(Clauses 4, 7, 10, 19, 35 and 72)
[Relevant document: The Eleventh Report from the Treasury Committee, Finance (No.3) Bill 2010-11, HC497.]
Considered in Committee
[Mr Nigel Evans in the Chair]
That the order in which proceedings in the Committee of the whole House on the Finance (No. 3) Bill are taken shall be: Clauses 72, 19, 7, 4, 10 and 35.—(Mr Hoban.)
The bank levy
I beg to move amendment 9, page 41, line 27, at end add—
‘(2) The Chancellor shall review the bank levy and publish a report, before 31 December 2011, on—
(a) the Government’s analysis behind the rate and threshold chosen for the bank levy;
(b) the adequacy of the bank levy in the context of other reforms to the wider banking system; and
(c) the total tax revenues expected from banks across all categories of taxation in each year from 2011-12 to 2016-17.’.
With this it will be convenient to discuss clause stand part.
We find ourselves in the Committee stage of the Finance Bill, a rather large two-volume measure that, over the coming two days on the Floor of the House, we will no doubt explore in some detail. The Bill will then progress upstairs to Committee, where more detailed scrutiny will take place.
It is a peculiarity of Ways and Means resolutions and of the way in which proposed finance legislation is scrutinised in the House of Commons that hon. Members who are not Ministers may not table amendments to Finance Bills that would have the effect of raising the level of taxation. That was news to me, perhaps because I was in government and did not think about tabling such amendments, but the rules of order are as they are, so the amendment does not propose—because we cannot—an increase in the rate of the bank levy. Instead, it calls for a review of the rate and the general approach to bank taxation adopted by the Treasury. It seeks to look into the rationale behind the rate that the Treasury has chosen for the bank levy and why a number of other choices were made.
Indeed. Were it possible under the rules of order for the Opposition to table an amendment to increase the bank levy rate, we probably would have done so. However, we were unable to do so because of the slightly arcane rules of order. We need to examine the rationale behind the rate chosen by the Minister and understand why the Government moved from a threshold approach to triggering the bank levy, to a tax-free allowance of a certain amount before which banks would pay against the chargeable liabilities of the bank levy.
We also need to understand whether the bank levy is, as my hon. Friend suggests, an adequate step when considered in the context of the wider economy and public finances. Ultimately, we need to understand whether the Treasury is being straight with the public and honest about the taxes that the banks will pay over the years ahead. We have debated the Government’s approach to the banking sector before, and we look forward to the final report of the Vickers commission on the state of competition and regulation of the banks so that never again can these institutions take such extreme risks and gambles that land in the lap of the taxpayer when the going gets tough, as they did before the credit crunch.
The Government are seeking to take £2.5 billion in revenue from the tax that they have imposed, but has my hon. Friend assessed the corporation tax reductions that the banks will experience, which are thought to be £100 million this year? Has he projected the figure by the end of the Parliament? Can we arrive at a net figure to see the real impact of the Government’s policy?
My hon. Friend makes an extremely prescient intervention, because the Chancellor, under pressure from the Opposition, had to cave in to a concession on corporation tax in the March Budget. The Government announced the bank levy last June, so we knew that they would be introducing this tax, yet the corporation tax cuts will clearly benefit the banks significantly. The Treasury claims that in the March Budget it offset the benefit that the banks will apparently get as a result of the reduction in corporation tax rates, but we will have to wait to see whether the slight increase in the bank levy—around £100 million—introduced in the Budget will be sufficient to offset the full corporation tax cuts that the banks will enjoy over the lifetime of this Parliament. I recall that the written answer to a question I tabled on the predicted benefits to the banks of the corporation tax reductions suggested that that would be about £100 million in year one, £200 million in year two, £300 million in year three, and so on, but that largely reflects the reductions in corporation tax rates. That is something of a moot point, because we contend that the design of the bank levy is insufficient. Today’s debate should provide an opportunity to seek proper redress for the crisis and ensure that we put the banks on a fair tax basis, but that is not what the Government are seeking with this pathetically small bank levy proposal.
It is indeed, and that is the crux of the argument that we will make to try to encourage hon. Members to support our amendment. The overall situation is that taxation levels on the banks are reducing, not increasing. The previous Administration introduced a bank bonus tax, which yielded more than £3 billion in revenue. The bank levy needs to be put in place alongside a bank bonus tax, which would be a fairer approach to take. However, the Government are refusing to continue the bank bonus tax, and I would like to hear their rationale for not doing so.
In defending the bank bonus tax and the revenue that would have been raised by continuing with it, what allowance has the hon. Gentleman made for increasing levels of legal tax avoidance by those no doubt skilful bankers who would have been keen to avoid paying tax under that regime?
If the reason the hon. Gentleman refuses to advocate a repeat of the bonus tax is that the bankers might have sophisticated accountants who can avoid it, that is a pretty poor state of affairs for this Parliament. We ought to be introducing fair and just taxation on the obscenely high bonuses that are still being paid. Even though it is supposedly claimed in Project Merlin that the bonus pot has come down by 8%, we can see that the bonuses are absolutely enormous. Today’s debate is clearly about priorities. The Government are not on the side of families, teachers, nurses, working people or pensioners. Clause 72 shows that they are on the side of the highest-earning bankers who receive each year in bonuses sums that ordinary people dream of winning on the lottery once in a lifetime.
Would my hon. Friend be interested, as I am, to find out exactly what the financial value is to the financial services sector of the now implicit Government guarantee that it enjoys? If anything, that should point us towards greater recompense to the taxpayer for that implicit Government guarantee.
The ongoing implicit taxpayer guarantee for the banks is very significant. Indeed, I understand that the Bank of England has suggested in its financial stability reports that an implied subsidy of about £100 billion each year offers a safety net for the profitability of the banks. Without that taxpayer guarantee, banks’ borrowing costs would be higher, they would not be able to make such great profits and, therefore, their remuneration and bonuses could not be so high. Many bonuses and excessive profits are being made on the back of the taxpayer, but does that encourage the Treasury to take action? It certainly does not.
At a time when Roger Bootle of Deloitte reports that for the first time for four years in a row the real incomes of real people are falling, does my hon. Friend not think it particularly peculiar that the real incomes of bankers—of all people—are likely to rise?
My hon. Friend is entirely right, and that is why we have to take a step back and look at the context of today’s debate. The Government are clearly still on the side of the big banks at a time not just when the living standards and wages of ordinary people are being frozen or reduced, but when vital public services are being slashed. Indeed, it is worth reminding ourselves of the consequences of the cuts that the Government are pursuing.
Teaching assistants, youth workers, library staff and lollipop ladies are being made redundant; binmen, street cleaners, environmental health officers and park keepers are disappearing from our neighbourhoods; police detectives, forensic scientists, 999 operatives and police community support officers are no longer affordable in the fight against crime; and hospital cleaners, nurses, paramedics and ward clerks are having their posts eradicated when the NHS needs them more than ever. How dare Ministers say that we are all in this together when they take such a weak and feeble approach to the banks.
My hon. Friend seeks to use an argument based on contrast, but there is also an argument based on causality. In his remarks, it has to be made clear that the causal relationship between the misery that some people will suffer over the next few years and the actions of some bankers is very real. There is real disquiet in the House about the Government’s proposal not just because some people are doing well and some are doing less well, but because, given that contrast, there is a causal relationship for those people doing badly.
Absolutely, and, as we have heard time and again, Government Members clearly do not understand the causes of the deficit, so they are not the right people to solve it. If they understood and acknowledged that the banks played a significant role in causing the deficit, maybe—just maybe—we would take up their suggestions on how we go forward, but they choose to ignore the role that the banks played—[Laughter.] If the hon. Members for Chippenham (Duncan Hames) and for St Austell and Newquay (Stephen Gilbert) think that the banks did not play a role in the deficit, we will all be interested to hear from them, but surely they have to acknowledge that point.
The bonus pools and pots continue to be significant, however, and some bankers receive obscene, life-changing sums of money, so we do not really need to worry too much about poor banking executives; we should worry about those who depend on vital services but will now go without as a result of Ministers’ choices.
I have only just understood the criticism from Government Members. The criticism of the bankers bonus levy, however, which the previous Government introduced, was that there would be tax avoidance and it would not raise enough. I attacked the former Chancellor on the bonus levy, because I felt that his estimate of £500 million was pathetic and did not go far enough, but may I now admit guilt? It actually raised seven times that amount, £3.5 billion, so it was probably one of most successful tax regimes that the previous Government introduced. I thought I had better get that off my chest.
My hon. Friend’s arguments become increasingly attractive, and he makes an important point. The bank bonus tax, which the previous Labour Government introduced, appeared at first to be modest, but in fact the yield was very significant indeed. Did the banks collapse as a result of the bonus levy? No. Did they all flee abroad to relocate somewhere else, as threatened? Absolutely not. So, too, with the continuing scale of the bonus pot, which has hardly changed at all, it is absolutely right that we look to reinstitute the levy this year, along with a decent bank levy, as we are discussing today.
Hon. Members will know that the concept of a bank levy was first developed at the G20 summit in Pittsburgh in 2009, and then championed by my right hon. Friend the former Prime Minister and taken forward by the International Monetary Fund in its report, which aimed to encourage less risky funding to enhance financial stability. Two broad conclusions were reached at the Pittsburgh summit. There was a call for a financial activities tax, or financial transactions tax, which we need to debate another time when we consider some of the extra levies that might be put on activities. The Chancellor of the Exchequer himself still professes to be in favour of a financial activities tax, although he has done absolutely nothing to advocate it in ECOFIN or in other financial meetings around the world, so we will see whether anything comes of his repeated promises to pursue it.
The second prong of the IMF’s report was a financial stability contribution, otherwise known as a bank levy, to be charged on equities and liabilities rather than assets or profits because of the need to disincentivise dangerous potential charges such as those that landed on the taxpayer during the credit crunch. The bank levy is a sensible idea in theory, and we broadly support it. However, the yield suggested in the Bill—only £2.6 billion—is not just small but pathetic by international standards when compared with the rate being pursued in other countries. It is perplexing that Ministers settled on that figure, and there has never been any evidential basis published for why they did so. Will the Minister clarify why the Chancellor chose the figure of £2.6 billion, as that seems to be the pole around which all aspects of the bank levy revolve? If there is any sense in which the revenue might go beyond that envelope, the Treasury tweaks and turns down the dials on the other aspects of the levy to squeeze it back into that £2.6 billion of revenue—the predetermined level that it put out to consultation last summer, never explaining why it was set. Compared with the substantial amounts of taxpayers’ money put up in the bail-out of the banks—£76 billion of shares purchased in the Royal Bank of Scotland and Lloyds, £250 billion of guarantees, another £280 billion of other insurances, and a further £100 billion of annual implied subsidy, according to the Bank of England—a £2.6 billion bank levy is very puny.
It is interesting to look at the Treasury document that lists the respondents to the bank levy consultation. There were 44 respondents, all of which are major financial institutions.
Did the hon. Gentleman respond?
I will respond to the Minister when I have heard his comments. If he wants me to respond again, I am more than happy to have Government time dedicated to the general principles of bank taxation.
The responses showed that the Treasury’s original design for the bank levy had a threshold that triggered payment of the levy for any organisations, institutions or banks with more than £20 billion of equity and liabilities. Ministers realised that that would yield £3.9 billion—nearly £1.5 billion more than the Treasury had expected—which, by the way, would be more than enough to reverse all their police funding cuts, for example. What did the Chancellor do when he realised that the Treasury’s own design for the bank levy could yield £3.9 billion? Did Ministers think that this might be something they should go ahead with? Absolutely not—they gave in, capitulated, and converted the threshold into a tax-free allowance of £20 billion. Hon. Members will know that the Liberal Democrats have long made great play of the increase in personal allowances, which is pretty much the only thing they are getting out of the coalition as they cling on to it, and there might be a few hundred pounds in that here and there. How about having a tax free allowance of £20 billion? That is what they have decided to give the banks. The banks now do not need to pay on their liabilities below that amount.
As I said, Ministers could have stuck to their guns and used their original design. In the response to the consultation, the Government gave their rationale for backing off that threshold and going for a tax free allowance:
remember, that is the 44 large banks—
“were generally of the view that the threshold would create potent incentives for banks around the margin to structure their business in certain ways, or disincentives to grow, in order to avoid crossing the threshold… The Government accepts this argument”.
That is a preposterous statement from the Treasury. The argument that the puny level at which the bank levy is being set—less than one tenth of 1% on the banks’ liabilities—is so punitive and high that it will stop banks from growing and prospering is ludicrous.
Indeed; the machine rolls on. We will have to look at the detailed papers on Project Merlin when they emerge. The Chancellor supposedly persuaded the banking sector to change its ways. Of course, things have fallen apart at the seams since then. As I will say in a moment, some of the bonuses are still, frankly, obscene.
If we accept the Government’s ludicrous argument that they were worried about the cliff-edge marginal rate of the levy at £20 billion of chargeable liabilities, why did they not keep that trigger but have a smaller allowance, perhaps of £10 billion or smaller? But no; they caved in straight away with the £20 billion allowance and lost a phenomenal opportunity to redress the balance of the tax burden in this country. The Americans, who have not yet triggered their bank levy, have named their version a financial crisis responsibility fee. That says more accurately on the tin what it does. They have done so because it is incumbent on the institutions that caused the crisis and the consequential fiscal deficit to do their duty and pay back what they owe the taxpayer.
Is it not amazing that we are talking about a minute bank levy when hundreds of thousands of public sector workers will lose their jobs, and when those who stay in their jobs will see their pay frozen for two years and their pension contributions go up by 50%, all as a result of the failure of the banks? The Government parties think that that is okay.
It is a crying shame that there will not be more publicity for this debate; perhaps the complexity of bank taxation is difficult to report, for whatever reason. If people knew about the Government’s weakness in trying to claw back the money that is owed to the taxpayer and their enthusiasm for cutting public services and raising taxes on ordinary people, they would see that it is a scandal.
As I said, we would repeat the bank bonus tax that we instituted last year, and we think that the bank levy needs to be more substantial.
The Government’s original design suggested that it would yield £3.9 billion—that was reported in The Observer, I think, back in November. Of course, that was why they panicked and decided that they would have to go back down to the £2.5 billion or £2.6 billion level. They stepped away from that original yield level.
Of course, we are not the Government; we are the Opposition, and we are not even allowed under the rules of order to table our suggested variants of the rate of the levy or the design of the clause. All that we can do for now is advocate a fairly urgent review of the general levels of bank taxation in this country.
