Bankers’ Bonuses and the Banking Industry
Guy Opperman Excerpts(9 years, 9 months ago)
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Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)
I beg to move,
That this House believes bonuses should be rewards for exceptional performance and that, following the banking scandals that have emerged in the last few months, this year’s bank bonus round should reflect this principle; further believes that a tax on bank bonuses should be levied in order to fund a guaranteed paid starter job for young people who have been out of work for over a year, and that this tax should cover allowances paid by banks which attempt to get round the EU bonus cap; calls on the Government to reform the rules on bankers’ bonuses by extending clawback of bank bonuses that have already been paid in cases of inappropriate behaviour to at least 10 years and by also extending the deferral period for senior managers to 10 years, in line with the recommendations of the Parliamentary Commission on Banking Standards; and further calls on the Government to implement wider reform of the banking industry to increase competition and boost net lending to small and medium-sized businesses.
As we enter this year’s bank bonus season, I am reminded that seasons used to be for football and fashion, but it now seems that we have a season for bank bonuses as well. I am delighted to have this opportunity to set out everything that a Labour Government would do to reform the banking sector in this country, and to highlight the areas where the current Government have failed to make the necessary reforms.
Earlier this month, in our Opposition day debate on tax avoidance, my hon. Friend the Member for Birmingham, Ladywood (Shabana Mahmood), with whom I have traded places today, explained how the tax system is underpinned by the principles of fairness, trust and transparency. Those principles are equally applicable to the banking sector. Just as a Labour Government will restore those principles to the tax system, ensuring that tax loopholes are closed, tax dodgers are caught, and everyone pays their fair share, so we will restore them to the banking sector. In doing so, we will be acting in the best interests of businesses, consumers, the wider economy and the banks themselves.
Guy Opperman (Hexham) (Con)
The hon. Lady’s motion seeks to increase competition in banking. Will she therefore explain why the Labour Opposition voted against the Financial Services Act 2012, which specifically encouraged competition in banking services?
Cathy Jamieson
Having sat on the Bill Committee for that piece of legislation, I remember well the considerable discussion that there was. If the hon. Gentleman has read our paper on banking reform, he will know that we support the reference to the Competition and Markets Authority to ensure that we get new challenger banks in the system. That will be an important feature of our reforms in government.
Our programme of reform, as stated in our recent paper on banking, is designed to undo the reputational damage that has been inflicted by the financial crisis and the subsequent scandals. Our approach will help to restore the trust and confidence of savers, businesses and investors, and to ensure that fair dealing, integrity, prudence and probity are once again the pillars on which Britain’s banks are founded. In a global industry, an international reputation for good practice can only be a competitive advantage.
Cathy Jamieson
As the hon. Gentleman knows, we did have a global financial crisis. The Labour party has accepted that perhaps the regulation could and should have been tighter; we have said that on numerous occasions. I was not in this place at the time of the financial crisis, but I do not recall many on the Conservative Benches making the case for tougher regulation. Indeed, the opposite is true; they were actually looking for light-touch regulation. I hear what the hon. Gentleman is saying, but perhaps he should look at his own party’s record on this matter as well.
Cathy Jamieson
I want to make a bit of progress, but I will give way once more to the hon. Gentleman.
Guy Opperman
Clearly, regulation is needed, but it is only because we have relaxed some parts of the regulations that we have been able to allow up to 20 new challenger banks to be established since 2010. Does the hon. Lady think that her proposals will encourage or discourage challenger banks? The evidence thus far is that Labour has voted against every single measure that would create greater competition in banking.
Cathy Jamieson
I am now becoming a bit confused about what Conservative Members are arguing for here. Do they want more or less regulation? [Interruption.] Did I hear someone say both? The important issue here is to ensure that regulation is fit for purpose, and that we do not simply have more of the same when we talk about new entrants into the banking system.
Cathy Jamieson
No, I want to finish this point.
As I said, it seemed that the scenario proposed was still fairly generous, but it was obviously not generous enough for the Chancellor, who decided to take legal action. The quest ended in failure after he meekly admitted defeat at the hands of the EU’s lawyers, but not before he had wasted thousands of pounds of taxpayers’ money in legal fees. Let us remember that this Chancellor will not devote himself to ensuring that tax avoiders and evaders are brought to book, when the first thing that he does is to challenge something of that sort, but he will devote himself to defending the right of bankers to receive high bonuses, while spending taxpayers’ money as he does so.
The Chancellor has been a diligent defender of bankers on the home front, too. Last year he had to be pressurised by Labour and others into refusing to give taxpayer-owned RBS the shareholder permission it needed to breach the cap and to pay bonuses of 200% of salary, and he still has serious questions to answer on HSBC. Over recent weeks, he has done his best not to answer them and has sent his Treasury Ministers out to do the talking for him. On Monday, he finally put in an appearance, yet he did not have any answers at all, so we need to keep asking the same questions. Did he discuss allegations of tax evasion at HSBC with Lord Green before Lord Green was made a Tory Minister; why has only one person been prosecuted out of 1,100 names; and why has he signed a deal with Switzerland that could prevent HMRC from getting its hands on similar information in future? He has been Chancellor for nearly five years and this is his responsibility. He needs to start taking his responsibilities seriously. If he does not, people are going to draw their own conclusions.
Let me move on to Labour’s reforms. It has been clear since this Government took office that they do not have the stomach for the serious reforms that we need. As our motion explains, a Labour Government will do things very differently. Our starting point, as I outlined, will be trust and fairness. We believe that banks should serve the needs of their customers and the economy, and that bonuses should be a reward for exceptional performance, not a compensation for failure.
Cathy Jamieson
I will, in the hope that the hon. Gentleman is going to agree with my last point.
Guy Opperman
I do agree that there is a need for greater competition. Let me ask the hon. Lady this question again: why did she troop through the Lobby—I presume that she did so with the rest of her colleagues—to vote against the provisions on greater competition in the Financial Services Act 2012?
Cathy Jamieson
As I said to the hon. Gentleman earlier, perhaps he would like to take some time to read the report that we produced last week, which shows that we need to make several changes to ensure that there is greater competition. I do not see anything inconsistent in that and I hope that he will choose to read the report.
I want to return to the point that bonuses should be a reward for exceptional performance, not a compensation for failure.
Andrea Leadsom
The hon. Lady will know that the Government have taken steps to bring down significantly the amount we are borrowing each year to get our economy on the road to recovery after the disaster caused by the Labour party.
