Banks to knock £19 billion off their tax bill despite taxpayer bail out
Despite being rescued by taxpayers during the crash, UK banks will avoid paying £19 billion of tax on future profits by offsetting their losses during the financial crisis against their tax bills. This is equivalent to more than £1,100 for every family in the UK, a TUC report says today (Monday).
The TUC report – The Corporate Tax Gap – says that as well as benefitting from an £850 billion bailout from taxpayers and the Bank of England during the recession, banks are able to offset their £19 billion of tax losses between 2007 and 2009 against paying tax on future profits.
The report, authored by tax specialist Richard Murphy, has calculated this double subsidy from the accounts of five UK high street banks – HSBC, Royal Bank of Scotland, Barclays, Lloyds TSB and HBOS (later Lloyds Banking Group) – and HM Revenue & Customs (HMRC) data.
The Corporate Tax Gap warns that banks could soon be paying a lower rate of tax than small businesses. The corporate tax gap – the difference between the rate of tax set by the Government and the actual rate companies pay – has grown by an average of 0.5 per cent a year over the last decade. Between 2000 and 2009, the effective corporation tax rate fell from 28 per cent to 21 per cent, much deeper than the headline rate cut from 30 per cent to 28 per cent, says the report.
With the Government planning to reduce corporation tax to 24 per cent, the UK’s largest companies, including banks, will soon be paying an effective tax rate of 17 per cent – three per cent lower than small businesses, who are less able to exploit loopholes and therefore pay a headline rate of 20 per cent. As a result, the UK will soon have a regressive corporation tax regime, says the report.
The TUC has calculated that the banks’ £19 billion double subsidy could pay for the following cuts between now and 2015:
*Switching the indexation of benefits from RPI to CPI (£5.84 billion)
*Housing benefit (£1.77 billion)
*Tax credits (£3.22 billion)
*Child benefit for higher rate taxpayers (£3 billion)
*Estimated cuts to the science research budget (£3 billion)
*Estimated cuts in HMRC resources to tackle tax avoidance (£2.1 billion).
TUC General Secretary Brendan Barber said: “Banks caused the global financial crash and triggered the recession that produced the deficit. Yet not only did they take almost a trillion pounds from taxpayers to bail them out, they are now using the losses caused by their irresponsibility to cut their tax bills for years to come”.
The Government’s bank levy is small change compared to this huge loss as the business-as-usual bonus levels show. It’s double bubble for the banks, but huge cuts, job losses and VAT increases for ordinary families. Small firms have every right to be angry too. Not only are they finding it hard to get credit from the banks, soon they will be paying more tax on their profits than the banks and other big companies.