Financial professional services could add £16 billion in taxes by 2025
Professional services firms paid £15.5 billion in taxes last year. However, while that figure is already substantial, a new report contends that the combined efforts of regulators, the government, and the industry could see the sector deliver an additional £16 billion to the UK economy by 2025.
The UK is the world’s leading international financial centre. However, a backdrop of rapid global change brings significant challenges that need to be addressed if it is to retain its competitive advantage and remain a leading part of the economy. The UK financial professional services industry, which includes accountants, lawyers and consultants, among others, particularly stands at a major cross-roads. Currently, the sector employs 693,000 individuals for a variety of positions, making the UK market the largest of its kind across Europe. On top of this, the combined sector makes up 2.2% of the UK workforce, in turn paying 2.5% of all income tax collected, the equivalent of the entire UK annual police budget, which is presently being subject to a public sector pay freeze. This suggests that were this tax-source to be impacted by conundrums such as Brexit, public finances would be further destabilised from their currently enfeebled state.
23.3% of all EU financial advisors are currently residing in the UK. Germany is the next largest centre with 21% of EU employees, and France comes in third, with 10%. Should such a mass migration of financial institutions occur, this is likely to change with the UK’s broader financial services ecosystem – including accounting and legal firms – under threat as a result. According to new study from TheCityUK, PwC, the world’s largest accounting and consulting, and Strategy&, Great Britain currently hosts 60,470 of such entities, which includes the Magic Circle law firms and Big Four accounting companies – featuring PwC themselves, alongside Deloitte, KPMGand EY – in addition to smaller businesses.
The report also displayed how accountancy, law and consultancy firms paid 37% of UK revenue taxes in 2016 – directly generating £6.4 billion, as well as £9.1 billion in related taxes. However, earlier in the year, projections emerged that as many as 40,000 investment bankers could become part of a mass “Brexodus”, in order to maintain access to free trade by relocating to the continent. Were they to feel the impact of Brexit, the ramifications for the broader economy would be colossal. PwC and TheCityUK’s report, 'A vision for a transformed, world-leading industry' seeks to provide a practical road-map to secure the industry's future in the UK, whichever way Brexit unravels. The researchers believe that implementation of the vision will ensure a transformed and renewed industry that provides world-class, highly innovative and digitised services, along with being better able to meet the changing needs of clients.
A strategic partnership between government, industry and regulators will be required to adequately execute the plan according to its authors. In order to offer products and services that address key societal needs, for instance, governments will need to invest in the education of a skilled workforce, in order to provide the industry with a talent pool to compensate for its loss of access to the free movement of EU labour. Internationally focused, strong and agile regulation and a simplified, stable and internationally competitive tax regime will meanwhile be required to maintain the attractiveness of the UK, in a post-EU environment.
In the city
These aspects of the UK market would lead to an increase in export competitiveness, innovation and efficiency, with the report contending that this could lead to an additional £16 billion, or 9%, of industry Gross Value Added (GVA) in 2025, compared to the current scenario. Further to this, the UK economy as a whole could see an additional £43 billion, or 2% of GDP by the end of the same period.
Interestingly, while the nation’s capital sees its position as Europe’s financial hub threatened, the bulk of this growth would come from outside London. 70% of this additional output would likely come from cities beyond the limits of the City. The fastest growing regions for the industry by 2025 would be the North East (30%), Northern Ireland (25%), the West Midlands (23%), Yorkshire and the Humber (23%) and the East Midlands (19%).
Miles Celic, Chief Executive of TheCityUK, said, “This expertise isn’t just located in London. Right across the UK, centres of excellence, including Manchester, Bristol and Edinburgh, are adding value to the UK economy.” Celic added, “These are also the areas we expect to see the most growth in the coming years as we move through Brexit and beyond.”
