UK banks will avoid paying £19 billion ($30 billion) tax on future profits by offsetting their losses, incurred during the financial crisis, against their tax bills, despite being bailed out by the taxpayer to the sum of £850 billion, says a report by the TUC.
The report, The Corporate Tax Gap, issued on October 18, said this was equivalent to £1,100 for every UK family.
While the government published draft legislation on October 21 that would introduce a bank levy for the UK financial sector, the report considers this tax inconsequential in the face of the extensive losses made.
"The Government's bank levy is small change compared to this huge loss as the business-as-usual bonus levels show," said Brendan Barber, TUC general secretary.
The report, written by Richard Murphy of Tax Research UK, emphasises the tax gap in the UK (difference between tax rate set by the government and the effective amount of tax companies actually pay) has grown by 0.5% a year for the last decade.
Between 2000 and 2009, the effective corporation tax rate fell from 28% to 21%, compared to a cut in the headline rate from 30% to 28%, the report said. If the trend continues and the headline rate falls to 24%, as the government plans in 2014, the banks and other large UK companies will pay an effective rate of 17% - three percentage points lower than small business – creating a "regressive corporation tax regime".
"The tax system will be favouring large companies over small companies and large companies over the self employed. It is hard to see how a more unequal and unfair playing field, on which small business and its employees have to compete, could have been created," Murphy wrote on his Tax Research blog.
However, not everyone agrees with the report feeling it provokes political risk, which threatens predictability in the UK tax market.
"They have misunderstood capitalism on several levels, which is not surprising," said James Anderson, a partner of Skadden Arps Slate Meagher & Flom, a law firm, in London. "They like the taxpayer getting hold of the equity in banks with a view to reaping future investment gains, but, at the same time, they want to deny relief for the losses that triggered the acquisition of this cheap equity in the first place. It would be cherry picking the rules, and worse, adding to core instability in the tax system, one of the big criticisms of the UK at the moment from the financial sector."