Is not the irony, when comparing pay cuts in the public sector with bankers’ bonuses, that in effect some bankers are public sector workers because the taxpayer has had to bail them out? Does my hon. Friend agree that if we mainly own a bank, such bonuses should not be paid while the bank is still in deficit?
It is absolutely mystifying. There is a sense that the shareholder—the taxpayer—somehow has to allow all sorts of activity to take place as though it was nothing to do with them, even though those banks would not exist had we not intervened to save them. That shows the incredibly laissez-faire, hands-off attitude of Ministers, who are the shareholders of the banks making large awards.
Does my hon. Friend agree that my hon. Friend the Member for Blaydon (Mr Anderson) is being a little unfair? Bankers are taking their share of pain. I understand that Eric Daniels, the outgoing chief executive of Lloyds bank, is getting only £1.4 million in bonus rather than £2.3 million.
I wonder whether Hansard is able to record the irony in my hon. Friend’s comments. Sometimes I wonder whether we need a new annotation in our proceedings, because I do not honestly think that he is showing sympathy. I think he is suggesting that even when there is an apparent reduction in bonuses, the sums of money involved are the sort for which our constituents would buy a lottery ticket in the hope of winning. If they won that amount it would change their lives tremendously, yet those life-changing sums of money are not even salaries but bonuses on top of salaries.
I wish to talk about the rate at which the Government have chosen to set the bank levy, because it is a low rate by international standards. It is less than a third of the level that has been set in France, for example. Ministers will know that the rate varies in a number of jurisdictions, but I think that it is 0.25% in France. The levels involved are still quite small, but in Hungary it is 0.53%, in the USA it is 0.15%—although, as I said, it has not been enacted at this point—in Portugal it is 0.1%, and so on. It is to be only 0.078% here in the UK for short-term liabilities, and 0.039% for long-term liabilities, which is very small by international standards.
To emphasise a point that my hon. Friend made earlier, does he agree that the robustness of the statements of the Prime Minister and the Deputy Prime Minister on bankers’ bonuses before and just after the election led the general population to expect a much stronger and more ferocious levy?
Indeed, and not only can we see the low yield figures in this country; we can also look at international comparisons and see that the rate is clearly very low indeed. Ministers have let it drift—as soon as it looks as though it might be a serious tax, back they come from the rate they have set, saying that it would raise too much and they must reduce it again.
Many contributions have shown that the shade of the right hon. Member for Twickenham (Vince Cable) is noticeable by its absence.
With the exception of the National Bank of Cuba when it was governed by Ernesto “Che” Guevara, can my hon. Friend think of any example of any country where the bankers have recoiled from the brutal fiscal hammering imposed upon them by a state legislature and taken their toys and left? Is there any such country in the history of the world that he could mention?
In financial services it is called regulatory arbitrage. People come up with terminology that makes things sound mystical and obscure, but regulatory arbitrage is basically the threat to leave the country that is often peddled when a bank does not like proposals. We have heard such threats time and again, but they are not carried out, because banks locate in this country for reasons other than taxation. We have Greenwich mean time and the civilised rule of law, and any number of decent public services that bankers themselves like to enjoy.
Even the Swedish advocate a bank levy, and we must acknowledge that the alternative financial changes are being made in a number of jurisdictions across the world. Obviously, the more jurisdictions in which such measures are pursued, the better, because that will remove the argument on regulatory arbitrage.
However, it is worth looking at the pathology and history of the bank levy, and at how the Chancellor has tweaked the rate. The Government pull back from a higher rate when they think it is too much, but sometimes the Chancellor gets into hot water and feels the need to change that approach. On the fateful morning of 8 February, at 7.30, the Chancellor went on the “Today” programme and announced a mini-Budget. It just so happened, by pure coincidence, that that was on the day of Treasury questions, when he was struggling with the banks in the negotiations on the damp squib that was Project Merlin. While we are on Project Merlin, we should not let go the opportunity to note that borrowing is increasingly expensive for small and medium-sized enterprises, and that according to the most recent data, there is less and not more availability.
The Chancellor changed the rate again in the March Budget, when, as I said, the Government were forced into a U-turn in the face of criticism of the reductions in corporation tax. That would have been a massive cash-back bonanza for the banks—it could still turn out that way, but we must wait for the final figures. At no point during the design of the bank levy have the Government said why they are capping revenues at just £2.6 billion. What is their fixation with that yield?
Before my hon. Friend moves off the subject of Project Merlin, does he agree that it was more than pathetic that, after telling the banks that they would increase the banking levy unless the banks came up with the goods, the Government made a pipsqueak change which did not rise to the occasion?
Absolutely. I cannot figure out why the Government refused to go beyond that £2.5 billion or £2.6 billion. That is a strange way to design a tax. Normally, a Government would think about whether the rate set was fair and just, and about the requirement for revenue yield, and they might even analyse the effect of the levy in a regulatory impact assessment or whatever. However, at no point have the Government said why they are reluctant to go beyond that £2.6 billion. Perhaps there has been a deal behind the scenes between the Chancellor and the banks, but if there has been such a deal, it is probably the only one that he has been able to reach.
I have some specific questions for the Minister on the bank levy and I would be grateful if he could respond. The Minister conceded in the consultation response that derivative liabilities can be netted off against identifiable assets held with the same counter-party, along the lines, as I understand it, of the Basel II regulatory principles. Although bilateral netting between two parties might be straightforward, is the Minister confident that HMRC will be able to keep track of the obviously complex multilateral settlements, where thousands of varying derivatives products are apparently offset by supposedly thousands of other liquid assets? Can he explain what extra resources he plans to dedicate to ensure that derivatives netting does not become a licence to hide liabilities? We will be reliant on the reporting of those liability levels in the accounts of the banks themselves, but surely there will need to be some challenge, some capability within HMRC. I would be grateful, therefore, if he could explain what capability HMRC will have for understanding the netting of derivatives. I would also be grateful if he could answer the concern expressed by some that derivatives netting might create a perverse incentive for banks to shift their liabilities into more complex and perhaps more dangerous areas of business. What plans does he have to review and analyse the behavioural impact of the decision to pursue derivatives netting?
What work has been done to amend the double taxation treaties with other bank levy jurisdictions, where legal challenges could easily occur if anomalies are not resolved, which might disrupt the smooth operation of the levy in the UK? Many different levies are popping up in different jurisdictions all over the world, and it is important that the operation of the levy here is not disrupted. The UK levy is clearly calculated by reference to all chargeable equities and liabilities for UK entities, subsidiaries and branches, but some commentators claim that it is unclear what happens in respect of levies in other countries. Can the Minister therefore update the Committee on the international discussions to which the Treasury has presumably been party?
On the specific nature of some of the certain chargeable equities listed and described in the Bill, we understand that there is clearly a rationale in their design in respect of short and long-term liabilities. However, would the Minister care to explain the difference between his definition of short-term liability and long-term liability and where the line is being drawn?
I think that my hon. Friend is referring in particular to part 2 of schedule 19, which hangs off the clauses we are debating, and which contains a seven-step guide that actually has an extra step that does not apply in some cases. Is that not the most complicated way ever in legislation of determining a charge? Why does it need to be so complicated?
The Minister needs to answer that question. Hon. Members might care to turn to page 297 of the Bill. The steps might at first appear quite straightforward, but then we get to this odd provision in paragraph 7, with its proportions X, Y and Z of various different amounts and so on. I understand that that provision is triggered because the Treasury has to recoup retrospectively some of the money taken, since the Chancellor tweaked the levels of tax on 8 February and again in March. It therefore becomes incredibly complex and difficult to hold to account. The design of the bank levy has not been made easy by the Chancellor’s decisions.
On the intervention from my hon. Friend the Member for Rhondda (Chris Bryant), is it not rather strange, given that the Chancellor has set up an Office of Tax Simplification and announced as his first measure in the Budget that he wanted to put the principle of simplification at the forefront of tax consideration, that here we have something that is almost as complex as it gets?
As I said, the reason for the complexity is that all the variables in the design of the bank levy have to be amended because the Treasury wants to squash it around that figure of £2.5 billion or £2.6 billion of revenue. In other words, the whole of the bank levy is being driven by that particular sum, which is a very odd way of designing a tax.
In fact, there are not just one or even two different rates being introduced—which one might understand, given the difference between long term and short term—but 10, each of which will undoubtedly pay for thousands of accountants, as they crawl over what counts in each category. Surely that is nonsensical and an example of the kind of legislation that banks which might want to stay in this country will abhor.
Far be it from me to defend the poor banks in their compliance with the provisions, but obviously the more the compliance costs go up, the higher the likelihood that customers will end up footing the bill of taking on accountants to address the complexity of what should be a simple banking levy. Whether there are two rates or 10, however, all the rates in the bank levy are far too generous and far too low.
I do not know whether Ministers have published the change to HMRC staffing needed to deal with these complex provisions. One would think that more staff will be needed, but my understanding is that staffing at the Revenue is being reduced.
Staffing at HM Revenue and Customs is under incredible pressures. Indeed, there have been a number of redundancies and posts lost. It has not been explained where the extra resources will come from to ensure that the bank levy, in all its complexity, can be enforced adequately. Again, the Minister needs to say what extra capacity HMRC will have to implement this increasingly complex bank levy.
In a moment, but I need to make some progress.
I understand that there is a difference between short-term and long-term liabilities. However, what will be the impact on businesses in the real economy if short-term liabilities are less attractive to major banks? For example, if a small firm has a bank deposit of over £100,000—to protect its cash flow or whatever—that happens to be above the level of the deposit guarantee scheme, what is to stop the banks raising their bank charges on SME deposit accounts to try to divest themselves of such short-term liabilities? That is an important point, because there will be consequences from the design of the bank levy. I would like the Minister to explain to the Committee why short-term liabilities and long-term liabilities have been divided in that way.
Can the Minister explain the position on the reported legal challenge under European Union law, which I understand many in the banking community are watching carefully? The Hungarian Government have introduced a levy on their energy and telecoms sectors. I understand that a case has been taken—or is due to be taken—to the European Court to claim that a levy on a specific sector of the economy is somehow unfair or not possible. To what extent is the Minister confident that the case will not have a bearing on the implementation of a banking levy here in the UK?
I would also be grateful if the Minister could answer the question about complexity and opacity in the bank levy accounting systems. As I understand it, overseas banks can sometimes not use IFRS—international financial reporting standards. If those banks do not use them, they will need to re-compute their chargeable equity and liabilities with reference to the UK’s GAAP—generally accepted accounting principles—or IFRS, in other words, by preparing a notional consolidation under those systems, including for branches. Is that anticipated to create a problem? What do the Government foresee as a solution to that level? Obviously we have banks that cross jurisdictions and use a series of different accounting platforms, so I would be grateful if the Minister could clarify some of the comments that have been made about that.
However, it is the Government’s general approach to banks and banking taxation that concerns many hon. Members—a general approach that, as we know, is quite woeful. Hon. Members have already raised their concerns about some of the bonuses that we have seen and the breathtaking behaviour that the banks have engaged in, even though they were the root cause of the credit crunch.
That makes the Government’s tax giveaway to the banks even more staggering. The post-Budget reaction last June, when the bank levy was announced, was indeed positive from the bankers themselves. They enjoyed the Government’s decisions on the bank levy. One commentator said:
“We’d expect most domestically-orientated banks…to be better off after four years than they were pre-Budget”,
and a City insider said that
“some banks will have a feeling of glee at the way this has worked out”.
Clearly, we need to advocate a bank bonus tax to raise £3.5 billion, as it did before. That deserves to be repeated this year. Even if it were to raise just £2 billion, that would make a massive difference to our society and our economy. For example, we have calculated that such an amount could be used to establish a youth jobs fund—using a similar model to the future jobs fund, which this Government have abolished—creating 90,000 new youth jobs at a time when youth unemployment is close to 1 million, with one in five young people on the dole.
That money could also help to construct 25,000 new homes for low-cost home ownership and affordable social renting. That would create tens of thousands of jobs in the construction industry and new apprenticeships alongside them. The money could also provide £200 million of funding for the regional growth fund, the Government’s rather lamentable replacement for the regional development agency funding. That could help to provide for regional projects and promote growth. The Government’s changes represent a two-thirds cut on the previous funding, and the first wave of £450 million in grants was several times oversubscribed with bids. We therefore need to revisit the regional growth fund, and a repeat of the bank bonus tax could support that.
The bonuses being paid are still vast; they remain at eye-watering levels. Despite the smoke and mirrors of Project Merlin, in which Ministers broke their promises to take action despite the warm words in the coalition agreement, the bonuses remain high. Let us just remind ourselves of what the coalition agreement promised. The Conservatives and the Liberal Democrats said:
“We will bring forward detailed proposals for robust action to tackle unacceptable bonuses in the financial services sector; in developing these proposals, we will ensure they are effective in reducing risk.”
That is on page 9 of the agreement, right up front among the promises that the coalition made.
The Government could not even bring themselves to promote the basic transparency that we expect when it comes to bonuses and remuneration. The most that they could extract voluntarily from the banks in Project Merlin was an agreement to report anonymously on the total remuneration of the five highest paid senior executives of the bank, excluding board members. That is a weak and shameful compromise. The Government are not even forcing the banks to disclose all bonuses above £1 million, even though Labour’s legislation allows them to do so. That provision is already on the statute book.
Will my hon. Friend return briefly to the alternative uses to which that £2 billion could be put—the very low figure that the re-imposition of our levy would yield? As a result of the abolition of the Advantage West Midlands regional development agency, the funding for the west midlands has been cut by nearly 70%, and the outlook for my constituents in Coventry is very poor indeed. The additional funds could be used for investment in the proposed NUCKLE—the Nuneaton, Coventry, Kenilworth, and Leamington—railway line, and a host of other important development projects that have been put on hold or simply thrown out as a result of that 70% cut. In the west midlands, and in Coventry in particular, unemployment levels are rising disproportionately compared with the rest of the country, and the level of output is dropping disproportionately in a key area that is vital to the eventual resurgence of manufacturing that we want to see. That money could be put to great use in the regional development fund.
My hon. Friend is entirely correct. As I have said before, this shows the failure of the Government to understand the paradox of austerity. When they take away some of that vital investment that would support jobs and growth, they are fuelling unemployment and raising welfare bills, which will cost the country more in the long run. That is why we are seeing borrowing levels rising rather than falling, and why, in the last six months of the economic experience in this country, we have seen economic growth flatlining. The House of Commons Library tells me that that will cost the Exchequer an extra £6 billion that will need to be added to borrowing. So this is the fallacy that the Government pursue—that simply cutting all elements of public investment is the way out of the deficit. They just do not understand how the economy works.
