent advantages such as its time zone, legal, political and regulatory frameworks. As some of these advantages have become less certain, other factors have become increasingly important, tax being one.
The UK government has recognised the importance of tax competition, declaring an intention to have the most competitive tax regime in the G20, and reforming its corporate tax system to make it more attractive to international businesses. Along the way, however, this ambition became qualified: it did not extend to the banking industry. As other corporates saw a reduction in the main rate of corporation tax, the banking industry saw the introduction of significant additional taxation.
Today UK Finance publishes the fifth edition of the Total Tax Contribution of the UK banking sector, which for the second year includes analysis of the UK’s tax competitiveness for banking relative to other leading global financial centres. Sector-specific taxes, such as the bank surcharge, bank levy and irrecoverable VAT, have led to a 50 per cent rise in taxes borne by banks operating in the UK over the past five years. Consequently, it is hardly surprising that, as with last year, London continues to have the highest total tax rate for a typical corporate and investment bank out of the financial services centres surveyed. The rate in London is 47.1 per cent, 13.6 percentage points higher than New York City (33.5 per cent) and 2.4 percentage points higher than in Frankfurt (44.7 per cent). And the gap with Frankfurt looks set to get worse, increasing by 4.8 per cent when Germany suspends its bank levy from 2023.
Today the UK remains the most expensive global financial services centre from a tax perspective for banks, which can only encourage businesses to favour other locations when it comes to decisions to expand or contract. UK Finance is urging the government to normalise taxation for the banking industry. We believe that this will not only increase the attractiveness and competitiveness of the UK for the banking industry but should, in turn, support the wider UK economy and public finances more generally.
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