If a major bank was to leave...

[meditrina]

...HSBC has (maybe) been considering UK. Today's news seems to suggest this has (once again) been ruled out for now.

But I was struck by the amount this bank does pay in tax: about £1.2billion for 2010, as a corporation (so whatever individual staff pay in personal taxes would be in addition). to Independent article.

Now I've seen many, many comments here on banks, bankers and their role. I don't really want to open up a bank-bashing free-for-all, but was wondering - can UK afford it if any of the big banks leave?

In the usual course of things a country shouldn't be in a siuation where one large company leaving would make much of an impact.

Sadly, the UK's siuation is one of total over relaiance on the financial sector.
Like it or lump it, it's where we are now.

Until someone can come up with an alternative source of revenue and employment (and I for one am all ears...what's that? Didn't quite catch you..) then it will have a disproportionate impact.

I think HSBC probably will go back to being headquartered in Hong Kong- their CEO is already based there, and it is, after all, called the Hong Kong and Shanghai Banking Corporation. I imagine the move to London was mainly motivated by uncertainty over the handover of HK to China, and now everyone's calmed down and realised that it's business as usual (and ironically that the Chinese are taking to capitalism like ducks to water), the move back seems quite a natural one given the scope of the business.

However, tax apart, I'm not sure the impact of the change will be massive. The dual listing (London +HK) will be maintained and very few UK jobs are directly involved in "head office" stuff. There will still be HSBC operating companies paying tax in the UK but there will be implications of the holding company no longer being British.

HSBC are not "pulling out of the UK". They're merely shifting their HQ. HSBC branches are all still going to be here etc.

It's the loss of corporation tax which is probably a good few hundred million, the loss of the few (but very well paid) executive & head office staff along with their income tax that is the first concern.

Of bigger concern is that other banks will also question their location and more then later follow.

The chinese are indeed taking capitalism like ducks to water. I have a lot of family there and in Hong Kong, the official religion is Buddhism but I often joke it's actually money.

If you work hard and get rich, you are applauded, people want to emulate you and you are free to enjoy your "success". Unlike the UK where if you are successful you are made to feel you are a criminal and told you should constantly pay more.

Meditrina - to answer your specific question:

Last year, total tax revenue collected by HMRC was just a shade under £409 billion. That's income tax, VAT, NIC, Corporation Tax and all the other odds and sods.

My best guess estimate for how much tax HSBC pays across to HMRC is around £10 billion. That's made up of CT, PAYE withheld from employees, employer and employee NIC and irrecoverable VAT.

So around 2.5% of all tax take comes directly from HSBC or from its employees.

If HSBC were to shift to Hong Kong then its UK retail banking operations would stay here, of course, and those would still be tax paying. So you could argue that the £10 billion figure is an overestimate. That said, there would be a knock-on effect for all the other businesses that're reliant on HSBC, so I reckon that around £5bn to £8bn in lost tax is about the right figure.

£8 billion in lost tax is roughly equivalent to increasing the basic rate of income tax by 5p, or 2.5% increase in VAT.

I very much doubt that it would be possible to collect £8 billion per annum from the rich. Have you ever heard of the Laffer Curve? It's the idea that when you raise taxes you collect less that 1p of tax for every 1% rate rise, because the increased tax disincentivises people from making the effort to earn more. That's the reason why the Institute of Fiscal Studies has calculated that the 50% income tax rate will actually cost the country, rather than raise revenue.

So, in my view, if HSBC leaves the UK we would be screwed.

The problem is that the UK is used to thinking of itself as the only place worth doing business, and hasn't really woken up to the fact that the various pluses of being here (time zone, language, educated workforce, benign income tax regime, etc) are starting to be outweighed by the minuses (poor transport links, high house prices, red tape, somewhat unbusiness friendly corporation tax regime when compared to many other places, etc).

Hong Kong has a totally different basis of taxation, as well as a narrower tax base and a lower tax rate. I would be surprised if Hong Kong were to collect more than £1bn in tax from HSBC per year all in.

(BTW, it's my job to calculate these kind of figures for governments around the world. So I'm confident the numbers, although guestimates, are in the right ballpark.)

I wouldn't be at all surprised if the Tories cut corporation tax in the forthcoming budget, to give business the boost it desperately needs. If you listen to the language they're using they are already saying things like: "We're relying on entrepreneurs/we've got to help our businesses grow" etc.

CinnabarRed Nice post.

Private sector workers have been feeling the pain of the recession for considerably longer than public sector workers.

