Finance

Elaine He oversees Bloomberg Gadfly's data visualization work in Europe and also pursues her own columns combining business and markets coverage. Before joining Bloomberg, she was a graphics editor at the Wall Street Journal and the New York Times.

Beware lobbyists bearing tax statistics -- especially if they relate to Brexit.

The City of London Corporation, the local government for the capital's main financial district, said on Tuesday the industry paid 71.4 billion pounds ($91 billion) in tax during the most recent fiscal year, the most since before the financial crisis. The sector now employs more than a million people, 3.4 percent of the U.K.’s workforce.

Rate Reduction
The rate of tax paid by financial firms has declined as corporation tax also fell
Source: The City of London
Note: Data are for fiscal years ended March 31; Total tax rate figure unavailable for 2008

But the City is no impartial observer. It has a unique position in British municipal government in that it lobbies on behalf of a particular industry: financial services. It will use these figures to press the Treasury for more favorable tax deals for financial companies in the wake of the June vote to leave the EU. At stake is the presence of hundreds of overseas firms in London and the capital's status as Europe's preeminent financial center.

Look beyond the headline figures, however, and there's little evidence that the industry is in rude health. The proportion of U.K. tax generated by financial services has held steady in the years since the crisis at about 11 to 12 percent. But it's still less than the 14 percent it accounted for before the crisis.

Much of the 4.9 billion pounds of additional tax paid by the industry is accounted for by the bank levy on lenders' balance sheets and increases in payroll taxes. Corporation tax -- levied on earnings -- now only accounts for 21 percent of the industry's total taxes compared with 41 percent before the crisis.

Tax Break
Corporation tax now account for a much lower share of financial companies' total taxes borne
Source: The City of London
Note: Data are for fiscal years ended March 31

As the industry has struggled to return to profitability since the crisis, so the burden of taxation has fallen on employment taxes: social security costs and pension contributions. They now account for 35 percent of the taxes borne by the industry -- compared with just 21 percent in 2007.

Cutting those costs would be an easy step to encourage firms to keep employees in London. But it's hard to see how the city can credibly lobby for tax breaks when average incomes are being squeezed across the country.

Ironic, then, that a tax break that could make a real difference to London's finance industry is the one it's least likely to call for in public.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Elaine He in London at ehe36@bloomberg.net

To contact the editor responsible for this story:
Edward Evans at eevans3@bloomberg.net