Brexit, COVID cast shadow over UK finance tax contributions, report says

FILE PHOTO: Queen Elizabeth II is seen with printed medical masks on the Pound banknotes in this illustration
FILE PHOTO: Queen Elizabeth II is seen with printed medical masks on the Pound banknotes in this illustration taken, March 31, 2020. REUTERS/Dado Ruvic/Illustration

February 10, 2021

By Huw Jones

LONDON (Reuters) – Britain’s financial sector paid 75.6 billion pounds ($104.08 billion) in tax in 2020, but receipts are forecast to drop this year as unfettered access to the European Union ends and fallout from the pandemic continues, a report said on Wednesday.

The City of London Corporation, which administers the capital’s historic financial district, said the tax contribution in the year to March 2020 was little changed from 75.5 billion pounds in the prior period, despite uncertainties over Britain’s future relations with the European Union.

“However, the future is uncertain, and we do not yet know the long-term impacts of the pandemic, Brexit and changes in ways of working,” City leader Catherine McGuinness said.

The sector accounts for over 10% of UK tax receipts.

Receipts are expected to ease in the current financial year that ends next month to between 71.1 billion and 75.7 billion, consultants PwC estimated in a report for the City.

“The transition to new trading arrangements between the UK and the EU will put further downward pressure on the recovery of the financial services sector,” the report said.

Britain’s trade deal with the bloc from January 1 does not cover financial services, with the City likely to get only limited access to the EU for the forseeable future.

Financial services exports to the EU in recent years have totalled about 26 billion pounds annually, but some of this activity has already moved to the bloc.

(Graphic: CityTaxGraphic: https://fingfx.thomsonreuters.com/gfx/mkt/bdwvknraxpm/CityTaxGraphic.png)

($1 = 0.7264 pounds)

(Reporting by Huw Jones; Editing by Chizu Nomiyama)