Shoppers could pay a higher rate of tax than banks next year

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date: 24 December 2010

embargo: 00.01hrs Monday 27 December 2010

The VAT and corporation tax changes in 2011 mean that banks could soon be paying a lower tax rate than consumers, basic rate taxpayers and small businesses, the TUC says today (Monday).

People going shopping in the January sales will be the first to feel the pinch of VAT increasing from 17.5 to 20 per cent on Tuesday 4 January 2011. Recent TUC research found that VAT will hit the poorest fifth of households harder than the richest as they spend twice as much of their income on items subject to VAT.

The headline rate of corporation tax is also set to fall from 28 per cent to 27 per cent in April 2011.

However the recent TUC report The Corporate Tax Gap found that the effective corporation tax rate for large multinational companies - the headline corporation tax rate minus the various tax loopholes they are able to exploit to bring down their tax bill - fell to 21 per cent in 2009, and has fallen by 0.5 percentage points every year since 2000. This means that multinational companies including banks could legally pay as little as 19 per cent corporation tax in 2011, the TUC says.

The VAT and corporation tax changes will further skew the UK tax system in favour of high profit industries such as banking over small businesses, who will be hit hard by the VAT rise. With banks still refusing to lend to SMEs, the forthcoming tax changes will deliver a big blow to hopes of a private sector recovery, the TUC believes.

UK banks will be able to offset the forthcoming corporation tax rate cut against the government's £2.5 billion bank levy and actually cut their tax bill in 2011. Giving UK banks a tax cut makes a mockery of government rhetoric on getting tough on the banks for causing the global financial crash, says the TUC.

The TUC wants the government to confirm that the VAT increase will only be a temporary measure and to take firmer action on the banks to make sure that they start paying their fair share towards clearing up the mess they made.

A Robin Hood tax on financial transactions could raise revenue to invest in growth or cut the deficit, while more transparency on bonus levels in the City could help to limit the kind of reckless bonus-fuelled decision making that helped the cause the financial crash in the first place, says the TUC.

TUC General Secretary Brendan Barber said: 'Shoppers looking for bargains in the January sales will soon be paying more to clear the debts racked up by the banks when they plunged the UK into recession and asked for a multi-trillion pound bailout.

'People will not happy to learn that banks have managed to earn themselves a tidy tax cut as a reward for their failure while the rest of us suffer from job losses, tax hikes and the wrecking of public services.

'It's about time the government stops being in thrall to the banks and implements some serious reform. Otherwise banks will make the same mistakes again and everyone else will be forced to pay the price.

'Consumer spending and business growth are crucial to our economic recovery. The last things we need are mass job losses and VAT hikes that will stifle growth and spread misery throughout the country.'


- The TUC reportthat examines the effective rate of corporation tax The Corporate Tax Gap is available to download under embargo at

- The TUC tax briefing on VAT is available at

- All TUC press releases can be found at

- Register for the TUC's press extranet: a service exclusive to journalists wanting to access pre-embargo releases and reports from the TUC. Visit


Media enquiries:
Nigel Stanley M: 07831 735 844 E: [email protected]

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