Brexit, COVID-19 cast shadow over UK tax take from finance, reports say

Britain’s tax receipts from its huge financial services sector are set to fall from this year as the City of London loses business to the European Union and fallout from the coronavirus pandemic continues, according to two reports issued on Wednesday.

The City of London Corporation, which administers the capital’s financial district, said the tax contribution of 75.6 billion pounds in the year to March 2020 was little changed from 75.5 billion pounds in the prior period, despite uncertainties over Britain’s future relations with the European Union.

“However, the future is uncertain, and we do not yet know the long-term impacts of the pandemic, Brexit and changes in ways of working,” City leader Catherine McGuinness said.

The 135 billion pound financial sector accounts for more than 10% of UK tax receipts.

Receipts are expected to ease in the current financial year that ends next month to between 71.1 billion and 75.7 billion, consultants PwC estimated in a report for the City.

“The transition to new trading arrangements between the UK and the EU will put further downward pressure on the recovery of the financial services sector,” the report said.

Britain’s new trade deal with the bloc, which took effect on Jan. 1, does not cover financial and other services, with the City likely to get only limited “equivalence”-based access to the EU financial market for the foreseeable future.

Separately on Wednesday, the Centre for Economics and Business Research said in a report for the Mayor of London that Brexit will potentially cost London’s economy 9.5 billion pounds a year.

London’s financial and professional services sector alone, 15% of the capital’s gross value added, is set to account for more than 2 billion pounds in lost GDP per year, the CEBR report said.

“These losses could be even higher if the government fails to secure additional agreements with the EU on hugely important areas of regulatory equivalence,” Mayor of London Sadiq Khan said.

Financial services exports to the EU in recent years have totalled about 26 billion pounds annually, but some of this activity has already moved to the bloc.