Following up that point, this applies to investment not just in manufacturing, but in services, too. Yorkshire Forward had decided to make two investments: one of £5 million to help enable the National Railway museum to redisplay its collection; and a £1 million grant towards the cost of restoring York Minster’s great east window. Why did it do this? Because it realised that the additional tourism generated would create many jobs, particularly for people without high skill levels, in the York economy. When I raised this matter with the Minister, I was encouraged to get the National Railway museum to apply for the regional growth fund, which, with help from his Department, it did—yet it has received not a penny.
Order. Before the hon. Gentleman responds, may I remind Members that interventions are supposed to be brief—not mini-speeches in their own right? There will be plenty of opportunity to join in the debate later.
Thank you, Ms Primarolo. Notwithstanding your strictures, that was an incredibly important intervention from my hon. Friend, who is correct, particularly in his assessment of the attractions of York as a destination for tourism, which was of course helped by the investment that the previous Administration put into some of those key elements within his constituency. I do not want to be diverted, however, as time is short and we need to focus on the amendment.
The amendment relates to the level of the bank levy in the context of bank taxation and the bonus culture. As I said, the Government could not even bring themselves to have transparency on what the bonuses were, let alone take action against them. However, we know some things about the realities of bank bonuses today, and the figures are truly astonishing. From the limited disclosure that we have seen, we know that in 2010, John Varley, the former chief executive of Barclays, received a £2.2 million bonus; Stuart Gulliver, the chief executive of HSBC, received only £5.2 million in bonuses; Stephen Hester, the chief executive of RBS—wholly owned by the taxpayer, by the way—got £2 million in bonuses; and Eric Daniels, the chief executive of Lloyds, largely owned by the taxpayer, got £1.45 million in bonuses. Let us not forget Bob Diamond, the chief executive of Barclays since January this year, who received £6.5 million in bonuses in 2010. He was head of Barclays investment banking before that and perhaps his bonus relates to that. Poor old Bob Diamond, however, loses out in the bonus bonanza when compared with the top two managers at Barclays: Tom Kalaris received a cool £10.9 million in salary and bonuses in 2010 and its other top manager received a tidy £10.6 million.
Ms Primarolo, can you guess the name of that other top manager at Barclays? His name is Rich Ricci—and I kid you not! It would be the stuff of a Dickensian novel if it did not sound so far fetched, but it is indeed true. Between them, the top five earners at Barclays—including Mr Rich Ricci, but excluding executive directors—received more than £38 million in salary and bonuses in 2010 alone.
I agree with my hon. Friend how mind-boggling the amounts are that these individuals receive. It makes one wonder what they do with the money. Was he shocked, as I was, to learn that more than 50% of donations to the Conservative party last year came from the City, including large donations from individuals such as Jeremy Isaacs, the former head of Lehman Brothers Europe, who donated £190,000?
“But surely that is a complete coincidence”, he said ironically! I do not know whether my hon. Friend was making the point that this is payback time, but the level of these bonuses is incredible.
Let me finish my point about Barclays. I was saying that £38 million in bonuses and salaries went to just the top five earners. That is enough money to pay the wages of more than 1,000 qualified nurses in our NHS. That gives some meaning to the scale—enough money to pay for 1,000 qualified nurses.
Absolutely; but, quite apart from the obscenity of the scale of some of those bonuses, there is a hard-headed economic rationale for more transparency. If shareholders cannot see what senior executives in the banking sector are being paid, that indicates a dysfunction in the corporate governance of the banks, and if the bonus pots of certain executives are being swelled by their behaviour—by the choices that they make and the risks that they are taking—perhaps those were some of the antecedents of the credit crunch. We need transparency to prevent us from repeating the problems that occurred in 2008.
It is the inactivity of the Government, as the shareholder, that perplexes me. Ministers laugh with scorn at the idea that they, with the stewardship of the taxpayer’s share, should take any action in regard to the current activity of the banks. If the Minister wishes to intervene on the specific issue of his inactivity as a shareholder I shall be more than happy to give way to him, but he clearly does not wish to say anything at this stage.
That is one of the issues to which we shall have to return, perhaps in the Public Bill Committee. The banks are a social necessity—a utility, as it were—in our society, and whatever we think of their behaviour, it is necessary for them to exist to provide the credit that is required to keep the engine of the economy moving. We do not need a dysfunctional banking system; we need a functioning banking system that faces much more towards its customers. We need to stand up for the taxpayer interest, but also for the consumer interest, which must include businesses.
The bonus and remuneration projections are not diminishing, as the Government like to suggest. The Centre for Economics and Business Research recently released an estimate that, whereas bonus payouts in the City for 2010-11 were 8% lower than those for 2009-10—down from “only” £7.3 billion to £6.7 billion—they are forecast to rise from that level to £7.2 billion in 2011-12. The apparent fall in bonuses is largely offset by a 7% increase in the salaries of senior bank executives. So bonuses fall by 8%, and salaries rise by 7%. Obviously that pay rise outstrips pay rises in virtually every other sector of the economy.
Indeed, and I think it important for us to convince the Government of the need to act. I look forward to hearing the Minister demonstrate that he will stand up to the Chancellor of the Exchequer. We know that he is not a patsy in the Treasury. He is a senior figure there, and he is able to show the Chancellor that the House of Commons was determined to send the Treasury the message that we do not accept its policies on bonuses and bank taxation.
I thank my hon. Friend for giving way. He is being very generous.
UK Financial Investments, the Treasury body that manages the state’s role in the Royal Bank of Scotland, gave its approval for Stephen Hester’s package, which included £1.2 million in basic pay, a £2 million bonus, and share options that could amount to £4.5 million. It has already given in.
Again, I think that we need to engage in a proper debate about corporate governance of the state-owned banks. It is important for us to understand the potential powers that Ministers have, and the consequences of their choosing not to exercise those powers. If they choose to approve a certain level of remuneration, that constitutes intervention just as much as disapproval does.
May I make a little progress? Time is short.
As a result of European Union reforms championed by Labour Members of the European Parliament who tried their best to restrain some of the excess, some bank bonuses must now be deferred and given in the form of shares. Bankers cannot take them in cash immediately. However, the Minister needs to explain why he is counteracting those bonus deferral arrangements by introducing a loophole in new section 554H, in schedule 2, allowing a concession to bankers whose bonuses are paid largely in the form of shares rather than cash. Rather than having to pay the tax at the point at which the bonus is awarded, they will need only to pay it on a date down the line when the shares are sold, possibly avoiding the current 50p rate of tax. The Sunday Times wrote about that last weekend. There is speculation that the Chancellor will cut the 50p rate at some point, and that, as a result of the Minister’s reforms, bankers will be allowed to wait and to avoid it. Can the Minister explain why he has made that valuable concession?
Will my hon. Friend clarify the chronology? Subsection (1)(d) of new section 554H states that the section applies if
“the vesting date is not more than five years after the award date”.
Does he believe that the Government are certain to reduce the 50p rate within the lifetime of this Parliament?
I do not know whether we have to hope that the Liberal Democrats will take strong action before that moment comes—I do not know whether that is an oxymoron—but the Government have dangled the prospect of a tax cut for only the very richest people. It is interesting that they are designing the Bill’s provisions to allow the potential avoidance of the 50p rate following what I considered to be a fairly positive change at European level to defer bonuses in an attempt to discourage short-term high-risk activities.
I understand my hon. Friend’s point and I disagree with what the Government are doing, but I suspect that he is wrong. I suspect that the Government will not obtain the tax take that they will need over the next few years. Because of the way in which they are managing the economy—because of the profound risks that they are taking with the economy—there is no chance that they will introduce tax cuts of any kind before the next general election unless they also engage in another massive round of cuts in public services.
However, the alacrity and, almost, relish with which the Government have introduced some of their spending cuts make me wonder whether their rewards for the bankers constitute a payback for the cover to get stuck into public investment in the way that they always wanted to do, and for which purpose many of them came into politics.
The bank levy is a weak response to the debts that banks owe the taxpayer. The Government say that they want a big society, but they are happy to see public investment shrink and rewards for banks grow, built on the backs of taxpayers. It is a big society if you are a banker, but a very small society if you are not. Our amendment would at least make the Government pause and reflect on their increasingly untenable position—we hear that they are good at pausing and reflecting—and I urge Members to support it.
I listened carefully to the shadow Minister’s speech, and it is quite true that the public mood is one of wishing to see both a just return on its forced investment in the banking industry and the banking sector—particularly the state-owned and subsidised banking sector—making its contribution to the recovery, in view of what happened in 2008 and 2009.
I remember in 2007 and 2008 being in dispute with the then Government, because I felt they were setting up a banking crisis that we could have avoided, but unfortunately my voice was not listened to; they did not take action on interest rates and money market conditions to prevent the crisis. When it started, I think I was the only MP who said, “Do not give all this money to the banks.” I felt it was wrong to buy shares in the banks and to support the bondholders. I thought we had a duty to the depositors and individuals who were tied up with the banks, but not to those who had financed and run the banks in those conditions. Unfortunately, the decision was made to embark on a massive subsidisation and share-buying programme, which the previous Government did. So we are where we are, and I think that we all agree that what we wish to do now is get the maximum value we can out of the banks that are subsidised or in state ownership, because that would make the public feel better about it. Surely, now is the time when those state-owned and state-subsidised banks should make their fuller contribution to the recovery, after their role in the recent crash.
I apologise in advance to the right hon. Gentleman if what I am about to say is an inaccurate representation of what he said in the past, but my memory is that he produced a report in which he argued there should be much less regulation of the financial services industry—in fact almost none—[Interruption.] He is shaking his head. I am sure he will be able to enlighten us by correcting me.
How many times will I have to deal with this idiotic canard that Labour dreamt up? The report was very clear: it said the then Government were not regulating cash and capital strongly enough, and it was a cash and capital problem that the banks had that led to the crisis. If the then Government had taken our advice, the banks would have been made to have more cash and capital at a much earlier stage of the cycle, so we would not have gone into the period of banking weakness during the credit crunch.
We also said that the mortgage regulation introduced by the then Labour Government was not fit for purpose, was useless and might as well be scrapped. Our case was proved extremely well, because it was the mortgage banks that crashed—the very banks that were the object of the extra regulation. The extra regulation was clearly regulating the wrong things. We were not against regulation: we said mortgage banks and other banks should be regulated, but it was vital to understand what the problem was. It was very clear in ’06 and ’07 that the problem was an excess of lending of poor quality. It was also very clear that the answer was more cash and capital, and that was what we recommended. It is a great pity that the then Government did not follow our advice.
I agree that it is clear that there was something wrong with the previous regulation, although I would not go along with the right hon. Gentleman’s argument entirely, but does he agree that there is a villain in the piece who hardly ever gets mentioned: the credit rating agencies that allowed the banks to sell snake oil to each other? Does he agree that we in this House should do something about that?
I hold no brief for the credit rating agencies, but nor have I prepared a case against them. I am sure the hon. Gentleman can make his own case and come up with his own remedies. In my view, there have been many villains in this historic piece, including the regulators, the Bank of England for its misconduct in the money markets, and the commercial banks that took advantage of ridiculously lax conditions and got themselves into a great pickle, which we had to sort out.
Yes, I think we could, which is why I made that recommendation well before the credit crunch occurred. In ’06 and ’07, it was obvious to me and to some other commentators that things were getting out of control—indeed, it was quite common for Opposition parties in this House to say they thought there was too much credit about. I went a bit further and said that could be remedied by changing the way we regulated the banks. It was quite wrong to allow a bank to extend more credit when it only had a 4% tier 1 capital ratio. I remember that when I was a financial regulator, we lived in an era when banks needed twice or three times that amount of capital to be acceptable to the regulator. There was a clear diminution in standards at a crucial time, which fuelled the credit binge.
I know that the right hon. Gentleman sometimes speaks at odds with his party, and he talked earlier about historical references. Was it not his party’s Government under Margaret Thatcher who deregulated the mortgage market, and is it not the case that up until the recent banking crisis hit, his party’s Front Benchers were talking about lighter regulation of the banking sector, not more regulation?
The Front-Bench team and I were at one on this issue: we were saying that what was needed were better regulation and less regulation. The Government were regulating too many things badly. As I have just explained, they were regulating mortgage banks in a way that allowed all, or at least several, of them to be crippled and caused a great many problems. The hon. Gentleman is quite wrong about Baroness Thatcher: much stricter controls over cash and capital were imposed throughout her period in office, and, of course, no major bank went down during that period. The same cannot be said of 2007-10, when the requirements were much laxer, as I highlighted in the report, and when we ended up with banks going down.
We are not here to debate past regulation, however; we are here to debate taxation. My purpose in sketching the history of this tragic situation is to express solidarity with all those who agree with the public mood, which is that we want to get a bigger return out of the banks, whatever we may think are the reasons why they are in their present position, but it is also to remind the House of a very important and salient fact, which is that two of the biggest banks are wholly or partially in state ownership or control. We are therefore talking about taxing ourselves in no small measure.
The issue before Ministers is a little more complicated than the Labour spokesman has suggested, because there are two ways in which we can get cash out of the banks: one is to tax them now on their stream of revenue, or their assets and liabilities in the case of the bank levy tax; the other is to move more quickly to sell off those assets back into private sector ownership and, I hope, proper private sector risk taking. If we are to get the maximum receipt, we do not want to be taking too much money out of the banks in the short term by way of taxation, because for every £1 of tax we take out of them, we lose £5, £10 or £15, depending on the multiple we sell them on when we come to sell them.
The right hon. Gentleman is making a very coherent presentation, but does he not agree that if we do not want to be taking money out of the banks by taxing them, equally we do not want to see that money going out of the banks by way of bonuses paid to their high-end staff?
I hasten to correct the hon. Gentleman: of course I think we have to tax banks. We have to tax ourselves, and we need to tax the other banks in the system, as well as the state-owned ones, but we must also consider the balance of effects and the impact on shareholder value. I entirely agree with those who say that if a bank is state subsidised or largely state owned and is therefore in receipt of state money, it is surprising that it should be paying very large bonuses. It is even more surprising if the bank is loss-making, because although an individual employee in that bank may be able to say, “I personally made a profit to offset some of the losses,” the senior people in the bank are corporately responsible for the overall results. It is at the very least surprising if a loss-making bank is making rather big pay-outs, because that is taxpayers’ money and taxpayers’ wealth being paid out to those individuals, which, as the hon. Gentleman rightly says, is not then available to sell as a stream of profits when the shares are returned to the private sector.
The right hon. Gentleman seems to be saying that it is important that the taxpayer gets the maximum value when the publicly owned portions of banks are put back on the market and floated, and I agree. Does he agree with me that it is therefore important that the mechanism at that time should not provide incentives for would-be shareholders such as shares being valued below their real market rate in order to encourage popular capitalism, but that the shares should be sold in such a way as to maximise the return to the taxpayer?
