Huw Jones

LONDON, (Reuters) – Britain will reduce its surcharge for banking profits starting April 2023, according to the finance ministry. This is in response to the government’s efforts to strengthen London’s position as a financial hub worldwide after Brexit.

Rishi Sunak, British Finance Minister, stated in his budget that the 8% bank profit surcharge of 25,000,000 pounds will drop to 3% starting in April 2023. This reduces the effect of an increase in corporation tax in the UK to 25%.

Sunak explained to parliament that “the overall rate for corporation tax on bank will increase in 2023 from 27% – 28% and will continue to be higher than rates paid by other businesses.”

Britain’s search for ways to keep London as a financial hub after Brexit has left it largely disconnected from the European Union.

Since 2016, the surcharge has generated 8.3 billion pounds. Without the reduction to 3% in tax, UK lenders would be at disadvantage to international counterparts.

Sunak spoke out in reference to the existing 25 million-pound threshold and said, “Small challenger bank are increasing banking competition which has been good for the industry.

UK Finance, which represents British banks, saluted the reduction in surcharge, but noted that banks will still be subject to higher tax rates than other businesses.

David Postings, UK Finance CEO, stated that “Given other financial centers’ overall tax positions, we ask HM Treasury for a continuing active review of the total tax rate in the banking and finance sectors.”

The finance ministry announced Wednesday that 35 banks groups are now exempted from the surcharge in 2023. This means about 35 large banking organizations will still be subject to the surcharge.

Britain will continue to levy a different levy on banks’ liabilities. It has brought in 25.5 billion Pounds so far. The levy also includes a prohibition on tax relief for historical losses that were incurred during the financial crises, which has raised 3.5 million Pounds.