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The tax-take from the UK's financial services sector will plummet over the next year, according to the Centre for Economics and Business Research (CEBR).
A new study by the think-tank suggests that the Government will receive £39 billion from the banking industry in 2009-10: a drop of over 40% when compared to the £67 billion paid in 2006-07.
The CEBR has estimated that huge losses, job cuts and reductions to bonuses will combine with the fall in interest rates paid to cause sources of revenue to collapse.
As a result, the Treasury will lose £9 billion in corporation tax, £10 billion in income tax and National Insurance contributions, and £2 billion in stamp duty, claims the research.
It also predicts that the scale of losses that banks will be able to bring forward means that they will be paying lower amounts of corporation tax for some years, and the CEBR has tentatively forecast that the total tax-take will have risen to only £46 billion by 2012-13.
‘While bank recapitalisations and asset-guarantee schemes have attracted most attention, it is the collapse in revenues that is the greatest risk to the Government’s finances in the post-credit crunch era,’ said the organisation’s chief executive, Douglas McWilliams.
He added: ‘This hit on tax receipts is a real blow to Alastair Darling’s Budget hopes. His predictions in the Pre-Budget Report do not appear to have factored in more than half of the tax revenue decline for 2009-10, and there is little evidence that the longevity of the problem is yet fully understood in the fiscal part of the Treasury.’