No, I do not necessarily agree with that, because I think that another way of returning value to the taxpayers who have supported the bank is to make those sorts of offer. However, I will wait to see what Treasury Ministers come up with before judging whether a measure is too generous or not generous enough, and how appropriate it is.
My point is that if we maximise the return to the taxpayer, everybody in the country—rich and poor—gets a share of the benefit. If we put some of the value into creating lower-priced shares to boost popular capitalism, we spend our public money on only a small percentage of the population. Surely that is less fair than maximising the return and spreading the benefits across all taxpayers.
The hon. Gentleman is right that there are those two sides to the argument, but this is probably not the time or place to argue that through. We may have an opportunity to argue through how the bank shares are sold and the balance in the sale process when we get nearer to that point. The issue before us now is a taxation one. We are discussing the taxation of bonuses and the bank levy—the subject of the clause—and I agree with those who say that if we take too much out in bonuses in a state-owned bank, that detracts from the value that is available to sell.
Of course, the bank levy is not the means by which we can have any impact on bonuses. Interestingly, it was the previous Government who nationalised or bought shares in banks and signed off on all the original agreements for the top directors and executives. I believe that they included generous bonus terms at the time because, they said, they had to in order to have the talent needed. The criticism being made of the coalition Government now is that they took over those inherited contracts and lived with them, rather than broke them and disrupted the management of the banks, which I regard as a lesser charge than the one against the former Government of setting up all those contracts in the first place.
This should not be a party political issue. I regret some of the contracts that were incorporated at the time of the purchase of shares, but I regretted the whole purchase of shares because I thought it neither a particularly good deal for the taxpayer, nor a necessary deal to sort out the banking problem. I would rather have sorted that out more rapidly at the time, with managed administration or something else, than adopt this expensive way of putting all that money in. We are now trying to maximise the returns because we are where we are.
Labour Members would say that they could speak for themselves and that they imposed a bonus tax. However, as the hon. Lady is suggesting, they did allow very generous bonus conditions into the contracts for their state-owned or partly state-owned banks. Perhaps some would have come to a tougher judgment at that time, had they been in a position of power to do so.
The point I wish to make in this debate is simple. I hope that when Ministers are deciding the right level of the levy, they will weigh very carefully the important fact that we are, in part, taxing ourselves. I hope that within a few years, if not within a matter of months, as I would prefer, we will return those assets and get the money back that the taxpayers deserve.
The right hon. Gentleman is making a coherent case, but is he not worried that Government’s strategy is not as coherent as his argument? If we look at table C.3 in the Red Book, we see that no forecast is made of the value of the asset sales. Do we not need to see a forecast if we are to make precisely the judgment that he is asking us to make?
I, too, would find forecasts helpful, but I understand the uncertainties surrounding what bank shares might be worth in one or two years’ time. There may even still be considerable uncertainties about how much profit the banks will deliver. It would be much easier to get value for taxpayers if these banks deliver reasonable profits.
The second point I wish to make is that the other disadvantage of a bank levy tax is that it is a tax on exactly the kind of activities that we really want banks to perform at the moment to fuel the recovery: it is a tax on lending money to businesses and individuals. The loans that we probably most want, if we are to get the recovery going more quickly, will be the riskier ones, yet they are exactly the kind of assets that the banks will own that will score more heavily for the levy.
Does the right hon. Gentleman agree that we might want to deal with the banks’ behaviour in a more general sense and their impact on the economy? Might it not be worth considering a third way of dealing with the banks, particularly re-mutualisation of some of them? Might that be a way of getting banks that are more focused on their stakeholders, particularly the people to whom we might want them to lend, than on paying bonuses to people all the time?
I am always very happy to see ownership extended in ways that include that type of mutual, although the history of the mutual banking movement in the past 20 years provides no evidence that such banks were particularly good at reading the cycle or dealing with the capital problems—indeed, many of those institutions went to the markets and decided to exploit market opportunities because they had a capital problem that they thought they could solve by that route. It may be that we could go back to more traditional mutually owned banks with much more constrained balance sheets and activities, and that might be part of getting back to a more healthy banking sector. That is something that the market should decide.
I am firmly of the view that we need more competition and choice in the marketplace. One of the big errors was allowing banks that were too big. As a competition hawk, I was publicly very strongly against the takeover of HBOS by Lloyds; it was a great tragedy for Lloyds and for the country that that merger went through. We should have dealt with HBOS in other ways, which would have been less expensive. I was also a critic of the Royal Bank of Scotland takeover of ABN AMRO. Although the competition issues that raised were not as clear as the competition issues raised in the case of the Lloyds takeover of HBOS, I would have liked to have seen a tougher line taken. I hope that this period of change and reflection on banking, including how we tax it, can lead to a much more competitive structure. One of the ways of doing that would be to sell off some of the assets currently owned through Lloyds and through RBS in ways that created more banking challenge in the market.
The right hon. Gentleman wants to ensure that we get the maximum return possible when we bring the banks back into the market, and the whole House would agree with that. He referred to the need not to reduce by too much our prospects for doing that by reducing through an excessive tax charge the multiple applied to earnings in realising the sale value, but his point about therefore moderating any tax that might be imposed is specious and certainly does not allow him to invest the seriousness that he wants, given that the multiple used is nearly always a profit-before-tax multiple—certainly, it will always be adjusted for that if exceptional items are involved. For that reason, some people, with whom I would not agree, even opt for an earnings before interest, taxes, depreciation and amortisation—EBITDA—calculation for these purposes. The fact is that the quality of the earnings is more important here than any considerations about tax levels at any one point in time.
I do not agree with the hon. Gentleman about that. It is true that in the venture capital world EBITDA multiples are more common, although people would not give the same value or the same multiple to a highly taxed business as they would to a more lowly taxed business; but in the open share market in the major stock exchanges, it is more normal to look at price earnings multiples based on earnings net of taxation. There is no doubt that if more tax is taken out of a business, it is less valuable to its private owners—of course that must be true. The private owners are trying to buy a stream of profit or revenue and if some of that is taken in tax, the business will be less valuable.
I had just moved on to my final point, which is about the impact everything we are discussing has on economic recovery. I urge the Minister to bear in mind that the kind of tax proposed, if carried too far, can be damaging. It impedes banks making the sorts of loan and building up the sort of asset base that we want them to at a time of recovery. In addition, any given jurisdiction going too far could become a trigger for the bank’s moving some or more of its activities offshore or changing its arrangements in a way that it thinks would allow it to get around some or all of the tax impost. I would prefer that this tax had not been invented—there are better ways of taxing banks—but if we are to have such a tax, let us ensure that we have thought about two very important consequences of setting it too high: it might damage our own share values and it might damage lending for the recovery.
The general public are outraged at the levels of bankers’ bonuses, which remain very high indeed. The Government were forced, as we are all aware, into multi-billion pound bank bail-outs during the financial crisis. Quite simply, people cannot understand why bankers and people employed in the financial institutions have been given billions and billions of pounds of taxpayers’ money at a time of great austerity.
To pay massive bonuses in the midst of a financial crisis is a national disgrace, as it is to pay massive bonuses at a time when public sector services are being destroyed and young people face an unprecedented attack via tuition fees, the abolition of the education maintenance allowance and changes in Sure Start. Last year, Barclays boss Bob Diamond and his two replacements at the head of the investment bank were paid an obscene amount of money: £28 million. The trio also received shares worth £40 million for past performance. That must have been some performance!
I have just done some calculations. The people who are now receiving redundancy notices in the public services—many council workers, nurses, doctors, police officers and the rest—would be lucky to have a bonus of £50 a week. That is £2,500 a year, £25,000 over 10 years and £125,000 over 100 years. So to make £1 million, they would have to live until they were 400. To make the £28 million that the Barclays heads were given, they would have to live to 11,200. That is highly unlikely—I am merely accentuating the point—but those figures are an absolute disgrace.
I do not wish to disturb my hon. Friend’s flow, but is he aware that I was informed by the Independent Parliamentary Standards Authority the other day that I could not raise any of my staff’s salaries, even though they have been the same for a year, because they are public servants? If I wanted to give them any reward for exceptional service, the maximum I was allowed to give was a £15 token each year for a meal. Where can anyone get a meal for £15 around here? It is absolutely disgraceful, when such sums are being given out to the bankers.
I thank my hon. Friend for that question, which is a great way of introducing IPSA into the debate on the Finance Bill. I think we would have agreement on that point across the House.
Let me get back to the discussion. Barclays bosses were compared to Somali pirates by one of their own shareholders, amid anger over their obscene bonuses. Shareholders lined up to vent their fury at the annual meeting, complaining that their dividends had plummeted while senior executives continued to enjoy huge pay packets. Another shareholder accused the executives of rank historical folly, saying:
“In these times of austerity the seemingly excessive payments to senior bank staff seems to show the lack of wisdom reminiscent of Marie Antoinette saying let them eat cake.”
HSBC has tried to seize the high ground by announcing a reduction in maximum bonuses for top bosses, but chief executives could still receive a package of more than £12.5 million this year. This mammoth pay deal comprises a salary of £1.25 million plus up to £7.5 million in long-term bonus shares and a possible £3.75 million annual bonus. Some reduction. That is why the bankers must pay their share, and why the Labour party are seeking this amendment to ensure that that happens.
This recession was not made in Britain; it is a global recession. Let me set the scene for a minute or so. In the decade before the financial crisis, Labour cut Britain’s national debt and Britain’s deficit. Both were lower than the amounts we inherited from the Tories. Before the financial crash we had a lower national debt than America, France, Germany or Japan. The crisis was caused by the financial institutions—by these banks. Governments and central banks were also, of course, at fault, including in Britain, where we did not see it coming and should have been tougher in regulating the banks.
The cry from those on the Conservative Benches, and from the City, for lighter regulation of the banks should have been totally ignored—and, yes, Labour should have been tougher on the banks. When the City and the Tories called for lighter regulation, we should have ignored them and been tougher still. Our priority, however, was to prevent recession turning into depression and to keep people in jobs. We always said that once the economy was growing strongly, tough decisions would be needed to get the deficit down again. The plan, as we all know, was to halve the deficit in four years, including through a continuation of Labour’s bank bonus tax.
The crisis was not the result of our spending on essential front-line services such as the NHS, schools, police, local authorities or any other public service.
Does my hon. Friend share my disappointment at the sparse attendance on the Liberal Democrat Benches? Before the election, the Liberal Democrats lectured us on bank bonuses and what we were doing about the banks—and now, in places such as Northumberland, they are devastating public services through the cuts that they say are needed because of the financial mess that the banks got us in to.
That is a very good point about Northumberland. In my constituency in particular, 60% of women and more than 40%—nearly 50%— of men are employed in the public services. Many are being subjected to enforced redundancies by the Liberal Democrat-led Northumberland county council. We hope that will change in 2013, but let us wait and see what happens on Thursday, as that will give us a good idea of what will happen in the coming months and years.
We must realise that the recession was caused by the financial institutions and, yes, by the banks. We are certainly not alone in Britain as a nation in deficit. The financial crisis affected every major economy, resulting in national deficits worldwide. It is the different way in which those nations agreed to tackle their deficits that is the issue. We are saying that we need financing from the banks and the continuation of Labour’s bank tax to ensure that we have the money to allow the programmes we had planned to go forward.
The Government are cutting too far and too fast and they are hitting the most vulnerable, as well as jobs and families. It is necessary to prioritise an economic plan that focuses on increased growth and increased employment opportunities, which would place Britain in a better position to emerge much more rapidly from the current economic situation, which has been flatlining, at best. Part of such a plan would involve repeating Labour’s bank bonus and investing in growth and jobs.
The economy remains extremely fragile. The Office for Budget Responsibility has revised down its growth forecast for the UK economy in 2011 from 2.6% a year ago to just 1.7%. Last week’s growth figures were hardly a triumph for the economy. Growth flatlined over the last quarter of 2010 and the first quarter of 2011—it was down 0.5% in the former before going back up 0.5% in the latter—an effect that the Office for National Statistics has largely attributed to poor weather in December.
The figures are less than inspiring, and I have to say that members of the Labour party are not in any way, shape or form deficit deniers; it is pure poppycock even to suggest that. We accept that we have to get the deficit down, but spending cuts need to be fair and just. They should not be hitting the easiest targets—the most vulnerable people such as the disabled, those on benefits and those on the minimum wage—but should be hitting everybody proportionately. That is something we have been shouting from the rooftops to everyone and anyone who cared to listen.
That is strange, but it is probably what we should expect. It does not surprise me one jot that the tax on banks will reduce in the years to come rather than increasing in line with profit or productivity.
Most Members will be lucky enough to have a credit card, and many of them will have maxed it out and might still have a maxed-out card. That is a new term I have learned since coming to Parliament—“maxed-out credit card”. Incidentally, returning to IPSA, my IPSA card has definitely been maxed out: it has been stopped, as there is only £1 left on it, but that is another issue. On a serious note, many hon. Members will have maxed out their credit card and will not be looking to pay it off in the next year or so. Instead, they will be planning how and when it best suits their pockets to pay it off, when they are able to do so. Paying it off immediately would mean having to go without even the most basic of necessities. That is life: it is about having effective financial means.
The world economy revolves around borrowing and debt. People the length and breadth of the nation live off debt, and the issue is how that debt is managed and repaid. That kind of debt is like a mortgage: people have to pay it off, but it becomes like a family deficit that is paid off over 25 years. If people were told they had to pay their mortgage off in two years they could not do it, because they could not survive. That is exactly the approach that the Government are taking with the deficit. This is about having a fair process; it is about financial management. We are definitely not all in this together, but the Labour party’s bonus tax would have helped to implement a number of social programmes that would have benefited many of those who feel they are being disproportionately affected by the cuts.
I do not know whether my hon. Friend saw the Newcastle Journal on Saturday, but he knows that the housing market is struggling in my area. The Journal has reported that only 13 houses in the north-east were bought for more than £1 million last year. Is it not ironic that one of the bank bonuses that has been paid could have bought all of those houses?
I think that is ironic, and I assure my hon. Friend that not many houses in my constituency are valued in the region of £1 million. That is not only ironic; it is pretty sad and desperate when I think of the number of people in my constituency and elsewhere in the north-east who are looking for social housing and who cannot even get on to the housing ladder as a result of the austerity measures that are being put in place. That is why Labour says that although it is hurting, the signs are that it is not working.
