Why we must defend our financial services sectorDecember 19, 2012
An interesting report today from the City of London Corporation underlines the importance of the financial sector to the UK economy – contributing almost 12% of government tax receipts for the year to March 2012. That’s £63bn – even at a time when the sector is seeing falling profitability and thus lower corporation tax liabilities.
Employment in the sector remained constant from the previous financial year at 1.1m (3.8% of the UK workforce), and accounted for £27.7bn or 11.8% of total employment taxes.
Corporation tax accounted for £5.4bn in 2011/12, down from £7.2bn the previous year, reflecting a lower Corporation Tax rate and lower profitability in the FS sector. Meanwhile, increases in VAT, and other taxes including employment taxes and national insurance have increased to maintain the sector’s total contribution.
As a result of strong employment growth in the financial and business services sector, London delivered a £10bn fiscal surplus in 2011/12 and the capital’s net contribution almost doubled from £5.1bn in 2010/11 despite the challenging economic outlook. In the years preceding the financial crisis, London’s fiscal surplus had ranged between £10bn and 20bn before falling to a deficit of £0.1bn in 2009/10.
London’s fiscal surplus is projected to recover to pre-crisis levels by 2013/14 growing to just over £50bn in 2025/26 as a result of continued financial and business services sector growth. In comparison, the UK budget is forecast to be in surplus of just £10bn by this point.
These figures only serve to demonstrate once again how vital a thriving financial services sector in London is to the country as a whole. It’s time that our politicians woke up to this fact and adopted a more constructive approach both to regulating and to protecting this essential part of our economy. We need to see greater engagement on European financial regulation, so that the continent does not become so unwelcoming that business moves to other centres, such as Singapore, and in the UK itself we need to scrap flawed taxes such as the Bank Levy.