The Chancellor of the Exchequer (Mr George Osborne)
The near-collapse of the British banking system more than two years ago still generates today deep feelings of anger and cries for retribution. I understand that, for the link between risk and reward that underpins our free market was completely broken.
Bankers who had made the most catastrophic mistakes walked away with huge payouts and pensions. Those entrusted by us to regulate those bankers and run our economy washed their hands. Meanwhile the rest of the country is left paying every day for their failures. The new coalition Government must pick up the pieces. Let me set out how we will do that.
First, we will make sure that this never happens again. We are replacing entirely the tripartite system of regulation that was introduced by a previous Chancellor and his advisers in 1997, and which completely failed. Next week we will publish the detailed proposals to give the Bank of England responsibility for prudential regulation, and to create a new consumer protection and markets authority that will protect the interests of bank customers. We will then undertake pre-legislative scrutiny, as requested by the House, before introducing the Bill. I hope it will command support from both sides.
Later this year we will receive the interim and final reports of the Independent Banking Commission that this Government established, and which I asked Sir John Vickers to chair. Sir John and his fellow commissioners are asking the difficult questions that need to be asked about how we protect the British taxpayer from future bank failures so that never again is a bank too big to fail. We look forward to receiving their recommendations. I should make it very clear that nothing that I will say today about the settlement that we have reached with Britain’s banks, including references to a level playing field, in any way prejudges the outcome of the commission. That includes both the commission’s recommendations and the Government’s response.
The second task facing the Government is to make sure that we get the maximum sustainable tax revenues from the financial sector. Her Majesty’s Revenue and Customs confirms that the one-off bank payroll tax introduced in the dying months of the previous Government raised £2.3 billion net, but as my predecessor—the Chancellor who introduced the tax—has pointed out, it could not be repeated without massive tax avoidance. I agree with him and we will not repeat the bank payroll tax.
Instead, we have implemented a new and permanent bank levy, and that is why yesterday I announced an increase in that levy so that it raises £2.5 billion this year. This will bring the total raised by the new bank levy to £10 billion over the Parliament, and it means that in each and every year of this Government we will raise more in bank taxes than the previous Government raised in any single year. We have also required all the major banks operating in the UK to comply in spirit and by the letter with the code of practice on taxation. The code was announced with a fanfare by the previous Government, but I discovered that when they left office only two banks had signed up to it. Today all the major banks have signed.
The third task facing the new Government was to reach a new settlement with the banks so that they could contribute to Britain’s economic recovery. Some prominent people in the House were predicting just 24 hours ago that my tax announcement meant that our discussions with the banks on lending were falling apart. The House will be pleased to know that that prediction was completely wrong. This morning the heads of the major British banks—Barclays, RBS, Lloyds and HSBC—reached a new settlement with the Government. I want to thank John Varley, the former chief executive of Barclays, for the huge amount of time and personal commitment that he has given to this project.
The essentials of the new settlement are exactly as I set out last month, and I am today publishing an exchange of letters between John Varley and myself. The banks will lend more money, especially to small business; pay more taxes; pay less bonuses; be more transparent about the bonuses that they do pay; and make a greater contribution to our regional economy and society. In return the Government commit to the success of a strong, resilient, stable and globally competitive financial services sector in which UK banks can compete with the best banks in the world on a level playing field, and in which London is a world centre for finance. That is good for jobs and growth in our country.
Let me go through each part in detail, starting with pay and bonuses. Most of us find the levels of pay in financial services to be completely out of kilter with what the rest of society would regard as fair or reasonable. We are determined to bring responsibility and constraint, and make sure that pay is properly taxed. Four years ago, at the height of the banking boom, the City paid £11.5 billion in banking bonuses, most of which was in cash, most of which could not be recovered when the banks collapsed, and too much of which went untaxed. The new remuneration code introduced last month and the tax avoidance measures that we are taking will change that.
Today I can tell the House that the four major British banks have also agreed that total bonuses for their UK-based staff will be lower than last year and lower than they would have been without today’s settlement. The independent non-executive director who chairs each bank’s remuneration committee will have to confirm personally in writing to the Financial Services Authority that their pay deal conforms with today’s commitments. For the first time, the banks have agreed to seek explicit approval from their board’s remuneration committee for the pay of the 10 highest paid employees in each of their main business units. That did not happen in banks such as the Royal Bank of Scotland before the crisis, where the board was ignorant of what was going on.
We have also insisted that the banks be far more transparent about who and how they pay. From this year onwards, the four major banks have committed to disclose the pay details not just of their executive board members, but of the top five highest paid executives not on the board. This will mean that the salary details of at least seven executives at each bank will be published this year. That compares with five individuals in the United States of America and Hong Kong, and only board executives in Germany and Japan. By disclosing individual pay levels the settlement goes further than the Walker report recommended, on which we are seeking international agreement.
We will consult on whether to make it a mandatory requirement from 2012 on all large UK banks to publish the pay of the board plus the eight highest paid senior executive officers. That would mean that Britain had the toughest and most transparent pay regime of any major financial centre in the world.
Let me provide an update on the situation at the Royal Bank of Scotland and Lloyds. The previous Government signed an agreement with RBS that explicitly said that it would in 2010
“enable pay arrangements in line with the market”.