The amendment calls on the Government to review the overall taxation burden on the banks. They have declined to renew Labour’s bank bonus tax, which raised £3.5 billion last year, and have instead proceeded with a bank levy that will raise about £2.5 billion. Labour is calling on the Government not to give a tax cut to the banks, but to use the money that would be raised from repeating the levy to invest in jobs and growth. The Bill’s provisions for the bank levy equate simply to a tax cut for the banks, because it is estimated that it will bring in £2.5 billion a year, which is less than the £3.5 billion that Labour’s bonus tax brought in last year according to the OBR.
Furthermore, the Government are giving banks a corporation tax cut of more than £100 million in 2011-12 and the value of that tax cut will rise considerably by the end of the Parliament. It is essential to repeat the bank bonus tax, to increase the bank levy and to invest in jobs, growth and housing. Labour believes that in addition to continuing with the bank levy the Government should repeat the bank bonus tax and raise at least £2 billion more, so that the banks do not get a tax cut this year. Frankly, I am opposed to the banks getting a tax cut in any year.
“Only for the better.” Of course.
In future years, the Government should increase the bank levy to ensure that the banks continue to pay their fair share of tax, so that taxpayers are not left picking up the bill for a crisis caused by the irresponsible actions of those institutions. The OBR’s November 2010 forecast showed that the bonus tax brought in revenues of £3.5 billion in 2010-11.
My hon. Friend might be surprised to hear that he is engendering in me some sympathy for bankers. The sheer, overpowering, pressing agony of having to spend £28 million would put so much pressure and pain on a person; one has only to look at Wayne Rooney to see the consequences of that. Does my hon. Friend agree that if bank bonuses are not about money, they are actually about mutual approval and standards? We could simply give bankers a golden tick on a badge, or a sticker, to show that we love them, and get the £28 million back to refresh the economy and get jobs into his constituency and mine.
That is the first time I have been accused of being sympathetic to the bankers, but I thank my hon. Friend for his comments. I would much rather give the bankers a nice little tick or an A* for the way in which they perform—or perhaps in this particular case a C, D, E, F or a fail. At the moment, an F would still equate to many tens of thousands of pounds for most bankers.
The reality is that people in my constituency cannot even get a loan from the banks. In the past they could get loans for all sorts of things, and that was a run-of-the-mill thing to do in my community and many others. If someone wanted a holiday, a carpet or a car and they could not afford it outright, they would have gone to the bank or building society and got a loan.
Now they not only cannot get loans, they cannot even get credit cards. The bankers are making billions, but the people at the sharp end, who are suffering the most as a result of the Government’s cuts, cannot even get a loan from the banks or building societies.
My hon. Friend is right, but it is not just his constituents who cannot get a loan—many of his local businesses face the same problem. He spoke earlier about the need for growth in our economy. Is it not a scandal that many banks will not, as the right hon. Member for Wokingham (Mr Redwood) said, take a risk on small and medium-sized businesses? They will not even take a punt on a good business proposition.
That is exactly right. I was merely highlighting the plight of ordinary families. Small and medium-sized enterprises in every region of the country are suffering greatly as a result of the austerity measures and of the negative attitude of bankers, who think only about how much they will make at the top of the ladder, not about how anybody else—business people or ordinary people—will manage.
Does my hon. Friend realise the perverse effect of the difficulty in getting loans from banks is that many people are forced to turn to very expensive money lenders, corner shops and so on, where they pay ludicrous rates of interest, with no security whatever for what they are trying to achieve? That is simply wrong.
Does my hon. Friend agree that one of the things that we could do is to consider whether the amendment on the adequacy of the bank levy could be used to deal with some of those practices and with illegal loan sharks who are preying on people to whom our mainstream banks will not lend?
I agree 100% with my hon. Friend’s suggestion, but as I have just suffered the wrath of the Chair, I shall not try to respond.
The OBR’s November 2010 forecast showed that the bonus tax brought in revenues of £3.5 billion in 2010-11. We cannot know how much a repeat of the tax would yield in 2011-12, but a cautious assumption by any measure would be about £2 billion. The Labour party’s view is that that estimated sum would go a long way to supporting many projects, such as, first, establishing a youth jobs fund and creating up to 100,000 new youth jobs at a time when youth unemployment is almost 1 million, its highest since records began in 1992-93. That is one thing we could do with the bank tax.
Secondly, we could build 25,000 new homes for low cost home ownership and affordable social rent. This could create tens of thousands of jobs and help create 1,500 construction apprenticeships. It is important to ensure that young people can get on to the property ladder. Thirdly, an additional £200 million could be provided as funding for the regional growth fund bids. Getting more people in work and paying taxes is the best way to bring the deficit down. The Tory-led Government are cutting too deep and too fast, and now the economy has stalled and unemployment is higher.
There is a better way. Instead of giving the banks a tax cut this year, next year or the year after, the Government should repeat Labour’s bank bonus tax and use the money raised to invest in creating more than 100,000 jobs for young people and in construction, and to build 25,000 affordable homes.
The cuts are going too deep and too fast. There is an alternative. If we were still in government we would be halving the deficit steadily over four years, in line with the pledges made by major economies at the G20 last year, not trying to cut it further and faster than any other major economy in the world. Yes, tough choices are required. The deficit cannot be brought down if the economy is not growing strongly and hundreds of thousands of people are being thrown out of work. That is a simple, basic message.
In conclusion, I repeat that the most important factor in getting the deficit down is what happens to jobs and growth in the economy. That is why last year, as the economy started growing again and unemployment was falling, the deficit came in more than £20 billion lower than expected. That changed as the economy stopped growing at the end of last year and unemployment is higher. Stop the tax cuts to the banks, invest in the future of our young people, invest in this nation, invest in jobs and growth and adopt the Labour example of the bonus tax on banks.
It is a pleasure to follow my hon. Friend the Member for Wansbeck (Ian Lavery), who gave a comprehensive account of why we should support the very precise amendment on the bank levy.
A banker writing in the 1920s wrote:
“April is the cruellest month, breeding
Lilacs out of the dead land, mixing
Memory and desire”,
and went on to talk about the present month as “depraved May”. I quote T. S. Eliot—
I quote T. S. Eliot to remind us that bankers have played good parts in the world of culture, finance and many other things, and to remind us through his words of the pain of growth and rebirth. Economic growth is a difficult business. That is the business that we should be in, and we should make sure that bankers play their part in that.
Bankers were not always about bonuses, and conversations about banks were not always about bonuses. Sadly, since the credit crunch and the global financial crisis, more attention has been focused on how great the anomaly is. We have heard the telephone-number salaries quoted and compared with the situation of people in our constituencies who are doing their best to bring their families up to be aspirational and to move forward in their lives.
I thank my hon. Friend for that intervention. She draws attention to the fact that people see banks closing and services becoming less available and more remote at the same time as large bonuses are being given out, with no apparent transparency and no clear criteria.
The Bill delivers a tax benefit for banks—a bonus for banks, rather than for UK plc—in the form of the £2.5 billion bank levy, which should be compared with the £3.5 billion bank bonus last year, and with £100 million being given back through cuts in corporation tax. At a time when the banks should be putting more in to atone for the situation we are in and to help the engine of the economy, the Government are allowing them to take more out. That does not seem fair to me, and it does not seem fair to the people I represent.
Does my hon. Friend agree that it is an absolute disgrace not only that those involved directly in the big five banks are earning such bonuses, but that those who have earned a lot of money from the misery that has been caused over the past few years are also doing so, including those companies that offer advice, such as Goldman Sachs, whose average bonus is about £270,000 per individual?
My hon. Friend draws attention to another interesting area where we would wish the Government to apply their imagination and attention to try to get more money back for the taxpayer so that it can be invested in the economy, in public services and in growth, the engines that would drive us forward. This is a no-mandate Government. A year ago there was clearly no mandate for what they are doing. They are taking their approach to bankers’ bonuses even though there is a clear mandate from the population—one of the few that exists—for cracking on, getting on top of bankers’ bonuses and ensuring that they play their part in reinvigorating the British economy. Where there is a mandate, the Government fail to act and give a dividend to bankers instead of a tax. There is no mandate for the things the Government are doing, such as the NHS reorganisation.
My hon. Friend seems to have skated over the point that the majority of the banks are actually state owned, or have a majority state shareholding. Surely it is incumbent on the Government to intervene, either by appointing their own directors or sending directives to the banks on how they should behave, rather than pretending that it is nothing to do with them even though the banks are already publicly owned.
I thank my hon. Friend for his intervention about intervention. More intervention is needed from the Government, who have a stake in the banks. In fact, it is taxpayers and the public we serve who have that stake in the banks. He is quite right that the Government should be exercised about how they get the benefit back to the British people.
Have the Government not failed lamentably? If we look at Project Merlin, where they intervened with the banks on bonuses and on lending to small businesses, we can see the bonuses that are likely to be given this year and the fact that the Government have failed lamentably to deliver finance for small businesses in this country. They simply are not working.
I thank my hon. Friend for that observation. Project Merlin’s record is a sorry tale so far. We see a failure to deliver on bankers’ bonuses and a failure to reinvest the taxation from them in the economy. He is right that the record on lending to small and medium-sized enterprises is woeful. Small and medium-sized enterprises, as I think all Members recognise, are the lifeblood and the engine of our economy, and he is completely right to underline that point.
My hon. Friend refers to taxation arising from bankers’ bonuses flowing back into the economy. Would that that were so. Does he not agree that the ingenuity, skill and—I dare say—avarice of the average banker is best demonstrated by their ability to defer tax liability, so that the money, rather than coming back, tends to fructify in their pockets?
I thank my hon. Friend for his intervention. Clearly, the amendment aims to provoke a review of how we best ensure that bankers’ bonuses are taxed efficiently and effectively, rather than ineffectively, as the Government are currently, which is always a danger unless we are vigilant, as my hon. Friend suggests.
I shall of course vote for the amendment this evening, but it does raise the question of whether it ought to be the Chancellor who reviews the bank levy or, because of the serious problems in the way in which the Government have handled it, the Public Accounts Committee.
My hon. Friend makes an interesting and valid point, but amendment 9 proposes specifically that:
“The Chancellor shall review the bank levy and publish a report, before 31 December 2011, on—
(a) the Government’s analysis behind the rate and threshold chosen for the bank levy;
(b) the adequacy of the bank levy in the context of other reforms to the wider banking system; and
(c) the total tax revenues expected from banks across all categories of taxation in each year from 2011-12 to 2016-17.’.”
That is what we are debating today, although my hon. Friend makes a good point.
Thank you, Mr Gray, although I think that the hon. Gentleman was reminding me of the part in my speech in which I referred to mandates, as it was important to reiterate that the Government have no mandate for the NHS reorganisation, for police cuts, for the VAT rise, for abolishing the future jobs fund or for trebling tuition fees, and they certainly have no mandate for cutting too fast and too deep. However, they do have a mandate for listening to the amendment we are considering today on the bank levy. There absolutely is a mandate for the bank levy.
This point has occurred so many times, so can we pick this one off? The figure of £3.9 million is certainly bigger than £2.5 million, but £3.9 million for one year is surely smaller than £2.5 billion for four years. How on earth can this be a cut in the banking levy?
I thank the hon. Gentleman for his intervention. We are arguing that because of the fragility of the recovery, it is time to repeat the bank bonus tax. The Government should make their decisions now when they are not constrained. The decision now should be to repeat the bank bonus tax and increase the bank levy year on year, rather than leaving it static. That is what this review of the bank levy would allow us to establish, and that would produce an additional income, he will be pleased to hear, of at least £2 billion in each year of this Administration. That additional £2 billion could be used by the Government on behalf of the British people, the taxpayers and, indeed, the shareholders of these companies.
Would my hon. Friend be surprised to hear that the hon. Member for Bradford East (Mr Ward) was in Westminster Hall this morning, alongside many other Members, seeking additional funding for ESOL—English for speakers of other languages—training? My hon. Friend is giving a solution that would allow the Government to provide that additional funding, which would produce growth in the economy, rather than the shrinkage we are seeing promoted by the coalition Government.
I thank my hon. Friend for his intervention. The review of the bank levy, which is at the heart of the amendment, would allow the Government to look at the sorts of things that that money could be spent on. It could be used for a youth jobs fund, for putting £25 million into new homes or for providing the regional growth fund with an additional £200 million. My hon. Friend the Member for Nottingham East (Chris Leslie) has already explored those issues in some detail.
There is a lot at stake in this proposal to review the bank levy and to publish a report before 31 December. Such a review and report would be the intelligent way forward, the intelligent government that the British people would expect and hope us to deliver, because reviewing the bank levy and producing an appropriate report would allow a full examination of whether those moneys are available to allow us to do such things, whether they be ESOL training, a youth jobs fund, more money for economic development or whatever. There is an opportunity here, which I hope the Committee will not miss.
It is a pleasure to follow my hon. Friend the Member for Scunthorpe (Nic Dakin) and his eloquent description of the problems facing us as a country. I rise to speak to clause 72 and amendment 9 because this debate is about the bank levy and whether it is being applied in the right way and to the correct extent.
I support the amendment, because it seeks to address the challenges of any new legislation and answer the question of how we as a Parliament ensure that the legislation that we pass is effective at doing what we want it to do. The amendment would meet the challenge of asking whether bankers pay their fair share of the cost of dealing with the global financial crisis, just as we as taxpayers have paid more than our fair share, some might say, in trying to support them. That goes to the heart of today’s debate about clause 72 and what the Bill will do for the financial future of this country, so I support the amendment because it highlights the need to address the adequacy of the bank levy.
I also pose a wider question about how the clause will work to ensure that all those who have benefited and, indeed, continue to benefit from the financial crisis that this country has endured pay their fair share in helping the economy out of recession and back into growth, not least because I am deeply concerned, as many Members know, about this Government’s policy of reducing the national debt by increasing private household debt, and about what that might mean for many of our constituents.
I spoke at length on Second Reading last week about the impact of that policy on families throughout the country, and I do not propose to repeat the measures that I put forward, but, on the adequacy of the bank levy, the clause makes an omission that I hope the amendment will address. High-cost lenders are benefiting disproportionately from the impact of the Budget on our people, and from the fact that mainstream lenders are not lending because of banks paying out more in bonuses than they do to the people of this country, who need that money. Indeed, perhaps the omission calls for a new clause to deal with that issue and, therefore, to make sure that that money benefits our economy.
The industry has certainly benefited greatly from this Government and from the events of the last year alone. Of the £216 billion of unsecured lending in this country, £8.5 billion comes from that market, which has increased by £1 billion in the past year, and £8.5 billion is the same amount of money that it would cost to repair all the schools in England—a cause dear to many Opposition Members. It is also the entire budget of the Department for International Development; we are talking about a substantial amount. The market is growing not least because of the lack of regulation—the lack of Government action to deal with the high-cost credit industry—and the amendment could deal with that omission.
