A new report published by the City of London Corporation[1] suggests the lack of tax predictability in the UK is now “out of control,” and is threatening the country’s position as a leading global financial centre.
The report polled members of the banking, insurance, asset management, hedge fund and private equity communities on six factors: predictability, overall tax burden, attitude of tax authorities, network of tax treaties, complexity and cost of compliance.
Every respondent gave the UK a poor rating on predictability. It is the area where the UK fared worst compared to other countries, but which the report says is the most important factor in judging competitiveness.
The authors said surprise changes such as the introduction of the bank payroll tax and bank levy, and the increase to 50% in the top rate of income tax were creating uncertainty and changing the financial services industry’s perception of the UK. In addition, the new rates and measures meant “the UK is now seen as a high tax jurisdiction not dissimilar to continental countries.”
However, despite fears that changes to the UK’s regime would lead to an exodus of financial institutions and people to more favourable tax jurisdictions, such as Switzerland, Singapore and Hong Kong, that has not materialised in practice, at least thus far. Instead, for the time being London remains a key financial hub, attracting international investment, as well as expatriate and domestic workers.
Holding on to its position in the world as an attractive place to live and do business is the UK’s challenge going forwards. Relying on its weather as a source of appeal certainly won’t do the job!
[1] Taxation of the Financial Services Sector in the UK: Predictability and Competitiveness, prepared by Charles River Associates for the City of London Corporation, October 2010, http://217.154.230.218/NR/rdonlyres/E3CEF4F7-479B-46B4-AB93-29DF5F673B53/0/TaxationofFinancialServices.pdf
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