UPDATE 2-Britain to review surcharge on bank profits

* Leaving surcharge unchanged would damage industry -
government

* Surcharge raised 1.5 bln stg in 2019-20 fiscal year

* Proposed changes will be laid out in the autumn
(Adds context, industry reaction)

By Iain Withers

LONDON, March 3 (Reuters) - Britain will review a tax
surcharge on bank profits as it threatens the industry's ability
to compete against rivals in the United States and European
Union, finance minister Rishi Sunak said on Wednesday.

Sunak said in his annual budget statement that he was
launching the review so the combined tax burden on banks did not
rise significantly after a planned increase in corporation tax
to 25% from 2023, from 19% currently.

The 8% surcharge, calculated on the same basis as
corporation tax, raised 1.5 billion pounds ($2.1 billion) for
the government in the 2019-20 financial year.

The review follows years of lobbying by banks against taxes
levied directly on them, but any relaxation could risk public
criticism at a time when millions of Britons are struggling
financially in the pandemic.

"We welcome the review of the bank surcharge which has long
placed UK headquartered firms at a disadvantage to those in New
York and in Asian centres," said Miles Celic, CEO of finance
lobby group TheCityUK.

The surcharge is separate to the more lucrative levy on bank
balance sheets, which raised 2.5 billion pounds last fiscal
year.

Leaving the surcharge unchanged would make UK taxation of
banks "uncompetitive and damage one of the UK's key exports",
the government said in its budget document.

Changes will be laid out in the autumn and legislated for in
the forthcoming Finance Bill 2021-22, the document said.

Finance bosses have previously warned that Britain's tax
receipts from its huge financial services sector are set to fall
from this year due to the impact of Brexit and further fallout
from the pandemic.

A study by the City of London Corporation, which administers
the capital's financial district, calculated the sector made a
tax contribution of 76 billion pounds ($106 billion) in the year
to March 2020.

The 135 billion pound financial sector accounts for more
than 10% of UK tax receipts.

($1 = 0.7165 pounds)
(Reporting by Iain Withers. Editing by Huw Jones and Mark
Potter)