My hon. Friend refers to schools, and she knows from her constituency and borough how the coalition parties’ drastic, ruthless and unplanned cuts to Building Schools for the Future have caused great grief to her constituents, yet she says that they could have been compensated for by the measures to which she has just referred—
Order. I have been quite generous so far in not picking up hon. Members on what they have said, but we have to focus on the bank levy, how much it should be and whether it should be reviewed annually. Debating the way in which the Government might spend the proceeds from any such levy is not in order during discussion of this amendment.
Thank you, Mr Gray. I appreciate very much the passion with which my hon. Friend the Member for Ilford South (Mike Gapes) expresses his concern about BSF, which is a sentiment that I share, but I take the Chair’s point, and the bank levy is exactly what I want to speak to. I am concerned, because it offers an opportunity to deal with the challenges to our economy, and therefore the Bill should be amended by amendment 9.
I return to the case that I am trying to make about the high-cost credit market in the UK and its impact. It is precisely because the market has not been subject to any regulation, which could be introduced under the amendment, that we have seen a massive explosion in payday lending—a quadrupling of the industry in the past 18 months alone.
Dollar Financial, which Members may know better as The Money Shop, has already stated that the lack of regulation here brought it to the UK. The company had one store in the country in 1992, 273 by 2009, and it has announced plans for a further 800 this year alone as a result of that lack of regulation.
The question of adequacy, which the amendment raises, includes how those companies act—certainly, that is how I interpret it—and the opportunity that the levy and its review could provide for dealing with the impact of their actions on consumers in the UK. By using the review, we could ask whether the levy might be applied in such a way as to deter consumer detriment.
I pay great tribute to my hon. Friend for her work on those scoundrels who lend money at huge rates of interest. What she has done is very welcome. Does she also consider it important that the bank levy be used beneficially to promote and to develop credit unions, which provide a decent system, help people when they are desperate, do not charge them excessive interest and are democratically run? They seem to me to be a beneficial service all round which should be encouraged.
My hon. Friend hits the nail on the head, because proposed paragraph (b) of amendment 9 talks about wider reform of our banking system. Many Opposition Members have called for action on access to affordable credit, but this is not just about credit unions; it is about the schemes that housing associations have put forward. In that context, I register my disgust at the fact that a housing association was recently taken to the Advertising Standards Authority by The Money Shop for daring to point out to their tenants the cost of borrowing from such companies—and was, indeed, censured.
The question of how we deal with banking reform, so that everybody can access affordable credit and there is not a new dividing line in our communities between those who can get on in life and families who are scarred with debt for generations, is a key concern for me, and many Opposition Members are concerned about what the Bill and the amendments can do to promote such measures.
I welcome all the energy and work that my hon. Friend has put into that subject. Does she share my disgust at the fact that, here we are, debating an issue that affects literally hundreds of thousands of our constituents and, in terms of bankers' bonuses, dealing with one of the biggest issues before the public, yet there are precisely two people sitting on the Conservative Benches?
My hon. Friend makes a good point about the importance of this Bill putting first the needs of this country and, therefore, about the importance that others attach to it. I hope that we have support from members in all parts of the House for the need to act on the high-cost credit market. There has certainly been support among Government Back Benchers; noticeably, however, Government Front Benchers have so far reacted with negativity to that support. I hope that they will change their minds, given the possibilities that we have through the Bill, the amendment and, indeed, the regulatory measures being considered to make progress on an issue that concerns many Members. Our concerns are about a number of products—I want to put on record what we are talking about—and the lack of action on such products in contrast to dealing with the bank levy and whether it is applied appropriately.
First, there are payday loans. Many people will be familiar with the concept of a short-term loan, and given that almost half of households cannot make their pay cheques last to the end of the month, it is no surprise that almost one third of households are now considering such products. Interest rates on such loans include one from a company called Oakam, of about 443%; and many people will be familiar with Wonga, whose rates are more at the 4,000% level. We are also talking about the home credit industry and companies such as Provident. Many people will be familiar with Provident going from door to door in their communities lending money to people at interest rates of, say, 272%. That means that if someone borrows just £300 from the company—perhaps to buy a new sofa or TV, or to fix a washing machine or a boiler that has gone wrong over the winter—that will cost them £546.
Were we to use this amendment and the opportunity of the bank levy to deal with some of these problems and with the actions of some of these companies, we would be encouraging the Government to look at the concept of adequacy and consider some of the issues in that market. First, there is the lack of competition in providing credit to those who are denied mainstream credit. That is embodied in the fact that there is no innovation in these products; they are very similar. There is therefore a great contrast with people who are able to borrow from mainstream creditors. Many people will be familiar with mainstream banks offering preferential rates and loyalty schemes to customers who they want to hold on to because they know that they have alternative sources of credit. We could apply the bank levy to the question of adequacy and ask whether these companies are acting in a way that is detrimental to consumers and whether the lack of competition is detrimental to consumers and to our economy. Many people have expressed concern that our banking industry is already overloaded, which requires more competition. I would argue that there needs to be more competition in lending to people who cannot access mainstream credit, and this is one way in which we could achieve that.
A quarter of the customers who use high-cost-credit companies cannot borrow from other lenders. As a consequence, they do not build up the evidence of being good borrowers that would allow them to use mainstream sources of credit. These companies do not share information on their customers, making it incredibly difficult for customers to prove that they could use more mainstream sources of credit. The question of adequacy could also be applied to companies’ use of rollovers and stepping up of loans, which means that borrowers are stuck with using them. In particular, because they often lend only small amounts of money to begin with—
I apologise to the Chair if I am not being clear, but I see this in the context of paragraph (b) of the amendment on the wider regulation of the banking system, and the importance of trying to use the opportunity that the bank levy presents to effect a positive impact on the way in which money is lent to those on low incomes.
My hon. Friend is absolutely correct. This is born out of my frustration at the fact that the Government have so far refused even to contemplate taking action. I hope that this time round the Treasury team will seriously consider how the bank levy could be used to effect such action. The concept of adequacy in the amendment offers us an opportunity to ask whether the bank levy is being levied in a way that deals with high-cost credit and its impact. This debate has been about the appropriate level of the levy and its impact on banks, and I would argue that it could be extended to an appropriate levy on high-cost credit industries. We could then look at the way in which such companies pass on their costs to consumers who are particularly struggling in the economic conditions that we face. As Debt on our Doorstep points out, the fixed costs of lending in the home credit industry represent about 15% of revenues, yet the cost of borrowing from such companies is £82 in collection charges for every £100 lent. It is therefore no surprise that their profits have gone up by 40% in the past year as the lack of regulation in the industry allows them to run riot in our local communities.
There is broad agreement on the need to act on the impact of these companies, and the clause could be amended and applied in such a way as to enable that to happen. Citizens Advice has argued that the Government should not use the need for regulation of the financial sector as a cover for failing to act in these markets, as has the Centre for Responsible Credit—and as have many Ministers. I urge Ministers to talk to colleagues who, prior to 2010, advocated caps on the cost of interest rates. The Minister with responsibility for consumer affairs was very supportive at that time, but he seems to have changed his mind. [Interruption.] I agree entirely with the suggestion that perhaps that is yet another broken promise. We are talking about the 5 million to 7 million people in our communities who are affected by not being able to access mainstream credit and who are forced to use such companies. The bank levy gives us the opportunity to send a strong message to those companies that the way in which they act is deleterious to our communities and to our economy as more people are stuck in debt.
We have heard numerous calls for the additional bank levy that the hon. Lady supports, involving a couple of million pounds, I understand. The hon. Member for Ilford South (Mike Gapes) wanted it spent on the Building Schools for the Future programme, which would have blown the full amount. Does she support its use for BSF or would she like it all to be allocated to the very important cause that she is propounding?
The hon. Gentleman appears to be arguing that the money that would be raised by the bank levy should be given to the high-cost credit industry. Far be it from me to suggest that he wants to support those kinds of businesses. I know that some Liberal Democrat Members have been very supportive of these companies—mistakenly, because if they were to talk to the local communities affected by them, they would realise how damaging they are.
Let me be very clear: I am arguing for the ability of the Government to review the bank levy and for a review to consider whether it could be applied in such a way as to discourage lending that is detrimental to consumers. I have firmly in my sights the high-cost credit industry and the detriment that it causes to our local communities. I hope that Ministers will accept the amendment and explore whether the bank levy could be used to act as a positive behavioural challenge on these companies, because that would benefit many people in our country. I do not want to see investment in the high-cost credit industry, and I am sure that the hon. Member for Bradford East (Mr Ward) did not mean to suggest that, but I do want to see action on it, and I know that I am not alone in this House in hoping for that.
If the Government will not accept the amendment, I will table more amendments and keep pressing this issue, and I hope that other Members will join me in support. The Minister is shaking his head. I hope that he has spoken to the many Members on his own Benches who do not shake their heads and walk on by as people are preyed on by these companies. I spent yesterday with 900 members of London Citizens Black Clergy Caucus, who will be seeking urgent meetings with the Ministers responsible. Ministers may think they can ignore me or ignore Labour Members, but I hope that they will not ignore the millions of people who are struggling to pay their bills and make ends meet, and for whom these companies are increasingly the only option. Regulation has worked effectively in other countries, and it could be achieved through this Bill. I hope that the Minister will look at the case seriously and not dismiss it out of hand as he appears to be doing.
It seems to me that when it comes to bonuses, the clue is in the word. If one looks at the etymology, the word “bonus” comes from the Latin: it means “good”. In fact, it should be “bonum”, as with “maximum”, “minimum” and “premium”, so that we had “bonum” and “bona”, but let us leave that aside. The bonus culture in the banks is supposed to be for something good—for good performance—and yet, certainly within the banks that are largely owned by the public, these bonuses are being given almost uniformly for bad performances: they are “malum”, not “bonum”. It is really quite ridiculous that these bonuses should be paid and that the Government should be proposing to levy such a low rate against them.
The right hon. Member for Wokingham (Mr Redwood) gave us a bit of the history of how the recession had come about and the context in which these bonuses were being paid. Interestingly, however, his history stopped in 2006 or 2007, when he published a paper about the regulatory regime and the need for tighter regulation. To find out the true history of this, one has to go back to a time before 2006 and 2007, and beyond this country, to look at the sub-prime market in the United States in 2000. At that time, the proportion of mortgages in the United States that were lent to sub-prime borrowers was just 5%. Between 2000 and 2005, that increased to 47%. That meant that by 2005, 45% of mortgages in the US were in arrears by two months, or more than 60 days. That is the origin of the problem.
Much has been said by Government Members to try to set the recession in context. For months, they have said that it was because of the Labour Government’s disastrous economic management. Of course, the context for it is in the United States, where what happened with Fannie Mae and Freddie Mac, the two major mortgage-lending institutions, was the beginning of the collapse of what had been a virtuous circle, and what became a vicious one. Those institutions could not lend because they were not getting revenues in, which was because people with mortgages were more than two months in arrears. That meant that there was a drying up of credit in the system in the United States.
One of my hon. Friends—I cannot remember who—mentioned the role played by the rating agencies. The way in which the situation impacted more widely on the economy, first in the United States and subsequently elsewhere, was through the securitisation of mortgages into bundles to create revenue streams for companies and, indeed, for financial institutions.
My hon. Friend is making a perfectly good point about the historical context of the global downturn. Is it not the case that the bubble burst because financial institutions across the globe were not certain about the packages that they had bought, because of the unpicking of those packages, and because of the percentages of those packages that were made up of bad debt?
My hon. Friend is right, but perhaps he has missed a further element of that toxic mix. That is not the role of the rating agencies, although they played their part in bundling up sub-prime mortgages. In order to securitise them into revenue streams for companies, they had looked at the historical rate of default in the sub-prime sector in 2000, when only 5% of the market was being sold to sub-prime borrowers, not in 2005, when the figure was 47%. The effect was that many companies had security streams that were not very secure. The piece of the toxic mix that we need to introduce is the way in which hedge funds brought to bear their financial might.
Order. The hon. Gentleman is not giving way to the Chair, but resuming his seat. He is giving an interesting explanation of the causes of the banking crisis. He must relate his point to amendment 9, which we are discussing, rather than dilating more generally on the subject.
Of course I wish to abide by your ruling, Mr Gray. I am referring to earlier comments in the debate, which I am sure you heard, from the right hon. Member for Wokingham, who was not ruled out of order. He gave an interesting explanation of the history of what we are discussing.
Order. I was not in the Chair at that time. It seems to me important that we relate the debate to what we are supposed to be debating, namely amendment 9. I am not aware of what happened previously, but I suggest that the hon. Gentleman relates his comments directly to the amendment.
I am very happy to do so, Mr Gray. We are talking about a bank levy, and amendment 9 refers to
“the Government’s analysis behind the rate and threshold chosen for the bank levy”.
It seems to me that if one is to perform an analysis of the rate and threshold chosen, one has to understand how these things came about and the historical context. More importantly, one has to understand the regulatory context and what went wrong in the regulatory system. Much of the debate has been about that regulatory structure. I am seeking to address subsection (2)(a) proposed in the amendment. That is exactly the import of my remarks.
As the hedge funds brought their pressure to bear, they identified the problem of the companies’ overvaluation in the market. They saw that the structure of the bundled streams of security was not providing the security to the companies that the market believed it was providing. The hedge funds then short sold on those companies. That was an important regulatory failure. There was no uptake rule and no clear limit on the arbitrage window that was allowed for trading on such shares, so the short selling allowed the hedge funds to beat down the value of those financial institutions in such a way that there was a precipitation of the collapse of the credit that could flow through the financial institutions, which infected all the other companies in the stock exchange. That is how the situation became a global crisis.
In addressing the analysis that the amendment asks the Government to engage in, I urge them to take seriously the regulatory failings at that time. [Interruption.] The Financial Secretary says from a sedentary position that those were the mistakes of the previous Government. What I am pointing out to him is that they were not simply mistakes made by the previous Government, but mistakes that were made on a global scale. The financial crisis started in the sub-prime market in the US, and that infected the global markets. The reason that it took hold in the UK, to the detriment of this country, was that we had placed an over-reliance on the financial markets and the financial sector as opposed to manufacturing and industry.
