Andrew Hubbard

Written by: Andrew Hubbard

Andrew Hubbard


PAYE figures underline importance of financial services to UK tax base

If you ever needed to be convinced of the central importance of the financial services industry to the UK economy a glance at the latest PAYE figures gives all the confirmation you need.

HMRC has tabulated the makeup of PAYE receipts split between industry groups. The largest single number is financial and insurance industries, which makes up over 17 per cent of the total.

Given that total PAYE receipts for the year were £149.8bn this means that the contribution made by the financial and insurance sector was in the region of £25bn. The equivalent NIC figures are not published but on a conservative estimate there must at least another £10bn so we are talking about something in the region of £35bn of revenues coming from this one sector. 

The debate about tax is all too often dominated by considering corporate tax only, so it is worth putting this £35bn figure in context – it represents something like 65 per cent of the total corporation tax paid by all UK companies.  

The dominance of this sector is shown by the fact that the next biggest proportion is 12.2 per cent, in professional, scientific and technical activities. You might think, given the size of the health service, that it would be higher up the list, but in fact the combined total PAYE of the health and education sector is less than that in the financial services industry.

The number of employees in a sector is only one factor: the levels of pay within that sector will have a big impact on the total PAYE receipts.

What is especially interesting about these figures is how they relate to the most recent productivity statistics. These show that there has been a significant increase in the hours worked in low productivity sectors whereas there has been a fall in the proportion of hours worked in the high-productivity sectors such as financial services. If those figures flow through into PAYE receipts is the Chancellor going to face a shortfall in tax revenues? Could the 'Amazon tax' make up the difference? It is hard to see that it could without slowing down growth – which of course would lead to fewer jobs and hence lower PAYE receipts. 

As Leonardo Da Vinci (or was it Lenin?) once said: everything is connected to everything else.

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