To return to the point of this debate, the real fact is that the public are absolutely right to be furious about the behaviour and misconduct of banks. It still feels as though there are fresh examples every day of the shameful practices that went on in the bad old days. The public will want to know what this Government have done to sort out the mess left by the previous Government.
I can tell the House that, under this Government, we have the toughest remuneration regime of any major financial centre in the world; we are making banks raise their standards, rebuild their reputation and get back to the job they used to do prudently and respectably for centuries; and we are making sure that we never go back to the bad old days of banking.
Andrea Leadsom
I will give way in a moment, but I want to be very clear at this point. In such debates, there is always a sense that somehow all bankers are terrible people. The truth is that the vast majority of the up to 2 million people employed in financial services do an honest day’s work and always have done. They would not seek to rip anybody off, or distort anything they do. They are honest, decent people. I want to pay tribute to the work of financial services not just in oiling the wheels of our economy, but in contributing so much to our economy as a whole. Notwithstanding the very real misconduct issues, which have disgusted all of us right across the country, it is true that only a small number of people are responsible for such wrongdoing. I will talk about what we have done to put that right after I have given way.
Guy Opperman
Will my hon. Friend also make the point that this Government have ensured that LIBOR funds, which were not previously given to good causes, have benefited air ambulances—my hon. Friends and I supported them at No. 11 Downing street last night—and 96 military charities? This Government have brought in a magnificent innovation that supports wonderful charities.
Andrea Leadsom
I am very grateful to my hon. Friend for raising that point. The Government are extremely proud that fines for misconduct go to good causes, unlike under the Labour party, when any fines for misconduct were passed straight back into the hands of the people who committed it. The LIBOR fines have gone to military charities and air ambulances, as he pointed out, and the fines for the appalling foreign exchange rigging will support the NHS and GP surgeries in particular.
Mr Bain
The Government whom the previous Labour Government replaced were content to leave a wages structure in place in this country in which security guards earned less than £1 an hour. That inequality had to be tackled, and that gap reduced during the previous Parliament. People will want to hear during this debate about the next Parliament, and about our vision for the future of a high-skill, higher wage, higher investment economy. I believe that the Labour party has the more convincing vision.
Guy Opperman
I have here the House of Commons unemployment statistics for February 2015 for Glasgow North East. Surely this Government’s long-term economic plan has done something when the number of total claimants has reduced by 19.6% in the hon. Gentleman’s constituency, youth unemployment for 18 to 24-year-olds has reduced by 27%, and those unemployed for more than 12 months—a more difficult area—have reduced by 37%. Are we doing something right?
Mr Bain
The hon. Gentleman cites figures that demonstrate that in the last month—[Interruption.] Well, I will give him figures from the Office for National Statistics. In the past month, unemployment in my constituency rose by nearly 50 people. He does not cite the International Labour Organisation figures. If he genuinely believes that unemployment of 2,500 people in my constituency should be tolerated by any Government, he misjudges not just the attitude of my constituents, but the good sense of the British people.
Guy Opperman (Hexham) (Con)
It is a pleasure to speak in this debate. I must first mention the Register of Members’ Financial Interests and point out that I am attempting to create two banks in the north-east at present. My life savings, virtually, are in the Atom bank, which is an internet start-up that has been set up by individuals just outside Durham. We are also attempting to merge the Tynedale community bank with the Prince Bishops bank in Stanley in County Durham, with a view to creating an enhanced credit union.
Having made that declaration, I would like to take the House on a journey. The very first constituent who came to me after I had been elected in 2010 had had his bank finance taken away and, for that reason, his business had failed. It was not through any fault of the business, but because of the bank lending provisions at the time. The bank was local, in Newcastle and then London, and was one of the large banks. That case made it patently clear to me that we needed greater competition. To that end, we have spent much time in this Parliament, both as the Government and individually, trying to create that greater competition.
When we assess the quality of the Labour proposals—I confess that I have not had the great joy and pleasure of reading the shadow Chancellor’s proposals for banking reform, to which the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson) referred, but I have glanced at some of the issues—we must look at the record over the last few years. That must start—and I twice raised this with the hon. Lady and did not get a reply—with the Financial Services Act 2012. On 23 April 2012, I spoke in the debate on the Bill. To the Labour party’s eternal shame, it tabled amendment 28, which sought to delete clause 5 of the Act. That would have removed “The competition objective”. Labour claims to be in favour of competition, but I find it utterly illogical and wrong that it should have sought to vote down the specific proposals in the Act that encourage competition. The proposals are simple and I would have thought that those who profess to want competition in banking would be in favour of them. They include
“the ease with which consumers who obtain those services can change the person from whom they obtain them”—
bank switching, and
“the ease with which new entrants can enter the market”.
That is challenger banks and local banks. The clause also includes
“the ease with which consumers who may wish to use those services…can access them”.
I could go on.
I refer to clause 5 because the House and the country will have to judge Labour on what it has done in the past. I have looked briefly at the grave and weighty tome—I speak ironically, I am afraid—published by the shadow Chancellor and the shadow Financial Secretary on proposed banking reform. It says that Labour wants to see
“At least two new challenger banks”.
I hate to say it, but over the last four years some 20-plus new challenger banks have been created under this Government. I have met many of them, including Metro, which is the biggest and the best, Aldermore and Virgin. Those of us who have been trying to increase competition would view the hon. Lady’s argument—which is, presumably, that 20 is good but we want two more—as illogical. I want an awful lot more than two more. Why she chose two, rather than one or 10, I am at a loss to understand, but doubtless when I read the grave and weighty tome, all will become clear.
We need to assess the way in which the Government have addressed the creation of greater competition. The creation of a new bank faces four fundamental challenges—I know because I have attempted to navigate my way through them over the last four and three quarter years. The first was a lack of legislation to facilitate such change. My hon. Friend the Member for Chichester (Mr Tyrie) and I went to see Sir Hector Sants, the then chairman of the regulatory authority, and he agreed and changed the rules. Previously, if I wished to create a challenger bank or new local bank, I would have been judged on the same basis as Barclays or the other big banks. I would have to have capital up front massively in excess of £50 million and my board would have to be set up years in advance—to say it was bureaucratic would be an understatement.