Despite that constraint, which we inherited from the previous Government, United Kingdom Financial Investments Ltd, the arm’s length body which manages the Government’s stake in those two banks, has agreed the following: for all staff at RBS and Lloyds, the maximum up-front cash bonuses will be limited to a maximum of £2,000 this year; all executive directors, including the chief executives, have agreed to receive this year’s bonuses entirely in the form of shares; and directors will have to wait until 2013 to convert these shares into cash.
As the Prime Minister made clear last month, the bonuses at RBS and Lloyds will in total be smaller than they were last year under the previous Government and so, crucially, will the compensation ratios be. They will backmarkers in the industry, instead of the front runners that they once were.
Let me turn from pay to the additional support that the British banks have committed today to provide to the regional economy. At the end of last year the industry pledged £1.5 billion to a new business growth fund, which will invest in the kinds of expanding small businesses that hold the key to Britain’s more balanced economic future. Today they commit to make an additional £1.2 billion contribution to society. The four major banks commit to an additional £l billion for the fund and an additional £200 million to capitalise the big society bank. The business growth fund contribution will be front-loaded over the next couple of years, so that more help can be given to businesses sooner. This money will be in addition to the lending commitments and additional to any funding already allocated from dormant bank accounts.
Finally, at the heart of today’s settlement is a commitment from the four major banks, as well as Santander, to make much more money available for lending to small and medium-sized business. Last year these banks lent £66 billion to such businesses. Today the banks commit to lend £76 billion this year. That is £10 billion more gross new lending to small and medium-sized businesses, a massive 15% increase, materially higher than they had been planning to lend this year and materially higher than anyone who has followed these discussions would have expected. It comes alongside a very welcome commitment from the banks greatly to improve their customer service to small businesses, with a free mentoring service, published lending principles, transparent appeals and improved access to trade finance. Overall, gross new lending to all businesses, large and small, will increase from £179 billion to £190 billion, and the banks will make a commitment to lend even more if demand materialises.
Absent this deal, the banks were actually expecting lending to fall this year. To ensure that progress against these lending commitments can be monitored, the Bank of England has agreed to collect the relevant data and publish them quarterly. To help to ensure that today’s agreement is honoured, for the first time the pay of the chief executives of each bank, as well as of the relevant business area leaders, will be linked to their performance against these SME lending targets. Of course, if the banks fail even then to live up to their promises, the Government reserve the right to return to the issue and take further measures, but I sincerely hope that will not be necessary.
The anger at the terrible mistakes of the banking industry and the failure of those who regulated it will long remain, and rightly so, but let us as a country confront this hard truth: anger and retribution will not bring one percentage point of economic growth or create one single new job. The anger will remain, and I understand that, and we must never make the same mistakes again, but Britain needs to move from retribution to recovery. Today we get the banks to commit, with more lending—£10 billion more for small businesses— for our regional economies and society, £10 billion more in bank taxes, lower bonuses and the most transparent pay regime in the world. In return, let us build a banking industry that creates jobs for hundreds of thousands of our citizens and that competes in the world. Above all, let us ensure that the economic catastrophe that befell this country can never be repeated. That is how this new Government will clean up the mistakes of the previous Government. I commend this statement to the House.
Ed Balls (Morley and Outwood) (Lab/Co-op)
Given that this statement was not on the Order Paper, I thank the Chancellor for the eight minutes’ advance notice he gave me of it. Yesterday, he confirmed in his “Today” programme mini-Budget that he is cutting taxes for the banks this year, compared to last year. [Interruption.] Today we find out what the Chancellor has got in return from the banks, after weeks and months of negotiations with the UK banking industry, culminating in the complete shambles of the past 24 hours, and the result is: precious little. From a Chancellor who talked so tough in opposition and who even yesterday continued to promise much, this is a pitiful outcome and an embarrassing climbdown. [Interruption.]
Ed Balls
Thank you, Mr Speaker. They tend to heckle when they are worried.
A “damp squib” is defined in the dictionary as something potentially explosive but that fails to perform because it has got wet. That is this Chancellor all over. This negotiation has turned from Project Merlin into “The Wizard of Oz”: the curtain has been pulled back and there is nothing there. Of the leading players on the Government Front Bench, who is the one without courage, who is the one without a brain and who is the one without a heart?
Let us review what the Chancellor has achieved. On lending, he claims to have secured an agreement with the banks to lend £190 billion this year, but financial experts are clear that the deal he has announced is vague, toothless and unenforceable and not a proper substitute for proper competition. How will he be able to measure in detail whether the deal is delivered? Can he tell us the detail of how it will be enforced? Is there a sanction if the lending does not materialise? Was not a senior banker right when he told the Daily Mail on Monday that this lending agreement is “meaningless”? Is not the Financial Times right to say today:
“With much noisy showmanship, the Conservative-Liberal Democrat coalition is puffing demands that are little more than cosmetic”?
Is not that the truth?
On pay transparency, again we have a damp squib. The Chancellor claims that we will now have the most open regime in the world, but what does it actually add up to? The answer is transparency for pay and remuneration of only the seven most senior bank executives, whose anonymity is still fully protected. The Government are demanding that local authorities publish the salaries of anyone in local government earning more than £58,200, but he is allowing a taxpayer-owned bank and publically quoted companies in the financial sector to continue to pay staff millions of pounds in pay and bonuses with no transparency at all.