Does my hon. Friend agree that if we had listened to those on the Conservative Front Bench, including the Chancellor of the Exchequer, who did not want to intervene in Northern Rock and wanted to let banks go bust, the banking crisis in this country would have—[Interruption.] The Economic Secretary chunters from a sedentary position, but what I am saying was said by the—[Interruption.] She can keep chuntering, but the truth hurts. The fact of the matter is that if we had listened to the Chancellor—
Order. Interventions must be short. The tenor of the debate is moving widely away from the amendment that we are supposed to be discussing. The amendment is about the bank levy, the way in which it is raised and the way in which it affects the wider banking sector. I accept that there is a point about that, but we must return to our consideration of the amendment, rather than having such a wide discussion.
I am of course always happy to abide by your ruling, Mr Gray, so I will move on to focus on the adequacy of the bank levy in the context of other reforms to the wider banking system. It is clear that those other reforms are necessary. We can debate the history at length, and we may take different lessons from that history about the type of regulatory reform that we wish to see, but I want to focus on the adequacy of the levy.
My hon. Friend the Member for Nottingham East (Chris Leslie) sought to contrast the payments that bankers would be receiving this year—the million pound-plus bonuses—with the situation of ordinary working families in this country, many of whom are seeing their own financial position severely worsened or are losing their jobs or benefits. He expanded on the modest emoluments that those people would receive this year.
However, the force of our argument is not just the contrast between the difficult situation of those people and the greed at the other end of the scale. It comes from the fact that there is a direct causal relationship between the two—the bankers are the ones who have caused the misery that our constituents will be enduring. More than that, the funds from the bank levy—the funds that are being paid in bonuses, from which we would seek to extract more for the Exchequer—could be better spent in tackling the problem in the other dimension. Instead of considering the matter from the point of view of its inequity, we should consider it in the context of achieving a resolution to the deficit crisis. That resolution can come through growth and through the spending of these resources in ways such as my hon. Friend the Member for Scunthorpe (Nic Dakin) explained clearly. We want the Government to accept the amendment, so that we can consider the adequacy of the bank levy in the context of other reforms to the banking system. We want a policy that is for growth in the economy, not simply one that is for taxes.
Is it not also the case that the taxpayer has given the banking system an unlimited guarantee, and that according to the Bank of England, we are subsidising the banks to the tune of about £100 billion a year? Yet even with all that support, they still demand that they should be able to pay massive bonuses.
Indeed. The support that the country has given the banks is perfectly right, in my view. I disagree with the right hon. Member for Wokingham on the matter. He said that he would not have bailed out the banks at all. His position was very clear—he takes a very hard monetarist line and says that if the banks fail, they fail. Labour Members believe that the consequences of that failure cannot simply be ignored.
Is that not exactly the line that the Chancellor took when he was shadow Chancellor? He argued that intervention was not important in the case of Northern Rock, for example. If we had followed what he suggested and had less regulation of the banking system, we would have been in a worse situation than we are now.
My hon. Friend is absolutely right. To give the right hon. Member for Wokingham his due, he did distinguish his own position on the issue from that of his party’s Front Benchers. Both would have failed to support Northern Rock, the consequences of which would have been disastrous for savers, but the right hon. Gentleman would have gone further. He would have stopped any support for the wider banking system, including for Halifax, the Royal Bank of Scotland and Lloyds. There we see the consequences of policies that had their origin in “There’s no such thing as society.” Only if someone does not pay regard to society can they adopt such a hard-line position, because it ignores the consequences of failure and the effect on ordinary human beings—not just savers but, as he said, investors. The structural consequences of the failure would have been economically disastrous for this country.
Is it not also the case that the banking system is getting the best of both worlds? Over the past few years it has received very substantial support for the taxpayer, but at the same time as paying itself ever-increasing bonuses it is refusing to invest in local companies and valid business propositions in all our constituencies, thus hampering economic growth across the country. Is it not right that the bank levy is introduced for a second year and beyond through the reviews suggested in the amendment, so that we can get that growth back into the economy?
My hon. Friend makes an excellent point in contrasting the lending policies of the banks with the bonuses that they seek to pay, particularly to their higher-end staff. The Government have to be much clearer in the regulatory demands that they impose on the banks, because they are speaking with forked tongue. On one hand, they are insisting that there is tighter regulation and that there is a regime to ensure that there are adequate reserves and far more stringency in the banks’ investment policies. On the other hand, they are on the side of business, urging the banks to lend more money. It is not possible for them to have it both ways, and we must not fall into that trap either. Either the Government have to say, “We want tighter regulation, and to hell with small business”, or they have to say, “No, we want small businesses to thrive, because we want growth in the economy”, in which case the regulatory regime for banks has to allow for that.
That does not affect my hon. Friend’s point, because he is absolutely right to contrast the bonus structure with the banks’ lending policy. The bankers expect the situation to be all good for them, but it is not so good when they are dishing out the money at the other end.
That is the sad fact of our situation. I am sure that all of us, as constituency MPs, have business people coming to us saying that they cannot get credit. Indeed, many successful businesses that have had no change in their circumstances are suddenly being told by their banks that their credit facilities are no longer there. The banks are unilaterally changing the terms of those facilities, and the Government must do something about that. They cannot on one hand let the banks off with a £20 billion tax allowance for bonuses and, on the other hand, say that they do not have to ensure that they are lending to small businesses.
The difference between Opposition and Government Members goes right to the heart of whether we believe that the most important thing to do is to get growth back into the economy, get money flowing into small businesses and pay people a decent wage rather than make them redundant—that means that their spending on goods and services does not contract, and they spend money on brown goods and white goods and generate wealth and jobs in the economy, so that we grow our way through the problems—or whether we believe that we have simply to cut, cut, cut the public sector and pay, pay, pay the bankers’ bonuses.
I would welcome the amendment because I think it is time to stand back and review the future role of levies. The amendment seeks to prise out the Government’s analysis regarding the rate and the threshold of the levy, but it also gives us the opportunity to debate the overall adequacy of a levy and its role in the economic situation that we face.
I echo the right hon. Member for Wokingham (Mr Redwood) in saying that the world has moved on and the role of bank levies is different now. The first early-day motion on this matter, tabled by my hon. Friend the Member for Islington North (Jeremy Corbyn) and I eight years ago, in advance of the crisis, related specifically to the profligacy of the banks in their distribution of bonuses. We gained the support of 40 Members of the House. At that stage, the role of the proposed levy was fairly clear cut and straightforward: it was to act as a disincentive to the payment of such obscene bonuses, as others have described them.
Then, economic crisis hit us. The first sign was Northern Rock. I remember being in the Chamber when we exposed the role of Granite in Northern Rock and the tax fiddles, avoidance and evasion—whatever we want to call it—that were taking place. We called for the Government to use public ownership to nationalise and stabilise the banking system, but we added to that a call for the maintenance of a levy system, because we wanted to prevent a recurrence of the bankers’ bonuses during a period of recession caused by their profligacy.
As the right hon. Member for Wokingham said, the world has moved on, and we now have a bizarre situation. Yes, a levy on privately owned banks that are making profits and paying large bonuses is relevant, but introducing a levy on publicly owned banks is bizarre—it is a circular form of taxation—which is why the review proposed in the amendment is important. Surely if we own banks, we should end such bonuses by diktat and enforce reasonable lending using our management control. I hope that the review will examine the adequacy of future bank levy arrangements.
I compliment a number of my hon. Friends who have spoken in this debate, none more passionately than my hon. Friend the Member for Wansbeck (Ian Lavery), who reflected the climate of anger in which this debate takes place. There is anger about how individuals have been treated by the banks, but also anger about the impact of the banks on the overall economy. The impact has also been felt by families in the loss of jobs and cuts in services. If we are to have a review of the bank levy, I would welcome a commitment to absolute openness and transparency about the nature of the banks’ current operations. Many people are bewildered by the banks’ lack of adherence to the exhortations of successive Governments on the role that they should play, particularly in lending and long-term investment.
I welcome the proposed production of a report, but I would prefer it to be published earlier. The amendment proposes a deadline of “before 31 December 2011”, but I would want the report no later than the autumn, because I believe we need a tighter analysis and review regime for the banks.
I am no longer sure that the Government know what the levy is meant to achieve; they are certainly not clear on the appropriate rate, or even to whom and what the levy should apply. The previous Chancellor’s levy was clearly a bonus tax: it was an attempt to influence the behaviour of the banks and to end the remuneration system that encouraged reckless behaviour and the taking of excessive risk. The objective was also to raise income, although that was not the stated primary aim. Bizarrely—this is why I admitted an error earlier—the levy failed to influence behaviour, because the bonuses continued, but at the same time it was extremely successful at raising income. In fact, it was seven times more successful than was originally predicted. As I said, the original prediction was that it would to reap £500 million, but £3.5 billion was gained.
The review is important because when the current Chancellor was asked what the role of the proposed levy is, he replied that it was a lump-sum tax, or simply an aimed-for sum. However, that sum has changed as the rate has metamorphosed over the past year. On at least six occasions, there have been changes in the rate calculated, and therefore in the estimated amount to be gained. Why is the levy set at the level the Government propose? They have given us no clear understanding of that tonight. All we know, from various media reports, is that the bankers have laughed all the way to their banks. The tax take has been described as “relatively insignificant”. A number of commentators, some of whom appeared before the Treasury Committee, described the levy as generous, and others have described it as an easy ride for the banks. If the levy were set purely to generate a lump-sum tax take, why at that level? Why not double, triple or quadruple that level? I fail to see what analysis of the estimate has been made. In fact, so far, the Government have published no independent analysis that would allow the House to understand the rationale for the estimated take.
I agree with my hon. Friend, but I will come to that point later. The way in which the banks have continued their profligate distribution of bonuses looks like them cocking a snook at the Government and the level at which the levy has been set.
When the Chancellor appeared before the Treasury Committee, he advanced two arguments on how the levy was constructed. First, he argued that the levy was based on the price of the insurance that the Government and the taxpayer now implicitly offer for the wholesale funding of the banks; the levy is therefore a tax on the wholesale funding of banks’ operations. However, a calculation of the appropriate insurance for that scale of banking insurance, which could surely be done, would show that that sum is significantly more than the current bank levy proposal would raise.
The Chancellor’s second argument was that the levy was in the interests of equity: the banking sector, as well as the rest of us, should make a contribution to resolving the economic crisis. However, the amount that the bankers are being asked to provide to help to tackle the crisis that they created is piffling in comparison with the damage caused to our wider society, and minute in comparison with the burden that is being carried by others in terms of job losses and services cuts. Whole communities now face significant suffering and deprivation.
The Chancellor himself admitted that the targeted revenue sum was “relatively small” because, he argued, it balanced fairness with competitiveness, yet no study has been published and no evidence has been produced on the impact on banking competitiveness of varying the levy. Like my hon. Friend the Member for Nottingham East (Chris Leslie), I want to know what independent assessments have been made of the balance between fairness and competitiveness and how the calculation was arrived at. I agree with my hon. Friend the Member for Edmonton (Mr Love), who said that the measure throws the Government’s commitment to tax simplicity out the window. The taxation system on this issue is now more complex than any other point of taxation in the tax book, so I endorse the questions about how HMRC, with its current staffing cuts, can cope with the implementation of the levy. I would also welcome the Government publishing the consultation on the assessment of the amount of tax take from the proposed levy, because it looks like consultation was either non-existent or fairly minimal.
The amendment would require the report to consider
“the adequacy of the bank levy in the context of other reforms”.
Our understanding is that the levy was set to assist the implementation of the Merlin agreement and to ensure that the banks had a lending strategy to help get the economy moving and out of recession. As others have said, the levy must be set so as to ensure a continued influence on banks’ behaviour in relation to remuneration and bonuses. While promoting the bank levy, the Prime Minister and Chancellor exhorted bankers to show restraint. Is the levy set at the right level to ensure that the other reforms linked to it are completed and adhered to?
The evidence of our eyes and ears of the relationship in recent months between the Chancellor and the Prime Minister and the bankers is that there has been one word from the Chancellor and another word from the Prime Minister, and the banks have continued to do exactly what they want.
That is exactly my point. It might be that the levy is being set in relation to other banking reforms, particularly those on bonuses and remuneration, but not only have we seen the complete disregard of the Chancellor’s and Prime Minister’s exhortations, with bonuses continuing at a very high level, but we have seen, as another Member said, a diversion into other forms of remuneration and salary increases. That is almost an abuse of the system as set out in the Government’s proposals.
If the debate is about the adequacy of the levy, and in view of the fact that in spite of the Government having set down a marker in the proposals, bonuses have continued and remuneration has increased, can the Government not support the amendment? If the review reported at least by December—I would prefer the autumn—we could consider increasing the levy to ensure adherence to the wider banking reform proposals the Government want implemented. It is clear from the evidence produced today that the banks need a continuing threat—a sword of Damocles—hanging over their heads, if we are to get any change in the bonuses and remuneration that are so offensive to all our constituents suffering in the recession.
It might be that the levy was set so that the Merlin agreement could become fully operable and lending might start in earnest again. As my hon. Friend the Member for Nottingham East noted, however, so far all the indications are that the revival of lending has not taken place. The Government’s proposals therefore warrant a review at the earliest stage, because even now, while they are still being implemented, they are not working. The evidence for that is all around us. It is clear now—this is why the review is so important—that the levy has become almost irrelevant to the real issues of capitalisation and regulation.
I agree with my hon. Friend about the review’s importance. On the one side, bankers are telling us that they are lending money and that money is available to lend; on the other side, we have small business organisations united in saying not only that money is not available, but that the terms on which it would be made available are so onerous as to make it impossible for them to take out a loan. The review could resolve who is right and who is wrong.
The review would certainly test the adequacy of the levy as an instrument for influencing banks’ behaviour, which I believe is its purpose. However, the problem is not just the lack of lending; it is the continuing profiteering in the mainstream banking system—let alone the shadow banking system that my hon. Friend the Member for Walthamstow (Stella Creasy) has been so assiduous in exposing. In the main Budget debate, I highlighted some of the interest charges being made. A report by Moneyfacts last August showed that the profit margins enjoyed by the banks on fixed-rate deals are the highest since 1988, and that the average interest rate on personal loans was 12.6%, which at 12.1% over the base rate is an all-time high. So far, the threat of the levy has done absolutely nothing to change banks’ behaviour in any aspect, whether remuneration, bonuses or lending. We are in danger of allowing the banks not merely to return to business as normal, but to get even worse. Even those in public ownership are out of public control. I find that extraordinary.
The review must take place in the context of other attempts, such as the Basel discussions, to restrain or control banks’ behaviour. Basel II seems to let the banks off the hook on a range of issues, from remuneration to capital ratios. The levy is meant to come in the context of the reforms the Government are engaging in nationally and internationally, but the Financial Times reported today that discussions about global standards on bank lending risks are not moving towards an agreement, so now we are not even moving forward in capital ratio discussions.