The point I was trying to make to the hon. Member for Kilmarnock and Loudoun was that, in some respects, for the creation of local challenger banks, regulation had to be tweaked slightly so that it was not light-touch—to return to the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) who, as usual, is not in his place—but different and better. First, we introduced the Financial Services Act 2012, which provides the framework for the regulatory authorities to encourage greater competition. Secondly, having passed that legislation, notwithstanding Labour opposition, we tackled the length and complexity of the authorisation process. Setting up a new bank traditionally took years and a huge amount of money. We all want greater competition, and for the FSA to abbreviate the process—in planning, this is done through a pre-authorisation process—and help a potential new bank through it. The long and short of it is that the FSA has dramatically reduced the bureaucratic process and the number of years it took to set up a new bank. As a result, some extraordinarily successful new banks—for example, the Hampshire Trust and the Cambridge and Counties bank, which is effectively a local authority utilising its pension fund to do LEP-style investments in local businesses and communities—have come forward in the past few years.
The third big change was the reduction in the capital requirement. Huge amounts of money were needed to create a local or any kind of bank, but local banks are not now being judged on the scale of Barclays, because they do not want to be like Barclays or any other high street bank. Finally, the scale and complexity of the infrastructure and the information exchange between all the bank authorities was changed, as it needed to be.
I will be nice to the hon. Member for Kilmarnock and Loudoun: of course I would welcome two more new challenger banks. The consequence, however, of the past four and three quarter years of change in the regulatory, legal and bureaucratic process and in the general climate of FSA behaviour is that we have in excess of 20 new start-ups. For the first time, we have new banks taking people on in the high street. I see that myself, because not only am I able to play a tiny part in the creation of a significant new bank in the north-east based in County Durham, but we are trying to fill a gap in the high street in my community in Northumberland.
The Government have changed the rules on credit unions to make it possible to have two types of credit union. You and I, Mr Deputy Speaker, will know that the traditional credit union model requires people to borrow for a very long period of time. The credit union is a very laudable and good thing and we should continue to support it, but there is a gap in the market. That gap has been filled, in my community and up and down the country, by payday lenders. As a result of high street banks not being able to lend in one way and credit unions being relatively restricted, there is a gap. The gap can be filled by community banks, which would effectively be bulked-up credit unions. There is a fantastic number of examples. Several are in large Labour areas, such as Glasgow. The Salford credit union is going from strength to strength. I have spent considerable time getting to know the Prince Bishops bank, which is based literally on the high street in Stanley in County Durham. It competes with what we would think of as high street banks and is, effectively, a bulked-up credit union. That surely shows that the Government are taking things in the right direction.
Chris Evans (Islwyn) (Lab/Co-op)
Many credit unions, which are run mainly by volunteers, are the victims of their own success, as they become too large and usually disband because they cannot handle the administration, the back-office work, that comes with it. How does the hon. Gentleman envisage credit unions being able to manage themselves as community banks and, potentially, as building societies? What legislation would help with that?
Guy Opperman
The legislation is already there. The hon. Gentleman should speak to the hon. Member for North Durham (Mr Jones), who is doing a fantastic job on the board of the Prince Bishops bank. I happily praise him for the work he is doing with the local community—with the church, the local authority and the housing association. To improve the quality of a credit union and make it viable, one has to, for example, ensure that payments to local authorities and housing associations go through the credit union, so it becomes a clearing bank in the normal way. There must be a greater degree of lending on a long-term basis. To put it bluntly, the credit union needs to go after middle-class lenders, because they are the ones who will make the deposits.
In Northumberland, a large proportion of my constituents are off-grid and have to purchase 500 litres of oil at a time. That costs approximately £350, now about £275. Banks will not give the lending facility to many unbanked people, because the number is too low, but if they were to save with a bulked-up credit union or community bank, that community bank could be the lender of choice for that specific purpose. Such people would, because they are mostly homeowners, be the sort of new lenders and new depositors who can provide the critical mass and the clout for the enhanced credit union-community bank to be more viable. The traditional problem with a credit union is that it does not have the deposit savings unless it has a white knight or a very strong church or trade union backing it.
We can discuss this another time—Mr Deputy Speaker will say that I am straying from the substance of the motion—but opportunities are out there. The point goes to the substance of the motion, which is competition. A credit union should provide competition on the high street to high street banks. Traditionally, credit unions have struggled. The Government’s changes have made it easier for them.
I will touch on two further points and then bring my remarks to a close. The sins of the bad, all of which we deprecate, are now paying for the good works of the good. We cannot have this debate without talking about LIBOR and about the terrible things that happen. However, the Government have done a wonderful thing in saying that the 96 military charities should receive the funds of the LIBOR fines and that air ambulances should receive a considerable amount of money. Last night, I was at No. 11 Downing street with the Chancellor. Representatives of many of the air ambulances throughout the country, including from Essex, were there. They are receiving significant sums of money by reason of the Chancellor’s decision on LIBOR funds. That is a fantastic thing. It was first announced in the 2012 autumn statement, originally for just military charities. It has now developed into other areas—the Minister spoke of GPs and other health services. The great work done by the air ambulances should be noted. The support we are giving to them is crucial.
I want to make one final point on the motion, which refers to tackling unemployment and youth unemployment as the purpose behind everything that it proposes. It is hard to read the House of Commons Library unemployment statistics and find a single Member of Parliament who has not benefited from a dramatic reduction in unemployment.
Guy Opperman
I know the hon. Lady reasonably well and presumed she would be quite chirpy in her usual fashion. The House of Commons’ “Unemployment by Constituency” research paper 1509, published on 18 February 2015, shows that there has been a 34% reduction in unemployment in her constituency of Bishop Auckland. The reduction for those aged 50 and over is 24%. The 12-month unemployment figure, which of course is the very difficult area to address, has seen a 45% reduction in the past year. Youth unemployment is often prayed in aid by the Opposition—and understandably so, as we all agree that we need to address it.
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. Whether or not the hon. Gentleman is talking about the hon. Lady’s constituency is not the question. It is a question of whether Mr Opperman wishes to give way.
Guy Opperman
I am afraid that I will not give way—first, because I have already gone on too long and, secondly, because I want to enlighten the hon. Member for Bishop Auckland (Helen Goodman), who would surely welcome the fact that unemployment for 18 to 24-year-olds in her constituency has reduced over this last year by 40.2%. I could say much more, Mr Deputy Speaker, but I think you would stop me doing so.
Helen Goodman (Bishop Auckland) (Lab)
I am very pleased to follow the hon. Member for Redcar (Ian Swales), and to have listened to the hon. Member for Hexham (Guy Opperman). It is clear that Members representing constituencies in the north-east are extremely interested in the debate, and that in itself is significant. The fact is that the banking system is currently not serving our region well. What the hon. Member for Redcar said about the Handeslbanken was absolutely right, and the work that the hon. Member for Hexham has been doing with Atom bank is necessary because of the failure of the current banking system. I would almost go so far as to say that his concern about finance for small and medium-sized enterprises and about tackling financial exclusion would make him a far better junior Minister in the Treasury dealing with this industry than the complacent former banker who currently seems to fulfil the role.