Why is the Chancellor not activating the legislation that we put on the statute book that would require the publication of the remuneration of any individual paid more than £1 million? It is there on the statute book and ready to go, so why not just sign the order and get on with it? Why has he failed so abjectly to make any progress in international negotiations with European and global Governments on transparency? There has been no progress because there is no sign that he has even tried.
On bonuses, I am afraid that the country will conclude that the Chancellor has thrown in the towel in the face of extensive lobbying by people with whom he and his Conservative colleagues have just become too close and too cosy. Does he remember what the Prime Minister said just two years ago—when Leader of the Opposition—when attacking the previous Government? He said:
“Because of this dithering we could see bonuses paid out for a second year to executives in taxpayer owned banks, which is unacceptable.”
After months of dithering from this Chancellor, what will we see over the next fortnight? We will see exactly that: bonuses running into millions of pounds, in cash and shares, paid to executives in taxpayer-owned banks. What he should be doing today is announcing proper reform of corporate governance and taking up our proposal to repeat last year’s £3.5 billion bank bonus tax, in addition to his levy, and use the money to support jobs and growth to kick-start his stalled recovery.
I have told the Chancellor that I will support him on long-term banking reform, enforceable lending agreements and proper statutory action on transparency and pay. Our economy badly needs a reformed, transformed, vibrant and globally competitive financial services industry for the future. He is right that hundreds of thousands of jobs depend upon it. However, this is not an agreement to secure the long-term future of our economy, but a short-term and shabby political deal. There have been talks that dragged on for weeks, a mini-Budget on the “Today” programme, crisis conference calls with the banks yesterday afternoon, a hasty compromise cooked up overnight and a Chancellor finally coming to the House with little to offer in return for his tax cuts for the banks.
I have to say that this is a Chancellor who, as the former CBI head has said, puts politics before economics. He talked tough in opposition, but in government he looks increasingly out of his depth and out of touch. We have rising VAT, rising fuel prices, rising unemployment and deep spending cuts hitting living standards of families, and yet his first priority is a tax cut for the banks. Millions of families up and down the country will now be asking, whose side is this Government on?
Mr Osborne
Well, that has to be one of the feeblest replies to a statement that I have heard. The only person who seems to be out of his depth at the moment, rather surprisingly, is the shadow Chancellor. There was one thing missing from that rant: an apology. He was the City Minister. I will move on to all the things that we need to do to regulate the City, but I will first remind him that he stood at this Dispatch Box for two years as City Minister and could have done any of the things that were either in my statement or in his reply, but he did not. The truth is that he is man with a past, and we will not let him forget it—even if he does. I took the opportunity to look at his website on which he lists all his achievements in politics, but he does not mention the fact that he was City Minister. He does not mention the fact that he invented the system of City regulation that failed so spectacularly. He might have forgotten what he did not do in government; we will not.
Let me deal specifically with some of the right hon. Gentleman’s questions. He asks how the lending targets will be monitored. I told him in the statement that the Bank of England is going to monitor them. [Interruption.] “How are they going to be enforced?”, Opposition Members cry. The chief executive’s pay will be linked to the targets, and I made it very clear in the statement that, of course, if the deal is not met we will return to the issue.
The right hon. Gentleman talks about transparency. In 13 years, the previous Government never implemented transparency in the City of London. Some £11.5 billion of bonuses were paid in the year in which he was the City Minister, but we are introducing the most transparent regime of any major financial centre in the world.
The right hon. Gentleman continues deliberately—because I know he must know the numbers—to get the sums wrong on the bank payroll tax and bank levy. Her Majesty’s Revenue and Customs confirmed that there is a £2.3 billion net receipt from the bank payroll tax, and that is spelled out in the March 2010 Budget book, which the Labour Government published. We are raising £2.5 billion every year from a bank levy that he opposes— right?—unless he has changed his mind on that. [Interruption.] He now supports it. Well, that is good news.
Perhaps, then, the right hon. Gentleman will listen to the right hon. Member for Edinburgh South West (Mr Darling). The right hon. Member for Morley and Outwood (Ed Balls) quoted quite a lot from the newspapers in his reply. Well, this is from The Daily Telegraph: “Bankers’ bonus tax failed, admits Alistair Darling,” who said:
“I think it will be a one-off thing because, frankly, the very people you are after here are very good at getting out of these things and...will find all sorts of imaginative ways of avoiding it in the future.”
That is from the then Chancellor who actually introduced the tax on which the right hon. Gentleman now pins his entire economic prospects.
Let me end by saying this: the right hon. Gentleman calls for things that he simply did not do in government. On pay and bonuses, he says control them in the nationalised banks; he did not do that last year when he was in the Cabinet, and he did not do it at all when he was in the Treasury. He calls for transparency; he did not introduce it when he was in the Cabinet or in the Treasury. He talks about reforming the banking system; he is the person who designed the banking regulatory system that failed, but he does not admit it. He talks about the bank levy; he wrote 11 Budgets and never put one in. And on lending, he tried as a member of the Government to secure lending agreements throughout the banks, and he completely failed. The truth is this: he is a man running away from his past, with no plan for the future.
