UK Finance has today published information about how much tax banks are paying in the UK and how the total tax rate for a typical corporate and investment bank in London compares with those of other financial services centres. In summary, the banking industry is contributing £36.7 billion to the public finances, another successive increase, with over half of bank profits now being paid in taxes. London offers the least competitive tax regime for the model bank, with a total tax rate of 50.6 per cent compared to a total tax rate of 34.2 per cent for New York.

Included in today's report is data that reveals that the tax paid by banks represents 44.4 per cent of the value they distribute. A further 32.5 per cent is paid to employees as wages and salaries and the share paid to shareholders, as dividends or reinvested in the business, is 23.1 per cent. A year ago, the government's share represented 41.2 per cent, with 32.8 per cent paid to employees and 26 per cent paid to shareholders or ploughed back into the business.

In looking at these figures, and noting the current uncertainty about the immediate and medium-term prospects for the UK economy, it is important to consider the opportunity costs of these high levels of bank taxation in the UK. The tax system has to support investment, not only in public services, but in growth. Business investment in its workforce, in innovation, technology, buildings and so forth is necessary to deliver long-term, sustainable economic prospects for the country. For banks, the effect of high taxation is twofold, on the ability of the industry itself to retain earnings and fund expansion and also on its ability to contribute to broader economic growth. By taxing our banks proportionately, we ensure that they can support the diversification of the economy and, through this, build in greater economic resilience which in turn means tax revenue is diversified.

By maintaining an attractive and competitive tax regime, we also encourage Foreign Direct Investment (FDI) as well as underpinning our homegrown businesses, that are better able to compete internationally and drive export growth. The additional research around tax competitiveness contained in the report published today does raise questions about the attractiveness of the UK tax regime for banks.

Few financial services centres can match London for its mature and dense concentration of financial and ancillary services, but New York City is certainly one. The tax competitiveness analysis shows that there is a 16 per cent margin between the total tax rate applying to a bank in London versus New York. Location decisions are driven by numerous factors. However, at a point in time when international and domestic events have catalysed many banks operating in the UK to review their operations, this disparity on tax rates could become a more material factor - especially given that business executives have a legal (fiduciary) obligation to act in the interests of their shareholders.

The time has come to think about the trade-off between tax receipts now and continued economic growth for the future. There is a choice to be made and the wrong choice could have long-term implications for the UK economy. For this reason, UK Finance is calling for a strategic review of government policy toward bank-specific taxes. We accept that there are political and financial hurdles to making such a commitment. But the government should acknowledge that tax disparities between the UK and other leading financial centres, at a time when other factors are obliging banks to contemplate their operating models, is not conducive to securing long-term economic growth.