I agree with what the hon. Member for Redcar said about the need to regulate crowdfunding. He is absolutely right: it is a fashionable new thing, and people just leap into it, just as—as he pointed out—they leapt into the free market in 1986, without thinking about the consequences. Both hon. Gentlemen pointed up the inadequacies of banking in this country, but neither of them defended bonus levels and the method of paying them that we can see in most of the financial sector. I do not understand why they will not come into the Lobby with Labour Members at 4 o’clock, because that is where the logic of their position should take them.
In the north-east it is true that unemployment is down—we had the highest unemployment in the country at 10%—but cuts and the depression in the economy of the north-east mean that earnings are down between 4% and 9%. It is not a thriving region, and no one is happy about that.
Guy Opperman
Clearly more needs to be done in the north-east—no one disputes that—but does the hon. Lady not agree that the autumn purchasing managers index survey showed that we had the fastest private sector growth? We have the largest exports, and the largest export growth of any part of the country. After London, the north-east has more tech start-ups than any region in the country. There is more to be done, but I would not want her to paint a picture of doom and gloom for a second.
Helen Goodman
The hon. Gentleman is absolutely right: we are indeed a successful exporting region, but the Government are spending 520 times as much on the transport industry in London as they are in our region, which does not make sense. That is one reason why the Opposition want to set up a business investment bank.
Charter for Budget Responsibility
Guy Opperman Excerpts(9 years, 10 months ago)
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Ed Balls
I agree with the right hon. and learned Gentleman. I am not going to pick over past debates, but when he led his party through the Lobby opposing Bank of England independence, well, that was then; and when he advocated Britain joining the single currency in 2003, well, that was then. We probably agree on other things these days.
Let me take the right hon. and learned Gentleman to the most recent OBR forecasts. He makes an important point about trend, and in 2010 the OBR forecast that the underlying growth in our economy—trend growth—would in this Parliament, in 2014, be 2.1%, but in its most recent document it has revised down the underlying trend in 2014 from 2.1% to 1.7%, so, despite the reforms he talks about, we have been going backwards in terms of trend growth and productivity.
On the other hand, if we can raise through reform—I will come to this in a moment—the underlying trend growth of the economy, we can turn this around. These are not my numbers; they are the OBR numbers. The numbers show that if we were able to increase the underlying trend growth of the economy by just 1%, so it was 1% higher by 2019, which is the equivalent of about 0.2%—
Ed Balls
In a second; not in the middle of a sentence. That 0.2% a year improvement in the underlying growth of the economy would, by the end of the period, bring in £15 billion a year more in tax revenues. So the trend of growth has gone in the wrong direction under this Chancellor and the key for the next Parliament, as well as spending cuts and tax rises, is to improve the underlying growth of the economy. If we can do that, we can bring in the revenues. If, on the other hand, we fall short in the next Parliament under the same Chancellor in the same way as we have in this Parliament, that would lead to over £110 billion in extra borrowing. If we are going in the wrong direction on growth and wages, the revenues do not come in and the deficit does not come down. We have got to improve the underlying growth potential of the economy. The right hon. and learned Member for Rushcliffe and I agree on that, but I do not think that this Chancellor understands the point.
Ed Balls
The problem is that the Chancellor said he would make people better off, and they are actually worse off at the end of this Parliament; he said he would balance the books, but he has not got the deficit down, and the reason is that trend growth and productivity have been weaker than he expected in 2010, which means the tax revenues have not come in. So in fact the opposite is true. It shows that we need a proper plan for jobs and growth to turn around the underlying growth of the economy. On that, he has totally failed to deliver.
Ed Balls
In a second. First, let me turn to the fiscal mandate, because this is where the Chancellor’s position becomes, to be honest, farcical. The current fiscal charter says:
“The Treasury’s mandate for fiscal policy lapses at the dissolution of this Parliament.”
Rather than lapses, I would say that it has totally collapsed in this Parliament. It is totally discredited. Even the TaxPayers Alliance can now see how discredited the Chancellor’s forecasts are for this Parliament, but the Chancellor has a bail-out clause, because in the old charter it says that he has a
“duty to set out a fiscal mandate”
which
“will require the Treasury to set out a revised mandate for fiscal policy as soon as possible in the life of the new Parliament.”
This Chancellor, always alive to trying to find a new gimmick, decided—and has told every Tory commentator going—that this is a new trap for Labour. That is what we are going to get. It is not a stunt; it is not a gimmick; it is a trap for Labour. The problem is that, as we have seen today, this has been an opportunity for us, him and the TaxPayers Alliance to highlight to the country how much he has totally failed in this Parliament on fiscal policy. It is not only a chance to show how extreme his plans are for the next Parliament—and I will come to that—but he has not even managed to deliver the trap he promised.
Guy Opperman
I did not want to disrupt the shadow Chancellor’s flow, because I know he is easily distracted. Is it not because of the Chancellor’s support for the north-east by way of city deals, manufacturing and business support that the north-east now has the fastest rate of growth in private sector business in the autumn quarter, and the highest rate of growth in exports? Surely that is evidence that this economy has been turned around by a Chancellor who cares about business and manufacturing?
Ed Balls
Maybe we could form a consensus on the way forward on devolution for the regions—I am in favour of that and so is the hon. Gentleman—and that is not the only thing we could form a consensus on, because this is what he told ConservativeHome just recently:
“A bit of extra tax on properties over £2 million seems perfectly fair to me.”
I am with him all the way. Maybe we should get together on that one as well—you shouldn’t have let that one through, George!
Let me come back to the vote and what the Chancellor said at the time of the Budget. He said:
“Britain needs to run an absolute surplus in good years…To lock in our country’s commitment to this path of deficit reduction, we will seek the support of Parliament in a vote, and I will bring forward a new charter for budget responsibility this autumn.”—[Official Report, 19 March 2014; Vol. 577, c. 784.]