Mr Andrew Tyrie (Chichester) (Con)
Anybody looking reasonably at the settlement will have to agree that it is a welcome step in the right direction. In normal times, Governments should not intervene to force banks to lend or to reveal commercial details of pay, and I very much hope the Chancellor will confirm that it is a one-off, with one exception. Does he not agree that, without further transparency on bonuses, we will never know whether banks are fuelling risks and mistakes for which one day, as a result of the way they misallocate risk, we may have to pay? Will he also support the Treasury Committee’s initiative, outlined in a letter to the Financial Services Authority, and supported by Sir David Walker, to secure that much higher level of transparency?
Mr Osborne
I thank the Chair of the Treasury Committee for the welcome that he gives to the package. Of course, in any normal times one would not want to have to negotiate lending agreements with the banks or, indeed, be in a situation where half our banking sector was in part in the public’s hands, but that is the situation that we inherited as a Government and why I felt that the agreement with the banks was necessary, as well as the additional tax that we are levying on them.
My hon. Friend specifically raises the issue of transparency and his proposals that I know he has put to the FSA. As I said in my statement, we have a voluntary agreement this year on disclosure, which already goes beyond those of other financial centres in the world, but, having consulted, we will legislate in the coming year, and his proposals will deserve close attention.
Mr Geoffrey Robinson (Coventry North West) (Lab)
Will the Chancellor confirm that, as a result of his Herculean efforts in this struggle with the banks, the names of the traders who are still going to be awarded the greatest bonuses will not be made public?
Mr Osborne
The disclosure will be of those senior executives not on the board, but in the Walker proposals there was not even a proposal to identify individual salaries. So it is the senior executives who will be identified.
Stephen Williams (Bristol West) (LD)
I welcome what the Chancellor says about the levy, the extra lending, the transparency on bonuses and, in particular, the restraint shown by the two banks that are effectively under state control. On the banks that are not under our control, however, does he agree that, at a time when families throughout the country face difficulties, some banks seem to have lost their moral compass and really ought not to award themselves extravagant bonuses on a level that families could only dream of?
Mr Osborne
I agree with my hon. Friend that the banks should show restraint and an appreciation of the society in which they operate, the challenges that we face with the economy and, indeed, the squeeze on families’ incomes, in part due to the high prices of things such as oil and food. I make this observation: the bonuses this year will be lower than those in the last year of the Labour Government; and, as a result of this agreement, they will also be lower than they would have been, a point that will be confirmed by the independent non-executive director of the individual bank.
Mr Dennis Skinner (Bolsover) (Lab)
Why should anybody believe that the Chancellor of the Exchequer has got the guts to take on the banks, when today it is revealed that he and his friends in the Tory party—those on millionaires’ row—have picked up £44 million from those bankers in the City? Why should we believe all this rubbish?
Mr Osborne
I thought that the hon. Gentleman might ask a question like that, so I did a bit of research and discovered that one of the biggest donors to the shadow Chancellor’s party leadership campaign was a Michael Sanzone, who started off at ABN Amro, moved to RBS and ended up at Lehman Brothers before supporting his campaign. They are probably the four most catastrophic decisions of recent years.
Charlie Elphicke (Dover) (Con)
That gentleman was probably expecting a knighthood and a peerage, like so many of them had in the past. Have we not moved on from excessive bonuses to an emphasis on lending more money to small and medium-sized enterprises? Are we not seeing £10 billion for SMEs and £2.5 billion in total for the new growth fund?
Mr Osborne
My hon. Friend is absolutely right. For me, in these discussions the absolute key has been the additional commitment to lend to small and medium-sized businesses. Over the past couple of years, all Members have had people in our constituencies come to us with very difficult stories about the failure of banks to lend to such businesses, and we now have a commitment to increase the lending available by 15%, which is a substantial increase. Alongside that—I did not have time to go into all the detail, but it is being published this afternoon—there will be a new code of practice for the banks to treat their customers much more fairly: for example, they should engage with small businesses a full year before an overdraft comes up for renewal. For me, dealing with that crucial area of the economy—getting credit to small and medium-sized businesses—has been one of the most important parts of the new settlement.
Simon Danczuk (Rochdale) (Lab)
We now have the big society shrinking before our eyes, and voluntary organisations seeing their budgets cut left, right and centre. At the same time, we still have bankers’ bonuses well beyond most people’s dreams, and on top of that we learn today that the City and organisations in it, as my hon. Friend the Member for Bolsover (Mr Skinner) pointed out, have been stuffing money into the Tory party’s coffers. Is this a series of coincidences, or should the public be more suspicious?
Mr Osborne
I just pointed out that a Lehman Brothers executive was one of the biggest donors to the shadow Chancellor’s campaign, and I think the hon. Member for Bolsover (Mr Skinner) shouted at that point, “Well, I didn’t vote for him.” [Interruption.] He repeats it; in fact, he probably did not vote for the Labour party leader, because as far as I can tell virtually no Labour MP did. That brings me to this point: the key thing about the Labour party and its fundraising is that it gets money from the trade unions and changes policy as a result.
