UK banks pay record amount in taxes after making bumper profits
The UK banking sector’s total tax contribution was £44.8 billion for the financial year to the end of March, analysis by PwC showed.
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Your support makes all the difference.UK banks paid a record amount in taxes last year after generating bumper profits, while the gap between taxation on the City and other global financial hubs widens, figures show.
The analysis comes as speculation over potential tax rises grows ahead of the upcoming Budget statement.
The UK banking sector’s total tax contribution was £44.8 billion for the financial year to the end of March, according to analysis produced by PwC for trade group UK Finance.
This surpassed last year’s £41 billion and represented the highest contribution since the study started a decade ago.
It means banks contributed about 4.7% of the total amount the Government received in taxes last year.
PwC said 41 banks, based both in the UK and abroad, provided data showing how much they paid HMRC over the latest financial year.
Of the total amount, £24.1 billion came from direct taxes, which includes corporation tax, the bank levy, a surcharge on banks’ profits, and employer taxes.
This was higher than last year, an increase which the analysis found was primarily driven by the sector generating more taxable profits.
Major British banks including Lloyds and HSBC were among those to make record annual profits last year, with higher interest rates helping them generate more income from borrowers.
To a lesser extent, a one percentage point net increase in the combined corporation tax and surcharge rate to 28% for the latest year helped drive up contributions.
Some £20.7 billion of the total contribution came from taxes collected, which refers to schemes such as income tax and national insurance which banks, like other employers, collect on behalf of their employees.
Meanwhile, the report pointed to a growing disparity between tax contributions of banks in the UK compared with those in other leading global financial centres.
Modelling by PwC showed the total tax rate for a model bank operating in London was 45.8% over the latest financial year, significantly higher than the 27.9% for a bank operating in New York.
Total tax rates in other top European financial hubs – 28.8% in Dublin, 38.6% in Frankfurt, and 42.0% in Amsterdam – were all significantly less than the year prior, according to PwC’s analysis.
This was mainly because of the suspension of contributions to the European Union’s (EU) Single Resolution Fund at the start of 2024, the report said.
While taxing banks more may not get much pushback from the public ... it would also be a damaging move when the Government is seeking to drive increased economic growth
The EU collects fees to cover emergency funding for banks that come into trouble, to avoid taxpayers bearing the brunt of failures.
The fund reached its target level of contributions by the end of last year, 78 billion euros (£65 billion), meaning it stopped collecting money in 2024.
London’s total tax rate is forecast to remain higher than all other locations analysed in 2025.
With the UK Government set to announce its Budget statement next week, there has been growing speculation over possible tax changes to help cover shortfalls in public finances.
Gary Greenwood, a research analyst for Shore Capital Markets, said the Government would need to “think long and hard” before potentially increasing taxes for banks.
“While taxing banks more may not get much pushback from the public, they already carry a relatively high tax burden in an international context and we feel that it would also be a damaging move when the Government is seeking to drive increased economic growth,” he said.
David Postings, the chief executive of UK Finance, said: “The overall tax environment has an important bearing on investment decisions and growth and is something that needs to be considered in terms of our international competitiveness.”