The vote was supposed to be on an absolute surplus. That is what the Chancellor was talking about. The Prime Minister on 15 December—the day the new charter was published—attacked Labour for our proposal for two or three years to get the current Budget into surplus. What was surprising about that speech was that the Prime Minister made it, did the Q and A, and got off the stage before the Treasury published the new charter. That was an odd thing to do when he was talking up the charter. Why would they not put it out in advance? It turned out to be because the Prime Minister had just finished a speech attacking Labour and our plan to get the current Budget into surplus, and then the Treasury published a new fiscal charter committing the Government to get the current Budget into surplus. No wonder he got off the stage so quickly.
The Chancellor promised in the last Budget a vote to balance the overall budget. Now the Government have done a U-turn and are proposing a vote on the current Budget excluding capital investment, which is the same measure we have been committed to for three years. Can he confirm that in the last Budget he promised a vote on an absolute Budget surplus and this charter before us is a vote on the current Budget? Is that right?
Also, when we study the fine print of this fiscal mandate, we find that it turns out to be even more different from the old one than I expected. The old fiscal mandate talked about having a target to balance the current Budget in 2015-16 and a target to have the national debt falling. We can see why this Chancellor has got a little worried about setting targets because they have not gone very well. It turns out that in this new document it has been downgraded from a target to an aim. Why have the words changed? Would the Chancellor like to explain?
Mark Reckless (Rochester and Strood) (UKIP)
Her Majesty’s Opposition bear a heavy responsibility, because they set the dividing line in this debate. They chose to attack the coalition Government for cutting too far, too fast and to set up the Chancellor as if he were the author of austerity. The reality is four years—it is coming up to five years—of fiscal incontinence and a borrowing binge greater than any this country has seen in peacetime. In the run-up to the last election, a number of Conservative voices drew attention to the Labour Government having borrowed in three or four years more than the country had borrowed in the previous 300. Since then, however, the coalition Government have borrowed even more.
Both Labour and the Conservatives seek to reduce our deficit with at least one hand tied behind their back. Their excuse is crisis in the eurozone, yet they failed to explain, despite the claims, particularly from Conservative Members, that the economy is supposedly doing so well, why we are borrowing so much. Why are we borrowing so much more than France, Italy, Spain and Greece? The answer is that the Government have failed to keep their promise to deal with the deficit, let alone to pay down our debts. They have tied their hands behind their back in the way that every other party in the Chamber has, except my own. There is a consensus commitment across the House—it is not in the country and it is not shared by my party—to spend between £10 billion and £20 billion each year on a budget contribution to the European Union, to spend a sum rising to £13 billion on a net transfer of overseas aid, and to spend a sum rising from £2.3 billion in 2012 to £9.8 billion in 2020, partly classified as spending, through the levy control framework. There is also the vow the party leaders made in Scotland to carry on the commitment to the Barnett formula for as far as the eye can see. With those spending commitments, the Government are enormously handicapped in reducing the deficit.
Guy Opperman
Given his policy on Europe, what would the hon. Gentleman say to my farmers in Northumberland? Is it his proposal that on withdrawal from Europe, there will be a reduction in support to the farmers?
Mark Reckless
The common agricultural policy operates with such fantastical inefficiency that there is enormous scope for treating farmers better while spending less money. The problem is that the Government and the country are spending money that we do not have. The problem is not just the level of the commitments I described, which my party does not endorse and would make savings from, but that the spending has been allocated on the basis of forecasts by the Office for Budget Responsibility. When this Parliament started, the OBR was essentially one man: Professor Sir Alan Budd. Instead of relying on the electoral mandate and authority of the Government—or the institutional ability of the Treasury, as the right hon. and learned Member for Rushcliffe (Mr Clarke) did—the Chancellor based his whole economic and fiscal strategy on the forecast of one man, Professor Sir Alan Budd.
The right hon. and learned Gentleman rightly said that GDP evolved in a way that was worse than almost anyone predicted, but he did not say that the OBR’s forecast was far more optimistic than that of most economists at the time. That forecast was made even more optimistic in October 2010, and we are paying the price for that. The Chancellor has come to realise that he needs to restrict benefits growth to 1% a year for at least two years—it is perhaps now three years or more—in the same way that public sector pay has been restricted, but back in 2010, 2011 and 2012, he raised benefits by inflation when at times it was more than 5% and wage growth was only 2%.
It is those fiscal commitments—to the EU, to overseas aid, to energy and to Scotland—combined with putting so much trust in the one individual and the three men and a dog in the OBR and its approach to economic forecasting that has led the country into this terrible fiscal position. The OBR forecasts that the fiscal position will go back into balance, with more than £20 billion of surplus in 2019-20, but that reduction in Government borrowing must be predicated on a combination of an increase in private sector borrowing and a reduction in the current account deficit.
The OBR tells us that there will be an explosion in household debt and at the same time a big fall in the current account deficit. It made that forecast on a risible analysis. It looks at what has happened to our investment balance. For 300 years, the country has earned its way through a surplus on investment income. That has disappeared because of the combination of the fiscal incontinence of both the Labour party and the Conservative party, which have borrowed such enormous amounts of money, and what the banking crisis has done to impair the quality and quantity of our net asset base. The OBR simply assumes that that investment income will magically come back. If it does not, things will be a lot worse. If we are to carry on giving 0.7% of GDP to overseas aid, £10 billion to £20 billion to the EU—perhaps 2% net of Government transfers—then unless the Government run a surplus to pay that, the private sector has to borrow more. These two parties have left us in a fiscal mess.
Guy Opperman (Hexham) (Con)
I support the charter for budget responsibility. I think it is a good thing and a vital part of the long-term economic plan. For four and a half years we have been faced with a Labour Opposition who have opposed every single budget reduction, and I have no faith in Labour choosing fiscal discipline in future years. As various Members have eloquently explained, the Labour party is effectively France in all but name. It wishes to have a socialist Government with higher taxes, and all the financial and economic consequences that that would bring.
This coalition Government have turned around manufacturing—we have seen tremendous increases in manufacturing, particularly in the north-east. We have infrastructure support, city deals, regional devolution on a scale not seen before, support for apprenticeships, fuel duty frozen, increases to the fairer funding formula on education, and reductions in unemployment in every constituency across the north-east, including by 50% in my constituency. We should be proud of that genuinely good record.
The consequences need to be addressed, too. The shadow Chancellor, as usual, did not answer my question. I put it to him that the north-east has the fastest rate of growth of private sector business in the autumn quarter and the highest growth in the value of exports, and it is the No. 1 exporter, with a positive balance of payments.
Gordon Birtwistle (Burnley) (LD)
My hon. Friend mentions manufacturing. Has he heard anything from the Opposition about how they intend to expand manufacturing? He will remember that they managed to reduce it from 22% of GDP to 11%. Has he heard anything about how they plan to reverse that trend, if they come to power?