Nicky Morgan (Loughborough) (Con)
On behalf of the small businesses and voluntary sector in my constituency, may I thank the Chancellor for his announcements about the business growth fund and the big society bank? Is not the reason why the shadow Chancellor’s statement was so empty that the Opposition realise that they did nothing so constructive during their 13 years in government?
Mr Osborne
My hon. Friend makes the very good point that we need to see more support for small and medium-sized businesses in our constituencies and in our economy. The regional business fund that I talked about, to which the banks have today made a commitment of an additional £1 billion, is very important because it addresses one of the weaknesses in the British economy—the absence of support, particularly equity support, for small, expanding businesses. I think that this will make a significant contribution to that.
Stewart Hosie (Dundee East) (SNP)
I thank the Chancellor for his statement and for the early advance sight of it. I agree with what he said about the public’s response to the high levels of pay, which are not fair and reasonable and are not seen to be so. I welcome the very low cash bonuses for RBS and Lloyds staff and the decision for executive bonuses to be paid in shares only. May I suggest that that should rolled out to every bank every year as a matter of course? On the new bank lending, will he confirm that it will really be new, that it will go to the businesses that need it most, and that we will not be locked into excessive fees and charges?
Mr Osborne
I thank the hon. Gentleman for the support he has given to important parts of this package. I understand how important the banking industry is to Scotland, where many thousands of people are employed in it, and the impact that the failure of RBS and HBOS had in Scotland. On his specific point about bonuses, the new code of practice that came in last month forces all banks to pay a much greater proportion of their bonuses in shares and in deferred packages. Of course, none of this existed when Labour was regulating the City. As I have said, I would urge the banks to show restraint and reflect the fact that they are operating in a society with economic challenges brought about by the deepest recession and the biggest banking crisis of our lifetimes.
Jason McCartney (Colne Valley) (Con)
Let me tell the hon. Member for Bolsover (Mr Skinner) that my constituents and I can only dream of living in the £1.6 million house that his party leader lives in.
I welcome the Chancellor’s statement on lending to small businesses and curbing banking bonuses. However, with Lloyds TSB closing its last remaining branch in Meltham and Barclays closing its branch in Milnsbridge, when he next meets the banking bosses will he please stress the importance of community banking and the fact that not all constituents have access to internet banking?
Mr Osborne
When I next talk to the banking chiefs, I will certainly communicate to them, or my office will do so, the specific issues that my hon. Friend raises about the two banks in his constituency. One of the challenges we have at the moment is that RBS and Lloyds are trying to de-lever because of the enormous mess they got into under the previous Government. More generally, he makes a very good point about the importance of community banking. The four banks that have reached this settlement today are committed to extending that and thereby, to a degree, rolling back what happened in recent years. There are also those who want to enter the banking sector. Of course, they have to comply with the FSA requirements, but I know that some of them are offering a return to the kind of community banking that he talked about.
Anas Sarwar (Glasgow Central) (Lab)
The Chancellor compares the funding given to the Labour party by trade unionists with the 50% of donations to his party from the City, but I remind him that it was the bankers who caused this crisis, not millions of hard-working trade unionists.
An FSA report found that RBS had 1.1 million customer complaints, more than 50% of which were not dealt with appropriately, resulting in a £2.8 million fine. Does the Chancellor think it is right to reward failure with lavish bonuses, whether in cash or in shares?
Mr Osborne
It was the last Labour Government who were responsible for the economic mess that we got ourselves into, and the sooner Labour Members face up to that, the better. One example of that was the arrangements put in place regarding RBS, to which the hon. Gentleman referred. That is the contract that we inherited from Labour; this is what the then Ministers who now sit on the shadow Front Bench signed up to: they explicitly told RBS that from 2010 it should pay in line with the market rate. We have now got it to be at the back of the market, not the front.
Brandon Lewis (Great Yarmouth) (Con)
Like other Members, I welcome the move on lending to small businesses. The Federation of Small Businesses, the chambers of commerce and independent businesses have been arguing for some time that good businesses that are viable but have cash-flow problems have been struggling as a result of the policy of the banks under the previous Government. Given that this new move will allow those businesses to survive, and indeed grow, to the benefit of the economy, does the Chancellor agree that it is somewhat surprising, if not disappointing, that the shadow Chancellor and Labour Members have not welcomed it?
Mr Osborne
It is surprising. I noticed that in the shadow Chancellor’s rather extraordinary response there was no mention of lending. Indeed, I am not even sure what the Labour party’s plan is to get the banks to lend more and whether Labour Members welcome this move or not. I know for a fact that the previous Labour Government tried to negotiate a cross-bank agreement on gross lending, and failed. One would have thought, therefore, that they would welcome this, but they have not done so. My hon. Friend makes the good point that the key is to get lending to small businesses going, which is where the market failure has been over the past couple of years. That is absolutely crucial to our economic recovery.
Mr George Mudie (Leeds East) (Lab)
Now that the Chancellor is into transparency on salaries, can he, as the largest shareholder in RBS, the bailed-out bank, tell the House whether it is true, as the Financial Times has suggested, that 100 bankers are earning more than £1 million? If not, how many are?
Mr Osborne
The transparency arrangements are the ones that I have set out, and the arrangements for managing RBS are the ones put in place by the Government of whom he was a Whip.