We already know that corporation tax is going to be cut from 28% to 24% over the next 3 years - it was announced in the government's first (emergency) Budget.

BTW, there are around 150,000 50% rate tax payers in the UK. So each would have to pay an average of £50k more to make up the £8bn.

I want to work with CinnabarRed please?

Even my friends think I'm a tax geek and a bit odd....

I'd like to have all of that knowledge at my fingertips, one of my friends is an accountant and I force her to talk about work. We solve most of the countries problems over coffee and a dog walk.

Sadly I'm too stupid to train as an accountant.

Governments of both complexions over the past 30 years have allowed the financial services industry to become dominant and neglected manufacturing. That was a huge mistake, as we can see now.

It will be a good thing if we have a more diverse economy, so we aren't so reliant on one erratic and dangerous industry that should be a supporting act, not the star. Business needs financial services but FS should support business, not BE our business sector.

If HSBC returns to Hong Kong, then the Chinese will have to pay for any future bail-outs, not the UK.

As for the £1.2bn, most big banks make merry with tax havens and various tax avoidance schemes. There's probably a great deal of tax on their activities that should come to the UK but doesn't. You have to factor in that lost tax to any calculations.

But Edam, HSBC didn't need any bailout so unless they've suddenly taken more risks, I very much doubt it would happen.

And thanks for clarifying the tax income Cinnabar. One interesting thing though is although yes, due to their low taxation, the HK govt would only get £1billion. Given the size of the island is tiny and in comparison hardly any welfare dependency, they'd be MUCH better off than us who have lost £8-£10 billion

No, HSBC didn't need a bailout this time. But the entire sector is propped up by the implicit taxpayer guarantee.

But HSBC didn't buy into the Asset Protection Scheme either.

Edam: I see your point for all banks who operate largely in UK, whether bailed out or not. But only 10% HSBC's operations are in UK, so surely it's a far lesser factor in this case?

I agree with Edam - who knows where HSBC would have been without the global bailout and the implicit global taxpayer guarantee? And just because HSBC rode this storm well who knows, really, whether HSBC might not get it wrong next time? I would never have predicted three years ago that Lehmans would go down or Goldman Sachs need to be bailed out by the US government. And some some commentators think it's mere luck over tming that Barclays and HSBC weren't left holding as much toxic debt as HBOS and Lloyds when the crisis hit.

My solution would be to split the banks' retail businesses from their investment businesses. It's the retail part which can't be allowed to fail, but equally the chances of the retail part failing is lower because it's lower risk than the investment business. And it's much harder to shift retail banking offshore - if there's a NatWest on your high street then it pretty much has to stay there. Let the investment parts swan off if they want to; a lot of the cash will still come through London.

BTW, a couple of factual corrections if you'll indulge me. First, banks happen to contribute almost exactly the same amount to GDP as manufacturers at around 13%. Although it's escaped much notice, I feel that the professional services sector is also ripe for downsizing.

Secondly, it's a myth that banks route untaxed profits through tax havens. I can explain why and how tax havens are used, if you're interested, bur not until tomorrow - I have an ultrasound scan this evening! (Bloody hospital lost my midwife's scan request form three times and now can't fit me in in time for a nuchal fold scan. Apparently it's my fault for being in overseas on business next week, not theirs for losing my form... I'm lucky that I can afford a private scan, but so many couldn't.)

CinnabarRed: many thanks for these explanations - I am at the figures from just one potential departure.

Hope all goes well at the scan. And if/when you feel up to it, I would like to know more about use of tax havens. I'm learning a lot from this!

where would any of us be without the government's implicit guarantee? it is safe to say we are much better off than we would have been if the financial system had collapsed.

"One interesting thing though is although yes, due to their low taxation, the HK govt would only get £1billion. Given the size of the island is tiny and in comparison hardly any welfare dependency, they'd be MUCH better off than us who have lost £8-£10 billion"

Apparently the HK government is about to give every permanent resident HK$6000 rebate as they have too much in the coffers. Nice problem to have! (I haven't confirmed that this is true but have heard it from two independent sources)

Can i just say, removing the Banks from Britain, would be like chopping your arms off and then trying to make a cup of tea. They may not be fantastic, but we need them all the same.

I've heard HSBC are pretty much sure to move.

A friend's small consultancy company is one of their 'suppliers', and they've been reconciled to HSBC leaving for a while.

Very interesting figures on this thread!

Entirely unscientifically, I could have predicted that Bear Sterns would run into trouble. They employed one of the thickest Oxbridge graduates I ever met.