Guy Opperman
Absolutely nothing whatever. My hon. Friend and I are leading lights in the all-party apprenticeships group, which has seen fantastic work. I should probably make a declaration that I am the first MP to hire, train and then retain an apprentice as an office manager—not as an MP, I hasten to add—because she was doing a fantastic job.
On what the Opposition intend to do, we have to address the deficit. The Chancellor eloquently put it that the Leader of the Opposition is practising Basil Fawlty politics by not mentioning the deficit at every opportunity. We also have to look at fiscal consolidation. We all heard what the shadow Chancellor said today, but what did the Leader of the Opposition say only on Sunday on “The Andrew Marr Show”? He said that
“if we…cut our way to getting rid of this deficit, it won’t work”.
So there goes fiscal tightening in any way whatever. To the clarification put to him that
“that requires a £30 billion fiscal tightening”,
he replied, “I don’t accept that.” Whatever the Opposition say today, the reality will always be that the Labour party will introduce greater taxes and greater borrowing, and greater difficulties for our children.
On attempts to address the deficit, other Members have made the point, including my right hon. and learned Friend the Member for Rushcliffe (Mr Clarke), that raising the tax rate to 50% will not increase the tax take by any margin and will actually decrease investment. On the minimum wage, tax credits from the coalition have already addressed that in a very successful form and we intend to raise it. I heard on the BBC “Daily Politics” today the hon. Member for Nottingham East (Chris Leslie) proposing that his plan for addressing the deficit was an increase in gun licences. That may be laudable, I do not know, and I am sure he has fiscally costed this matter in great detail, but if that is his plan to address the entirety of the deficit, we really are in more trouble than we thought.
We were indeed fortunate to hear from the hon. Member for Rochester and Strood (Mark Reckless). It is always a pleasure to comment on his speech. I will not cast aspersions on his honour, but I will attack his memory and grasp of economics. He supported the coalition as we did the tough work from 2010.
Guy Opperman
I will not. I am so sorry, but I have zero time. The hon. Gentleman supported us then, but he does not support us now.
Oral Answers to Questions
Guy Opperman Excerpts(9 years, 11 months ago)
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Danny Alexander
I beg to differ with the hon. Gentleman. The policy of increasing the income tax threshold to £10,600, which was put on the table by my party the Liberal Democrats back in 2010, is putting £825 back into the pockets of 26 million working people on low and middle incomes. Improving work incentives and earnings for people in work is something he should celebrate and everyone in the House should welcome.
Guy Opperman (Hexham) (Con)
Is the Chief Secretary aware that in the north-east of England we have the fastest rate of growth in private sector businesses in the autumn quarter and the most tech start-ups outside of London? Does that not show that the long-term economic plan is beginning to work?
Danny Alexander
Actually, I was not aware of either of those facts, but they do not surprise me because of the entrepreneurial spirit and the brilliant businesses we have in the north-east of England. I believe it is the only region of this country that is a net exporter to the rest of the world. Through the measures we are putting in place, including the investment in infrastructure, we need to continue to support that part of the country.
Financial Conduct Authority Redress Scheme
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Guto Bebb
I entirely agree. The argument has been that as the reviewers are independent the FCA can have full trust in them, but in view of the inequitable outcomes reported to us and the information provided by the whistleblower who used to work in the independent review team on RBS, there is clearly much merit in the appeal process that I have identified as a way forward. I cannot think of any arguments against such a simple way forward.
Guy Opperman (Hexham) (Con)
I suggest that there is middle ground on that point. Ministers would probably be nervous of encouraging excessive litigation and the escalation of legal costs, but it is not beyond the wit of man for an independent mediator to be brought in to address key cases, as is tried in other parts of the dispute resolution system.
Guto Bebb
I accept that point, but I stress that if an independent reviewer of another bank has been approved by the FCA—the scheme is a voluntary, not a judicial one—I seriously do not think that going down such an avenue would create cost. The FCA’s current view is that if a client is not happy with a decision made by a bank and its independent reviewer, then it can resort to law, but the whole reason for establishing the redress scheme was to save small businesses that cannot afford to go to law.
I want to talk in detail about consequential losses. When the redress scheme was announced back in 2013, it was made very clear that the scheme was for consequential losses and interest payable. The Financial Services Authority, as the FCA then was, highlighted that consequential losses would be determined by reference to the general legal principles relevant to claims in tort or for breach of statutory duties.
I have already given the figures. It is more than acceptable and very welcome that £305 million has been paid out in relation to interest at 8%, but only £5 million has been paid out in consequential loss claims. Part of the redress scheme has therefore completely fallen down. I have seen case after case of well-argued and reasonable claims for consequential losses from businesses acknowledged to have been mis-sold and as a result to have lost millions of pounds in turnover, but when a detailed claim that will have cost a significant amount is made the response from the banks is a simple no.
Mr Russell Brown (Dumfries and Galloway) (Lab)
I congratulate the hon. Member for Aberconwy (Guto Bebb) on what can be classed as nothing less than sheer determination in continuing the battle for justice for so many businesses the length and breadth of the country.
I would like to think that we could use the words fair and equitable today, but this issue is anything but. I suspect that by the end of my speech I will have come to a point where I support the hon. Gentleman and the all-party group. We have all witnessed a lack of consistency and a deplorable lack of transparency. We look down on a situation that far too many business people have experienced, bringing them to their knees. Many have been broken. The fact that there is no appeal process is, quite frankly, unbelievable. People have been put in a “take it or leave it” situation and their plight is just not acceptable in this day and age.
The hon. Gentleman referred to the 10-year cap. This is a product that no one wanted: it was not sold to people, but forced on them. The campaigning group Bully-Banks yesterday put out a press release that sums it all up. It said that more than 90% of sales reviewed by the banks had been mis-sold. There is no argument: the banks’ conduct in selling these products was misconduct. Nothing could be clearer.
The first contact I had relating to this whole sad saga was about six years ago when a constituent came to see me. I have to admit that, not coming from a financial background, I had great difficulty in understanding what he was telling me. I have shared this experience with others in the House before. This was a guy who, along with his father, had worked for more than 20 years in the leisure park industry. Their bank, Barclays bank, had decided to set up a specific arm to offer products and loans to businesses for investment. After an approach from the bank, they decided to take out what turned out to be a hedge. After some time, they were then encouraged to change product. Some of the penalties involved with that product resulted in pressure to meet payments, and investment did not go into the business in the way they thought it would. They went from owning four leisure parks—one in my constituency and three in England —to selling them off one at a time, just to meet the bank’s demands.