James Morris (Halesowen and Rowley Regis) (Con)
Many hard-working families and people in my constituency will welcome today’s announcements. Does the Chancellor agree that the banks have a moral responsibility to invest in areas such as the west midlands and the black country, where we need the private sector jobs growth that is vital for the future?
Mr Osborne
I absolutely agree with my hon. Friend. There is a preponderance of small and medium-sized manufacturing businesses in the west midlands and the black country, as I know from my various visits there. These are precisely the sort of firms that we need to help and assist, and this agreement means that more lending will be available to them. As I say, there is also a commitment to a regional business support fund that will provide equity investment to help those small and medium-sized firms to become bigger firms, which is what the British economy needs so that we do not, as we did in the past 10 years, depend on one sector, in one corner of the country, for our economic growth.
John Mann (Bassetlaw) (Lab)
Is the Chancellor confident enough to predict that as a consequence of this package there will be more small businesses on the high streets of Retford, Worksop and Harworth at the end of this year?
Mr Osborne
I am confident about saying that the situation for small and medium-sized businesses in the hon. Gentleman’s constituency and elsewhere will improve. The situation is not going to be transformed overnight—[Interruption.] The hon. Member for Vale of Clwyd (Chris Ruane) and others seem to have complete amnesia about the fact that Labour presided over the biggest banking crisis and the deepest recession since the 1930s. Labour Members got elected on the slogan crafted by the shadow Chancellor, “No more boom and bust”, and then gave us the biggest boom and the biggest bust, and we are recovering the economy from the mess that they left.
Nadhim Zahawi (Stratford-on-Avon) (Con)
Thank you, Mr Speaker.
“If the City is doing well, the country is doing well. When it prospers, we all prosper”.
They are not my words but those of the shadow Chancellor. Did my right hon. Friend take any advice from him?
Mr Osborne
No, instead I learned from the example of all the things that went wrong when the shadow Chancellor was City Minister. As one does on these occasions, I came into the Chamber armed with many of his quotes about what a golden legacy he was leaving in the City, how bonuses were at the appropriate level, and how he was going to resist all calls in Parliament to toughen up regulation. It would take a couple of hours to read them all out, but no doubt over the next few years we will have plenty of opportunities to remind him that he is a man with a past.
Ms Margaret Ritchie (South Down) (SDLP)
I understand that the business growth fund will have a network of regional offices throughout the UK. Will there be such an office in Northern Ireland to work with the banking sector, the business community and the Northern Ireland Executive?
Mr Osborne
Yes, I will ensure that there will be a presence in Northern Ireland. We are seeking to ensure that there is co-ordination between the business growth fund and the Government’s regional fund. As I have said on many occasions to Members from Northern Ireland, we are acutely aware of the challenges in Northern Ireland. The Secretary of State for Northern Ireland has produced a paper on how we might revive the Northern Ireland economy, which is now with the devolved Government. I am taking a close personal interest in that and I hope shortly to come forward, with my right hon. Friend, with some concrete proposals.
David Rutley (Macclesfield) (Con)
I welcome the announcement on the increase in funding for the business growth fund and the new lending agreements. Does my right hon. Friend agree that those steps will help to establish a new generation of wealth creators, which is an urgent priority in regions such as the north-west, where private sector growth has to be the focus?
Mr Osborne
My hon. Friend is right, which is good as he is my local MP. One of the weaknesses in the British economy over recent years has been that small and medium-sized businesses have not had access to venture capital and other sources of funding, as they have had in countries such as the United States and Germany, so that they can become larger companies. The regional business growth fund that I have spoken about will provide more access to such funding. I will also return to this issue in the Budget.
John McDonnell (Hayes and Harlington) (Lab)
I believe that I was the first MP to raise the issue of bankers’ bonuses in this House five years ago, and I was critical of the previous Government. I say to the Chancellor directly that referring pay to remuneration committees, which is a largely toothless and ineffective rubber-stamping exercise, and allowing bankers at RBS to convert their shares into cash bonuses within two years will not assuage the anger of the British people.
Mr Osborne
First, I respect the hon. Gentleman’s consistency on this issue. Secondly, I said explicitly that I did not think that the anger would disappear any time soon; memories will be long of what has gone wrong in recent years. It will help that bank boards will at least be aware of the some of the salaries that are being paid in their organisations, which they simply were not under the previous regime. That is one thing that clearly went wrong at the Royal Bank of Scotland.
Mr Aidan Burley (Cannock Chase) (Con)
A man named Tom Bell set up a charity in my constituency to improve the quality of life for tens of thousands of disabled and disadvantaged kids. He was awarded the OBE for his efforts. In assessing the rewards given to bankers, what does the Chancellor make of the five peerages, eight knighthoods, seven CBEs, four OBEs and four MBEs that were given to bankers by the Labour Government?
Mr Osborne
The statistics speak for themselves. Of course, the shadow Chancellor used to be the chief economic adviser and, given that almost everything at the Treasury was signed off by him, he presumably signed off the knighthood for Sir Fred Goodwin. Perhaps in one of our future encounters we will hear the truth about that.
Mr Ronnie Campbell (Blyth Valley) (Lab)
Some £125 billion was put into the banks by the last Labour Government to bail them out in the crisis. Will the Chancellor tell us when the taxpayer will get that money back?
