US banks are calling on the British government to cut taxes and red tape that they say could lead to financial assets and jobs pouring out of the UK after Brexit.
Senior Wall Street executives have warned UK government ministers that the City of London is losing its competitive edge against New York, especially since US president Donald Trump slashed corporation tax and pushed for looser regulations.
One top US bank executive said after meeting UK chancellor Philip Hammond this month: “I think they know there is a ticket to pay to keep [London] as a financial centre.”
Stephen Jones, chief executive of UK Finance, a lobby group for British lenders, said: “Competitiveness is a big agenda, and the tax cuts and deregulation in the US have put this firmly on the radar.
“There is a perception that [in the UK] this is still a relatively hostile business and regulatory environment.”
Mr Hammond said at a Treasury event last week that he hoped an increase in UK financial services firms’ activities in emerging markets would offset any loss of activity in the rest of the EU after Brexit.
The financial services industry generated between £190bn and £205bn in the UK in 2015, according to Oliver Wyman. The consultancy found that just under half of the revenues were generated by work for UK clients, about a fifth were from EU-related business, and almost a third related to business from the “rest of the world”.
But bankers have said that if the UK does not become more competitive, it could lose business with the “rest of world” after it leaves the EU.
The top US bank executive said: “If this government stays in place, it realises it has to swing back to the middle ground after Brexit, otherwise it risks losing some of this. The question is [do we move business to] New York; that is the real risk.”
Several big banks, including JPMorgan Chase, Citigroup,Goldman Sachs and Bank of America, have done in-depth reviews of the relative tax competitiveness of the countries in which they operate.
UK Finance is also benchmarking Britain’s attractiveness as a financial centre against other countries, and plans to publish the results later this year.
This is not a cheap place to do business any more from a tax perspective
Senior executive at a US bank
While the UK bank levy — a tax that the UK government introduced following the financial crisis — is steadily being reduced from 0.18 per cent of bank liabilities to 0.1 per cent over the next three years, the government in 2015 also introduced an 8 per cent corporation tax surcharge on bank profits over £25m.
“This is not a cheap place to do business any more from a tax perspective,” said another senior executive at a US bank, who said his firm now paid a UK tax rate of more than 40 per cent.
“If I have a loan book here versus somewhere else, why wouldn’t I look at moving that?” he asked, citing New York, Dubai and Hong Kong as locations with potentially lower tax burdens.
Foreign banks contributed £17bn in tax to the UK’s public finances in the 2016-17 financial year — almost half the £35bn contributed by the sector overall — according to research by PwC.
Mr Hammond said last week that the UK would remain competitive after Brexit, in part because of its advantages compared with other countries when it came to language, legal system and timezone.