Eventually, my constituent came to see me to make me aware that he was now under real pressure. I asked him whether he needed me to contact the bank, but that was the last thing he wanted. He was afraid to contact the bank and make it aware of just what a desperate plight he was in, in case it closed in on him.
Guy Opperman
Does the hon. Gentleman agree that the reason the FCA redress scheme needs reform is that there is no alternative? Like the hon. Gentleman’s constituents, my constituents who ran a bed and breakfast or a small and medium-sized enterprise could not go to the bank because of that fear. There is also an inability to go to law, because that would mean taking on a very large institution with deep pockets that they could not possibly hope to take on properly. The only way they can go forward is through the redress scheme, which has its deficiencies.
Sir Edward Garnier (Harborough) (Con)
I begin, as have others, in congratulating my hon. Friend the Member for Aberconwy (Guto Bebb) on initiating this debate. It is sad, as he said, that this is the second or third time he has had to bring this matter to our attention either on the Floor of the House or in Westminster Hall. He has plugged on, and my constituents and I are very grateful to him.
I have no doubt that all who contribute to the debate will mention constituency cases. It is right for us to do so. I had originally intended not to mention my constituents’ names or the name of the bank with which they had to grapple because I thought it unfair, but since the hon. Member for Newcastle-under-Lyme (Paul Farrelly) and other hon. Members have already mentioned the bank and because I think the bank is big enough to look after itself, I shall not shrink from doing so.
My constituents, Bob and Stephanie Hamblin, are directors of a small property company called Hybeck Estates, which they founded in the early 1990s. Their companies had banked with RBS for many years since the 1980s, and they entered into first one and then a second lending arrangement. Sixty years ago, it might have been seen as somewhat unorthodox, but in the conditions that operated in the 1990s and the early part of this century, such arrangements have become increasingly usual, if not wholly orthodox.
All went well until about 2006, when the bank decided that the Hamblins and their company needed to restructure its existing hedging arrangements, and the bank recommended replacing the second loan arrangement with a swap, a collar or a knock-in collar on the basis that this would reduce the company’s quarterly premium payments. On 16 February 2006, the bank sold the Hamblins a £3.5 million, 10-year amortising base rate collar.
In August 2012, the company submitted a complaint regarding the sale of the replacement collar in the context of the interest rate hedging product mis-selling review, and submitted further written evidence on 28 January this year. The complaint was essentially that the replacement collar was unsuitable for the company because of the risks involved—risks that were never adequately explained by the bank. The bank should have allowed the company to continue with the protection of its earlier arrangements, which would have protected it against the possibility that interest rates would rise, without exposing it to the risks inherent in the new replacement collar.
On 1 July this year, the bank wrote a letter to the company, containing the bank’s provisional offer of redress. It acknowledged that in the course of the sale of the replacement collar, the explanations it had provided to the company, initially in a crowded pub,
“in respect of the features, benefits or risks of alternative products did not comply with the standards agreed with the FCA.”
The bank’s failure to explain the
“features, benefits or risks of alternative products”
also extended to the appropriate alternative strategies, which were not explained at all. The company’s desire for premium reduction could have been satisfied in a number of simple and risk-free ways—but they were not. The risks were simply not explained. The second cap—the earlier lending arrangement—exposed the company to no risks at all, but the new one exposed it to potential losses of more than £950,000 in the event of interest rates falling. That risk was not disclosed to the company; neither was the fact that, as a consequence of the liability incurred via this collar, the company’s flexibility to refinance with another bank would be seriously impaired.
It seems reasonable to draw the inference—I am sure others would concur on the basis of their own constituency experiences—that the bank’s poor sales practices were driven by the additional profit it could make by putting the company into this new vehicle. Derivatives pricing experts calculate that the expected net gain to the bank on the day of the transaction was over £43,000, and it incidentally cost the Hamblins and the company £0.33 million to extract themselves from it this year. The replacement collar, furthermore, is in serious breach of the 7.5% rule announced by the FCA at the outset of the review. This collar exposed the company to potential losses of very nearly £1 million—equivalent to 27% of the amount notionally hedged, which is almost four times higher than the stated 7.5% maximum.
Given these circumstances in which the bank has acknowledged that it neither explained the risks of the new collar, nor offered any of the simple premium-reducing strategies outlined above, the bank’s conclusion that the company
“would have chosen a vanilla collar in any event”
is clearly absurd.
Here we have a company that has been in the property business for some little while, and a director of that company who knows something about—indeed, quite a lot about—the financial services industry, but is not an expert on hedging. To suggest that he would expose himself, his wife and his company to a product that would place them in such dire jeopardy is absurd. Nevertheless, the bank has concluded—through its internal review process, which has been validated by the FCA’s independent review system—that they are not entitled to redress. The bank has made an admitted mistake and has caused admitted consequential loss, but it has said “You would have bought one of these anyway, so we will not pay you any compensation.”
Guy Opperman
I am following the case of my hon. and learned Friend’s constituent with interest, because it is very similar to cases that I have encountered in my constituency. If, like me, my hon. and learned Friend has met senior managers at RBS—the bank that is involved in both our constituents’ cases—he will know that while they are very keen to resolve these cases, the middle managers who are dealing with the individual claims that are being assessed seem incapable of accepting the principle that they were at fault and are to blame. The Government ought to make it clear to senior management at RBS that they must ensure that there is true accountability in their own organisation.
Autumn Statement
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Mr Osborne
Yes, I will. When it comes to these Pacer trains—[Interruption.] Labour Front-Benchers had all those years in which they could have got rid of the Pacer trains. They complain about them now, but what about all the endless Labour Transport Secretaries who did nothing about them? This is happening now, with a Conservative Chancellor, a Conservative Transport Secretary, and a Conservative Member of Parliament for Harrogate and Knaresborough.
Guy Opperman (Hexham) (Con)
People in the north-east will welcome the news about the NHS, hospices—including those in my constituency—carers, who will set great store by the Chancellor’s announcement, and home buyers. I also welcome the Chancellor’s comments about northern airports and air passenger duty. May I urge him to revisit the north-east in the spring, when we will introduce him to a region that has the most technology start-ups outside London, and has experienced the fastest rate of growth in private sector businesses over the last quarter?
Mr Osborne
Of course I am always very happy to visit the north-east. I was there quite recently, and will be going again very shortly.
