Banks set to pay lower taxes than UK consumers

Consumers could soon be paying a higher tax rate than the UK's biggest banks, following changes to corporation tax and VAT in 2011, according to the Trades Union Congress.

The TUC says the tax changes mean UK consumers will start to feel the pinch from 4 January, when VAT rises from 17.5 per cent to 20 per cent.

Corporation tax is set to fall from 28 per cent to 27 per cent in April. But the TUC has calculated that the effective corporation tax rate for large multinational companies – the headline rate minus the "various tax loopholes they are able to exploit to bring down their tax bill" – fell to 21 per cent in 2009. Accounting for a 0.5 per cent fall in this effective rate every year since 2000, according to the TUC, the corporation tax of big companies with operations in multiple countries could be as low as 19 per cent in 2011.

The movement of corporation tax and VAT in opposite directions will "further skew" the UK tax system in favour of high-profit industries, such as banking, over small and medium-sized enterprises, which the union said would will be "hit hard" by the VAT rise at a time when banks were "refusing" to lend to them.

Brendan Barber, the TUC general secretary, 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." The TUC said the VAT rise would hit the poorest fifth of households harder, as they spent twice as much of their income on items subject to VAT. "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," Mr Barber said.

The union said UK banks would also be able to offset the forthcoming corporation tax rate cut against the Government's £2.5bn bank levy – and actually cut their tax bill next year, which made a "mockery" of government "rhetoric" promising to crack down on the banks that caused the financial crisis.