Mr Osborne
Unfortunately, if we sold those shares today, we would lose money as a country. Of course we want to return those banks to the private sector. That is clearly an objective of this Government, and I suspect that it will be an important issue in this Chamber during this Parliament. The hon. Gentleman makes a very good point: a huge sum of money was put in to bail out the banks and no conditions were attached. With all the things that I have talked about today and all the things that the shadow Chancellor asked about, such as pay and transparency, when the previous Government had the leverage, they did not use it. Unfortunately, we have to deal with that inheritance.
Matthew Hancock (West Suffolk) (Con)
Yesterday, before the Public Accounts Committee, Treasury civil servants explained that the previous Government had the opportunity to seek to put constraints on this year’s bonuses at the partly state-owned banks, but that they chose not to. Is the Chancellor disappointed by that?
Mr Osborne
I am not only disappointed by it; it has been a constraint in what we have been dealing with. It is very explicit—[Interruption.] The shadow Chancellor says this is rubbish, but that was the agreement that he and his colleagues signed up to. That is the problem on this issue, and I think that that is beginning to dawn on them. They have a past—they have a record. It is a record of letting the City get away with murder, and of the rest of us having to pick up the pieces.
Mr Andrew Love (Edmonton) (Lab/Co-op)
Following the statement on bankers’ bonuses, how would the Chancellor respond to the one in ten of my constituents who are unemployed and looking for work; the many low-paid workers who face real reductions in their living standards over the next few years; and the many public sector workers who face the possibility of redundancy? Please do not respond by saying, “We’re all in this together.”
Mr Osborne
To repeat what I said in my statement, I completely understand the anger and resentment felt by the many people who have lost their job or faced their income being squeezed because of the mess that was created in the British economy by the banking system and those who were regulating it. That is the situation we are dealing with. My priority today has been to put the economic recovery first and to ensure that we get banks to lend to small and medium-sized businesses, so that they can take on the people the hon. Gentleman is talking about. Small and medium-sized businesses are the engine of job creation in the British economy and they are crucial to our revival. It is also crucial that we rebalance the economy so that we are not as dependent as we were on the success of the financial services sector.
Mr Marcus Jones (Nuneaton) (Con)
I congratulate the Chancellor on securing the banks’ commitment to increased lending to small and medium-sized enterprises. However, the banks’ aggressive treatment of SMEs, many of which are almost being bullied into accepting new lending terms, fees and charges, is still an issue that is damaging the potential for growth in our economy. Has the Chancellor discussed that issue with the banks during this process, and what do the banks intend to do about it?
Mr Osborne
I assure my hon. Friend that that issue has been at the heart of the discussions. As I have said, that is why we have put such an emphasis on getting a commitment to increased lending to small and medium-sized businesses. There will be a new code for banks, under which they will have to treat their customers much more fairly, be more reasonable and transparent about the terms that they offer, and engage with customers long before overdrafts and the like need to be renewed.
Naomi Long (Belfast East) (Alliance)
I thank the Chancellor for the reassurance he gave to the hon. Member for South Down (Ms Ritchie). As he knows, Northern Ireland has a very discrete banking sector, which has been heavily affected by the Irish banking crisis, as well as by the UK banking crisis. Will he ensure that businesses and individuals in Northern Ireland benefit from the announcement he has made today with regard to both lending and regulation?
Mr Osborne
As I said to the hon. Lady’s colleague from Northern Ireland, I am paying particular attention to the Northern Ireland economy, partly because of what has happened in the Republic of Ireland. I am also paying particular attention to the Northern Ireland banking system, because there is the potential for a knock-on effect from what has happened in southern Ireland. As I said, I am working closely with the Secretary of State for Northern Ireland on what we can do to stimulate growth in Northern Ireland. Finally, despite their questions, I welcome the support I have received from some Opposition parties in the House. That reflects on the fact that although the statement does not contain everything that people want, it is a positive step forward. It also shows how opportunistic the opposition of the former Labour Government is.
Amber Rudd (Hastings and Rye) (Con)
Does the Chancellor welcome, as I do, the assessment of the Centre for Economics and Business Research that for the first time ever, bankers will pay more in tax than they take home from their bonuses?
Mr Osborne
I do welcome that research. We need to ensure that we get the tax revenues up. We have introduced the permanent bank levy, which was opposed by the Labour party. We have forced the banks to sign up to the code of practice, which Labour announced in a fanfare from this Dispatch Box, but managed to get only two banks to sign up to—we have got all the banks to sign up. We are looking at the tax avoidance measures that have been used, such as disguised remuneration, which the previous Government had 13 years to address, but failed to do.
Kate Green (Stretford and Urmston) (Lab)
Not every worker in a bank is on a multi-million pound salary. Clerical, back office and counter staff frequently earn well under £20,000 a year. Is the Chancellor confident that these measures will begin to reduce pay inequality in the banking sector, and will he have discussions with senior bankers about worker representation on remuneration committees?
Mr Osborne
I am certainly happy to raise the issue about representation that the hon. Lady mentions, but—[Interruption.] These people seem to forget that they were running the country for 13 years and had every chance to do the things that they complain about now, and they completely failed.
