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John Glen, City minister, has vowed that Britain’s financial services sector will enjoy “competitive tax rates” as he paved the way for a Budget cut to the 8 per cent surcharge on the sector.
Glen also vowed to “keep under review” the cap on bankers’ bonuses, introduced while Britain was a member of the EU, as part of a wider effort to maintain the competitiveness of a “booming” City of London.
Speaking ahead of a visit to the US, Glen said that the chancellor, Rishi Sunak, was “thinking very carefully” about tax rates for financial services ahead of his Budget on October 27.
“To be competitive, we have to have competitive tax rates and that’s what’s on the chancellor’s mind at the moment,” he told the Financial Times in an interview.
Sunak announced in his March Budget plans to raise corporation tax rates from 19 to 25 per cent from April 2023, admitting that this would “make the taxation of banks uncompetitive and damage one of the UK’s key exports”.
The chancellor said he would review the 8 per cent surcharge on the sector, introduced in 2015, to protect London’s post-Brexit position. The top-up raised £1.5bn last year.
Sunak said in his Mansion House speech in July that “the combined tax rate on UK banking profits should not increase significantly from its current level”. The current tax rate is 27 per cent: 19 per cent in corporation tax plus the 8 per cent surcharge.
Glen could not confirm that Sunak would announce a cut to the surcharge in his Budget, but added: “We want to bring certainty to the industry.”
The City minister, who has been in his post for almost five years, was a rare survivor in the Treasury ministerial team in Boris Johnson’s reshuffle last week. The Economic Secretary to the Treasury was also bumped up a pay grade to the minister of state level.
Financial services bosses had urged Johnson not to move Glen from the highly detailed brief; the minister has held the job for longer than any of his predecessors.
He said that the cap on bankers’ bonuses, introduced by the EU after the financial crash, would be kept “under review”, but added: “It’s not something we are imminently seeking to make an announcement on.”
The use of Brexit “freedoms” to cut the bankers’ bonus tax might be unpopular with the wider public, but Glen said: “We need to look at how effective it is and what market effect it actually has.”
He added: “What I want is an efficient and effective marketplace for financial services in the context of the global marketplace.” He argued that a successful financial services sector had a key role in the government’s efforts to spread growth across the UK.
Glen said he was optimistic about the future for UK financial services outside the EU, adding that London was “booming” after “the best year since 2014 in terms of equity raising and IPOs”.
On his visit to the US, he wants to encourage banks to make progress on financing green initiatives and to make net zero pledges — Britain is hosting the UN COP26 climate summit in November.
There was no sign of any movement by the European Commission in recognising the “equivalence” of British regulations — helping to open up the EU market to UK-based companies. Glen said that was “a matter for them”.
Glen said he wanted to agree greater “regulatory co-operation” over financial services with the US, which he described as the UK’s most important bilateral partner.
He pointed to the financial services agreement with Switzerland, and said that the UK could “step up the ambition” with the US and develop “a like-minded approach to regulation and removing unnecessary barriers”.
This could include mutual regulatory deference — similar to the Swiss agreement — while working to ensure free flow of cross border financial data. Glen also wants to work with the US on green finance and other financial innovations.
The minister said the government would continue to strip away unnecessary rules that have burdened companies in the City of London, using the “onerous” rules over the trading of certain bonds as an example.
But, reflecting investor fears that a “bonfire of regulations” would lead to a weakening of the City’s as a safe place to do business, he added that the UK would maintain high regulatory standards.
He said the regulatory overhaul was “not a race to the bottom, not some false opportunity to find deregulatory paths. That’s not the path I want to go down.”
Meanwhile, the government is now receiving the initial bank data over the level of defaults and fraud in the bounce back loan scheme — the Covid-19 programme that supported more than £47bn of bank lending to struggling SMEs with full government guarantees.
Bankers have raised fears that many loans will never be repaid, either because their borrowers were unable to cover the payments or because they never had any intention of doing so.
But Glen said the data on defaults was “pretty encouraging” so far, suggesting that the worst-case scenarios of tens of billions of losses on the loans might be overly pessimistic.
