Britain’s Financial Sector Expected to Contribute Less Tax in 2021
The UK government is expected to receive lower tax revenues from the finance sector this year, mainly because of Brexit and the pandemic. Current estimates reported by PwC show between 71.1 billion to 75.7 billion in tax revenues from the financial services sector. These revenues carry great importance as the financial sector is responsible for over 10% of the government’s tax collection.
The UK is currently experiencing an uncertain future, battling the effects of Brexit and the coronavirus at the same time. Both these factors have directly impacted trade and business activities, resulting in an uncertain climate for the financial sector. No one knows when exactly Britain will have put both of these behind it.
Britain entered into a free trade agreement with the EU on 1st January 2021. However, this agreement does not include the financial sector, meaning London-based financial activities with the EU will take a hit. Its effects have already been seen with the exodus of investment bankers to cities like Frankfurt and Madrid. These were highly paid jobs that resulted in a decent tax collection for the British government.
It is clear that the British financial services sector needs support. The first and foremost step for relief to this sector may have to come via deals with the EU. Currently, London only has “equivalence” based access to the EU financial markets. Some of the economic activity that was responsible for over 26 billion pounds of annual revenue has already moved away from the city. For the financial sector to recover, this issue needs urgent action.
The COVID-19 pandemic has already changed the way people work. As financial services move online, London’s significance as a financial hub could diminish. These factors will, according to a CEBR report, result in over 2 billion pounds GDP loss per annum. London Mayor Sadiq Khan believes that if the government doesn’t step in to support the financial sector, the losses could be even greater.