Chancellor Rishi Sunak announced the contents of the Autumn Budget 2021 today in the House of Commons, revealing plans to help challenger banks and improve banking competition in the UK.
Setting out the government’s tax and spending plans for the year ahead, the Chancellor said his budget delivers a stronger economy for the British people, aiming to build a post-pandemic economy.
When it comes to the country’s banking and finance industry, Mr Sunak announced that the bank surcharge will be cut from 8% to 3%.
The surcharge is a tax on bank profits on top of corporation tax, with the cut deemed to be a measure that will help keep the UK’s financial services sector competitive, as well as to partially offset the planned rise of corporation tax in 2023 to 28%.
The chancellor also singled out challenger banks in his remarks, saying: “Small challenger banks are improving banking competition, which is good for the sector and good for consumers, So to help them, I will also raise the annual allowance to £100million.”
Challengers and other neobanks in the UK therefore will not pay the surcharge until they pass the annual allowance of £100 million in profits, increased from the previous £25million.
“Let’s face it, a tax cut for banks is never going to be popular, but these measures recognise the fact that challenger banks are forcing the old banks to raise their game and providing tangible benefits for consumers,” said Anne Boden, chief executive of digital bank Starling Bank, to The Financial Times. “Naturally we welcome them.”
UK Finance said: “The banking sector will see an increase in its total tax rate and will continue to be taxed at a higher rate than other sectors of the UK economy.
“Given the overall tax position of other global financial centres, we urge HM Treasury to keep the banking and finance sector’s total tax rate under active review – this will ensure the UK continues to be an attractive place to do business, is globally competitive, and enables the sector to support the economic recovery and the net-zero transition.”