To return to what the hon. Lady said, I will raise the specific issue of the representation of workers within the banks. As I have said, most people, including myself, find some of the levels of pay in the financial services sector extraordinary. We are seeking to start to constrain them, although we obviously have greater control over the semi-nationalised banks. I hope that we are also ensuring that we get the tax revenues required to help pay off the nation’s credit card, the budget deficit.
Neil Parish (Tiverton and Honiton) (Con)
Like many hon. Members, I welcome the Chancellor’s getting greater lending from the banks for small businesses, but can he assure us that there is proper competition within the banking sector, so that money is lent at competitive rates? That is one of the problems that businesses in my constituency are having: they cannot get the money at the proper rate.
Mr Osborne
My hon. Friend is right that competition in the banking industry is very important. In the past two or three years we have seen a massive consolidation of the banking industry, with many of the building societies being folded into the larger banks. HBOS disappeared, for understandable reasons, Northern Rock had to be nationalised and so on. One of the remits of the Vickers commission, the Independent Commission on Banking, is to examine competition in the sector, and of course John Vickers himself has personal experience of competition issues. That was one reason why I asked him to take up the post. The commission is examining the specific issue that my hon. Friend raises.
Gordon Banks (Ochil and South Perthshire) (Lab)
On the Chancellor’s aspiration to have an extra £10 billion lent by the banks to UK SMEs, may I ask him how that figure was arrived at? Is it what he considers is lacking in the economy, or is it all he could prise from his friends? Is it gross or net?
Mr Osborne
The number is gross, like the lending targets agreed by the previous Government for the nationalised banks, but this is, of course, an agreement across the banking sector. The number was part of the hard negotiations that we had in order to get the amount up. The banks were anticipating reducing lending in the British economy over the coming year, and we have reversed that and got a 15% increase in small and medium-sized business lending.
Christopher Pincher (Tamworth) (Con)
In the light of his statement and what he has heard from the Opposition Front Bench, will my right hon. Friend give any further consideration to the warning offered by a certain soi-disant financial journalist who said that nothing must be done to endanger a light-touch, risk-based regulatory regime? [Interruption.]
Mr Osborne
I must say that it is a slightly depressing thought that the appointment of the hon. Member for Vale of Clwyd as shadow Parliamentary Private Secretary means that this will be a constant feature of the encounters in the House between me and the shadow Chancellor, but there we go.
My hon. Friend the Member for Tamworth (Christopher Pincher) makes a very good point. There are, of course, legions of quotes from former Labour Ministers including the shadow Chancellor about the light-touch regime, how they were resisting calls in Parliament to strengthen it and all of that. Quite a few of them, of course, have gone off to work in the banking sector since leaving Parliament.
Mark Durkan (Foyle) (SDLP)
Does the Chancellor not accept that he may be overselling as transparency something that is really just temporary and limited translucency on bonuses, credit and lending to business? What guarantees are there that the Bank of England will not just report on the aggregate of the money available but will examine the prices and conditions involved? Will he also guarantee that if businesses are relieved by credit granted, they will not be floored by tax demanded?
Mr Osborne
First, on transparency, at the moment we have a voluntary commitment by the largest British banks, and we are going to turn that into a legislative requirement on all the major banks operating in the UK. We will bring forward proposals over the coming year to consult on that, as we have to do under the statutory procedures, but my intention has been made clear.
Bank charges and so on are properly not a responsibility of the Bank of England at the moment. It is going to focus on collecting the numbers. However, we are creating a strong consumer protection and markets authority—there will be legislation before the House on that, and a very good chief executive-designate has been hired. He will ensure that the customer gets a fair deal as well.
Geraint Davies (Swansea West) (Lab/Co-op)
Will the Chancellor put a cap on the value of the shares that bank executives give themselves as bonuses, or will shares now be seen as a Trojan horse for bankers to give themselves still greater bonuses in future?
Mr Osborne
As I have explained, bonuses are actually going to be lower this year than they were in the last year of the Labour Government, who had an opportunity to do something about them.
Yes, bonuses will increasingly be paid in shares, and for a very good reason—so that when the bank goes bust, people will not walk away with a huge payment. We remember not just Fred Goodwin’s knighthood but the pension that the Labour party awarded him. It was completely unable to deal with the fact that the bankers in the banks that went bust walked away with their money. One of the reasons for paying bonuses in shares, and why we have introduced the code, is so that the bankers, too, will pay a price if the bank in which they are involved fails.
Alex Cunningham (Stockton North) (Lab)
The education maintenance allowance costs £580 million a year, a fraction of the cash that the Chancellor could be raising from the banks. Why is he taking more money from young people’s EMA and other things affecting their lives than he is taking from the banks?
Mr Osborne
First, we are taking £2.5 billion from the banks each year, which is more in each year than in any of the Labour Government’s 13 years. Of course, the context of all this is the enormous budget deficit. It is worth reminding Opposition Members that in eight weeks’ time, the Darling plan would have started to take effect—the halving of the budget deficit in four years, which they kept repeating in the election and which the shadow Chancellor was apparently forced to sign up to. In eight weeks’ time the big cuts would have come, which would have been £2 billion less than the cuts being undertaken by the coalition Government. We have eight weeks to hear Labour’s plan for where the cuts would fall.