We need to consider the levy in the context of the banks’ role overall and the anger in our wider communities. Many believe—rightly—that the banks played the key role in creating the recession, and now, if we are not careful, by not lending or engaging in economic growth, they will play a role if not in tipping the economy into a double-dip recession, at least in leaving the economy to scrape along the bottom of economic activity. I have referred before to the words of Graham Turner, from the Left Economics Advisory Panel. He works in the City and is an expert on what happened in Japan. We face the prospect of a long, low-level, depressed, deflationary spiral if we do not use the levy to stimulate the banks into playing a responsible role within our economy.
We will come out of recession only through an astute mix of fiscal and monetary policy. In the 1930s—this is the whole point about Keynes—it was about not just deficit funding and quantitative easing, but more importantly banking reform. Banking reform is one element of the strategy that any Government must adopt to take us out of recession, and the banking levy is one of the few tools and weapons at our disposal that can force through banking reform. So far, the threat of the banking levy has failed to engage even those banks that are in public ownership in a proper discussion about banking reform and the role that they will have to play in tackling the recession and encouraging economic activity.
I urge the Government and all parties to accept the amendment. All it does is seek a review, so that we can come back to this place—the amendment says in December; I would welcome doing it earlier—having reviewed the banking levy’s effectiveness. I do not understand why that is difficult for the Government to accept. At that stage, if we find that the banks are continuing to ignore the Government’s exhortations and to ignore the levy as a means of encouraging them to engage in constructive activity in our economy, we can adjust the policy. We can then use it as a proper lever to encourage new banking practices, increase transparency and accountability in the banking sector and get the regulation for which everybody across all parties is now clamouring, but which in the past has been ignored.
I support the amendment because it could be the start of a valuable process of engaging realistically with banking regulation in this country. I also support it because if the banking levy proves to be ineffective and we do not review it and make it effective, if the bonuses are let rip again next Christmas but lending is not happening and the bankers and the banks are not playing their full role in tackling our recession, the anger among our constituents will be immense, especially if they are on the dole or are facing cuts, or if their communities are facing severe deprivation. That anger will also fall upon our heads for failing to act by simply having a review to ensure that we have the right mechanism to tackle the banks and the recession.
It is a pleasure to follow my hon. Friend the Member for Hayes and Harlington (John McDonnell), who summed up the anger that is still out there among many of our constituents, who do not understand why neither of the parties that now form this push-me, pull-you coalition is following through on their rhetoric in the general election.
I support the amendment, which stands in the name of my right hon. Friend the Member for Delyn (Mr Hanson) and those of my hon. Friends the Members for Bristol East (Kerry McCarthy), for Wallasey (Ms Eagle) and for Nottingham East (Chris Leslie). The amendment addresses clause 72 and schedule 19, which deal with the bank levy. The explanatory notes say:
“Clause 72 and Schedule 19 impose a new tax”—
the point that my hon. Friend the Member for Hayes and Harlington emphasised—
“the bank levy, which applies in relation to periods of account ending on or after 1 January 2011. The Schedule identifies who will be liable to pay the tax and how the tax is to be administered.”
The complexities have been referred to, some of which I will cover later.
I have already referred to the rhetoric that we heard in the lead-up to the general election. My hon. Friend the Member for Ealing North (Stephen Pound) has referred to the hobby of bashing bankers, which was certainly the sport of the day for the future Prime Minister and the Deputy Prime Minister. In every TV studio that we saw them in, they talked about who would be tougher on the bankers, arguing that if they were elected, they would be as tough as possible on the bankers—who, as everyone recognised, got us into the mess whose economic consequences this country and our constituents are now facing.
This is not just about banker bashing, as my hon. Friend will know; this is about an opportunity cost, particularly in regions such as ours in the north-east. My constituency did not succeed in securing any grants from the regional growth fund. It is that lack of opportunity, too, that makes people so angry.
It does, and my hon. Friend makes a good point. The rhetoric from Conservative central office, now joined by the Liberal Democrats, is that we are in this economic mess because of the recklessness of the Labour Government, somehow forgetting both the international economic climate and the effects of the irresponsible lending by banks, on which the levy will now be imposed. My hon. Friend is quite right: I know that her constituency is facing a tough time at the moment, and not just in the public sector. A number of private sector companies are closing in Darlington as a direct result of the fiscal straitjacket that this coalition Government have put on the north-east region. Before the election the Prime Minister said that there would be a “day of reckoning” for bankers, but if this is a “day of reckoning”—[Interruption.]
Does my hon. Friend agree that we seem to have had an example today of the Sage of Twickenham being seduced by the subtle, perfumed blandishments of the banking industry? Might this not be time for us to say, “We’ve had enough of ‘Double Your Money’ and ‘Who Wants to Be a Millionaire?’ Let’s go for ‘Call My Bluff’”?
That is exactly what the electorate will be doing: calling the bluff of this Government and asking whether they will live up to the promises that they made. Indeed, it is interesting that when I mentioned the Prime Minister’s “day of reckoning”, someone on the Government Benches said that it would be a bank holiday. If I was a banker, that is exactly what I would think this weak banking levy and these weak banking regulations were delivering.
The Deputy Prime Minister even joined in on the act, saying on Radio Sheffield that he wanted to
“wring the neck of these wretched people”.
I am not sure whether he was referring to the Conservatives or the bankers—or, after Thursday, some of his Cabinet colleagues, when the AV referendum delivers a no vote, which is how I recommend everyone should vote on Thursday. Despite all the overblown rhetoric, we have seen no action to follow it through. As was said earlier, many of our constituents cannot understand why, if we were going to tax the bankers through this levy—and thereby control their reckless behaviour, as my hon. Friend the Member for Hayes and Harlington said—they seem to have completely ignored it.
We need to consider that when thinking about the appearance of the head of Barclays before the Treasury Committee, when he said,
“there was a period of remorse and apology for banks.”
I am sure that many of our constituents are very grateful for that. However, he continued:
“I think that period needs to be over”.
It might be over for him, but it is not over for many of our constituents, including those running small businesses who are struggling to get loans from banks. He went on:
“we need our banks willing to take risks…so…we can create jobs”.
Well, lending money to those businesses would be a start. Another starting point for doing that might also be Barclay’s five top bankers. They have just received bonuses of £110 million, which does not—
My hon. Friend makes an excellent point. Does he understand the dismay of those from small and medium-sized companies in Denton and Reddish who come to see me? They would not mind their banks being a bit more generous in their lending now and then. They cannot even get a decent proposal through their local banks for funding to expand their businesses. These are not risks; they are sound business proposals that would generate jobs in my constituency. No doubt the same happens in my hon. Friend’s constituency, too.
My hon. Friend makes a good point. Those examples can be seen up and down the country.
Given the amounts of money that some of the directors of Barclays are being paid, they could lend money to those small businesses themselves. The two highest-paid managers, Jerry del Missier and Rich Ricci—great name!— were handed more than £40 million each after share deals awarded over the previous five years. Bob Diamond, the chief executive, took the helm in January this year and, in that period of remorse, has received £27 million, including £6.5 million in bonuses for 2010 and £2.525 million awarded in shares, which could be paid out in the future. The share deal for the past five years paid out £40 million, and the one for 2007 paid out £5 million.
We know about those amounts because of the Government’s great deal under Project Merlin to force banks to expose what their directors are being paid. If that was supposed to act as a threat to them, they seem to be ignoring us and doing it all anyway. They seem to have very tough hides, because rather than being remorseful for the mess that they got us into, they are still taking the money.
The hon. Gentleman is speaking of remorse. He was one of the more eminent members of the previous Government; is he remorseful about the pay-off given to Sir Fred Goodwin, who broke the Royal Bank of Scotland and who was given a knighthood by the previous Government and was a member of the council of “wise men” who advised the previous Chancellor of the Exchequer and Prime Minister?
I had only a small walk-on part in the previous Government. However, when asked whether we can justify some of the bonuses that were paid, I would say no, we cannot. I agree with the hon. Gentleman about that.
When our constituents vote this Thursday, they should be aware of the lack of Conservative and Liberal Democrat Members present for this debate today. I note, however, that the hon. Member for Bristol West (Stephen Williams), who speaks for the Liberal Democrats on finance, has referred to the Barclays bankers’ pay deal as “obscene”. As part of the coalition, the Liberal Democrats need to speak out loudly to ensure that something is done about the bonuses.
The levy is supposed to curb behaviour, but I agree with the hon. Member for Ipswich (Ben Gummer) that the greatest scandal is the bankers’ bonuses being paid by banks controlled mainly by the Government. For example, the Royal Bank of Scotland is 87% owned by ourselves as taxpayers, yet more than 100 of its bankers were paid a bonus of more than £1 million last year, totalling more than £1 billion. We are talking about the bank levy raising more than £2 billion a year, but the banks are paying out £1 billion in bonuses. That raises the question of whether the levy is high enough. If it is not going to change the behaviour of the banks it clearly is not high enough, and we should look in greater detail at the idea of raising the levy.
We have heard a lot of rhetoric on the regulation of the banks, but we have seen very little action. The bankers’ bonus tax raised £3.5 billion for the taxpayer, but the levy that we are now discussing will raise only just over £2 billion a year. The new levy will add about £800 million to that. The banks have got off pretty lightly. In addition, as my hon. Friend the Member for Nottingham East said earlier, they will gain about £100 million from the reduction in corporation tax from 28% to 24%.
The danger that was threatened by the banking sector to Labour when we were in power, and is still threatened today, is that if we do not allow these large bonuses to be paid, or if we charge the banks too high a levy, they will move offshore or elsewhere. The example of Sweden has been mentioned as the only example of that, however. I have looked into whether the lack of such bankers’ bonuses elsewhere affects where people live. An interesting survey has been carried out by eFinancialCareers, which looked at 2,511 bankers, 654 of whom were in the UK. It showed that bonuses rose by about 5% in this country, whereas in the United States they decreased by the same amount.
Another issue of concern to many of us is the fact that banks will increasingly come up with ways of paying bonuses other than in cash. We have already seen arrangements whereby 40% to 60% of bonuses can be paid through share options at a future date. It was pointed out earlier that some of those individuals could defer accepting their bonuses for several years, possibly until tax rates have gone down, or in order to use other mechanisms to avoid payment of tax.
If we are to follow through on the rhetoric, we need to ensure that the proposed levy is justifiable, as my hon. Friend the Member for Nottingham East said earlier. But what is wrong with the amendment? It is simply asking for something quite reasonable—that the Chancellor
“review the bank levy and publish a report”
on that levy. Such an analysis would also examine the thresholds involved. I would also be interested to hear from the Minister why the first £20 billion is exempt. Why was the figure of £20 billion chosen? That measure will take out quite a number of small institutions. It has been argued that it was set at that level to discourage larger banks, but it will also benefit those banks, which will avoid paying anything on the first £20 billion.
We need time to see whether the system is working, and whether it is a way of increasing the money that we get from the banks. At the end of the day, the taxpayer has put huge amounts of public money—rightly, in my opinion—into supporting the banking system. I do not agree with the suggestion made by the right hon. Member for Wokingham (Mr Redwood) that we should have let the banks fail three years ago. If that had happened we would certainly have had a real problem, not only with Northern Rock but with a large number of other banks. That would have ruined the UK banking system, and there would have been international implications as well.
I agree with my hon. Friend. The Tory spin doctors forget that if we had followed the first reaction to the Northern Rock crisis from the then shadow Chancellor, the right hon. Member for Tatton (Mr Osborne), we would have let Northern Rock go, which would have had a knock-on effect on other banking systems and the recession would have turned into a depression. It is perhaps not fashionable to say it, but we should thank the Chancellor and the Prime Minister of the time for the decisions they took to ensure that that depression did not materialise.
It is a pleasure to see my hon. Friend the Member for South Antrim (Dr McCrea) in the Chair. I understand that this is the first time a Northern Ireland MP has chaired a Committee of the whole House, which is particularly fitting on the 90th birthday of Northern Ireland’s formation as a state.
Does the hon. Member for North Durham (Mr Jones) agree that one thing that annoys people about the banks and their bonuses is that after the Government and taxpayer bailed them out, they went on to make excessive profits? Does he agree that some of those profits should be returned to the taxpayer and the Government to pay off the money spent bailing them out in the first place?
I agree. I am sorry that I forgot to welcome Reverend McCrea to the Chair; it is a pleasure to serve under his chairmanship. The hon. Gentleman makes a good point. It was taxpayers’ money that rightly bailed out the banks; if they are making excessive profits now, which clearly they are, the banking levy would allow some payback.
If the Government are feeling timid and do not want to upset the banking sector, the amendment provides them with an obvious get-out by making it clear that there is a review at the end of the year that would enable us to see whether the levy was having a detrimental effect. Evidence to date suggests that the £3.5 billion that the bonus tax took out of the banking sector has not damaged the banking system in any way, shape or form. The public expenditure effects, however—they will affect my region and also the area that the hon. Member for Strangford (Jim Shannon) represents—are going to be absolutely devastating.
I wonder whether my hon. Friend would reflect on the view of many of my constituents, who feel that the Government’s reticence in tackling the bonus culture or in tackling the banks in any tangible way has much to do with the number of Members sitting on the Government Benches who have an employment history within the banking sector?
My hon. Friend brings me on to a new relevant area, because he shows how the banking and financial sector are able to influence the debate. The previous Labour Government as well as this Government might have been somewhat in awe of the threats made by the banking sector—for example, to move offshore, with a consequent effect on jobs, if too much regulation is imposed. It might just be coincidental, but since the right hon. Member for Witney (Mr Cameron) became Leader of the Opposition, donations to the Conservative party have increased, and about 50% of them come from the City and the financial sector, including some donations of £500,000 from four or five key individuals, including from Finsbury and Pelham PR, whose job it is to persuade politicians and other decision makers of the importance of, and the need for, the banking sector. As I say, it could be completely coincidental that the Tory party gets large amounts of money from this sector, but one could draw the conclusion that this is one of the reasons this Government have taken such a light-touch approach to regulation of the banking and finance sector.
I wanted to follow up the intervention of my hon. Friend the Member for Blaydon (Mr Anderson). It was not only the OECD that praised the London summit, which got the leaders of the western world to work together through fiscal stimulus to avoid recession. I remember going to the IMF in spring 2009 and what it described as “the Brown plan” was, it said, the only thing that stood between a global financial meltdown and getting the world economy back on a level footing. Does my hon. Friend share my concern and dismay at the Prime Minister saying that he would not support the former Prime Minister if he decided to run for the job of managing director of the IMF? Surely the best way to test the Prime Minister’s thesis about whether the former Prime Minister’s leadership was good or not is to allow him to run and see whether other countries support his candidature.<