There have been a number of great pieces of news for the north-east this week. There are the improvements to the A1 around Newcastle and Gateshead and up to Ellingham, and the commitment to look at dualling beyond that. There are the improvements that we are looking at for the A69 and the A66, which is something that my hon. Friend has raised with me personally. There is also the big investment in science in the north-east. I am particularly pleased to support investment in the brilliant work that Newcastle university does on ageing.
Money Creation and Society
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Zac Goldsmith
That is a really important point. There is a move towards such lending, but unfortunately it is only a fringe move that we see in the credit unions, for example. It is much closer to what original banking—pure banking or traditional banking—might have looked like. We even see it in some of the new start-ups such as Metro bank; I hesitate to call it a start-up because it is appearing on every high street. Those banks have much more conservative policies than the household-name banks that we have been discussing.
Most people understand the concept of fractional reserve banking even if they do not know the term—it is the idea that banks lend more than they can back up with the reserves they hold.
Guy Opperman (Hexham) (Con)
My hon. Friend mentioned Metro, whose founder is setting up a bank—in which I should declare an interest—called Atom in the north-east. It is one of some 22 challenger banks of which Metro was the first. I missed the opening of the debate, so I have not heard everything that has been said, but I do not accept that it is all doom and gloom in banking. Does he agree that these new developments are proof that the banking system is changing and the old big banks are being replaced with the increased competition that we all need?
Zac Goldsmith
I certainly agree with the sentiment expressed. I am excited by the challengers, but I do not believe that it is enough. Competition has to be good because it minimises risk. I know that my hon. Friend the Economic Secretary has dwelt on and looked at this issue in great detail.
Even fractional reserve banking is only the start of the story. I will not repeat in detail what we have already heard, but banks themselves create money. They do so by making advances, and with every advance they make a deposit. That is very poorly understood by people outside and inside the House. It has conferred extraordinary power on the banks. Necessarily, naturally and understandably, banks will use and have used that power in their own interests. It has also created extraordinary risk and, unfortunately, because of the size and interconnectedness of the banks, the risk is on us. That is why I am so excited by the challengers that my hon. Friend has just described. As I have said, that is happening on the fringe: it is right on the edge. It is extraordinary to imagine that at the height of the collapse the banks held just £1.25 for every £100 they had lent out. We are in a very precarious situation.
When I was much younger, I listened to a discussion, most of which I did not understand, between my father and people who were asking for his advice. He was a man with a pretty good track record on anticipating turbulence in the world economy. He was asked when the next crash would happen, and he said, “The last person you should ask is an economist or a business man. You need to ask a psychiatrist, because so much of it involves confidence.” The point was proven just a few years ago.
The banking system and the wider economy have become extraordinarily unhinged or detached from reality. I would like to elaborate on the extraordinary situation in which it is possible to imagine economic growth even as the last of the world’s great ecosystems or the last of the great forests are coming down. The economy is no longer linked to the reality of the natural world from which all goods originally derive. That is probably a debate for another time, however, so I will not dwell on it.
Income Tax
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Mr Gauke
But it was the OBR that signed off the numbers in the March 2012 Budget. The hon. Gentleman seeks to pray in aid both the OBR and the IFS, but their position has been supportive of the Government. The fact that he suggests there is no behavioural impact here—that appears to be his position—is absolutely absurd.
Let us set out a few facts. As my right hon. Friend the Member for Gordon (Sir Malcolm Bruce) mentioned, the previous Government had a top rate of 40p for all but 36 of their 4,758 days in office. It is also the case that the richest in our society now pay more than at any point under the previous Government, with HMRC statistics showing that the top 1% is expected to pay 27.4% of all income tax this year. At the same time, 25 million working people are paying less income tax than they did in 2010. It is of course right that those with the broadest shoulders bear the greatest burden, and I will set out our actions in a few moments.
Consideration must also be given to ensuring that the United Kingdom is competitive in attracting wealth-creating individuals to locate and stay in this country, which is a point that even the previous Labour Government recognised for most of their time in office. Making our country an attractive place in which to invest is something that this Government are committed to doing. Indeed last week, the World Bank published its 2015 Ease of Doing Business report, placing the UK eighth overall and sixth among the OECD countries.
As I have already noted, the right hon. Member for Edinburgh South West (Mr Darling) announced in his 2009 Budget that the additional rate of income tax would come into effect in April 2010. It was accepted by that Government that there would be behavioural changes as a result of this policy. To be specific, not including forestalling, they accepted that it would result in revenues from the additional rate being around £4 billion lower than the static cost of the change. That is an important point. The 2009 analysis that Labour produced suggested that it would raise £2.5 billion, with £4 billion having been lost because of behavioural changes. Those behavioural changes are now being ignored by Labour, which is extraordinary.
The previous Government told us that the increase from 40p to 50p for incomes above £150,000 would raise approximately £2.5 billion a year. But the evidence suggests that it fell short of even that, raising at best £1 billion and at worst less than nothing. That is the conclusion not of my party, but of the HMRC report, which was laid before the House by the Chancellor alongside the Budget in 2012. The report lays out thorough and compelling evidence on the impact of the 50p rate. It showed that the additional rate was distorted, inefficient and damaging to our international competitiveness and that the previous Government greatly understated the impact of the additional rate on the behaviour of those affected. It has been criticised by business and has damaged the UK economy. The Government have decided not to stifle the economy further, but to show that we are open for business, which is why we reduced the rate to 45p.
Guy Opperman (Hexham) (Con)
Lower taxes allow more businesses to be set up and create employment, and we are beginning, slowly but surely, to see that in the north-east. I am sure that the Minister will wish to celebrate with me the fact that the north-east has seen the highest rise in the value of exports, the fastest rate of private sector growth in the past quarter and the most tech start-ups of any part of this country outside London.
Mr Gauke
My hon. Friend makes a good point. He also made a good point when he intervened on the Prime Minister earlier today. I am delighted that he has again had the opportunity to talk about what the Government are doing and the benefits that are being spread across this country.
The move to 45p, based on the central estimate of the taxable income elasticity, only cost £100 million a year, which is a small price to pay to regain some of the international competitiveness that we lost as a result of the previous Government’s decisions. The additional rate not only harmed our economy and contributed little to the Exchequer, but had significant impacts on our international competitiveness. It placed us in the unenviable position of having the highest statutory rate of income tax in the G20, which is precisely what we do not want when we need investment, jobs and long-term economic growth. By creating a competitive tax environment, this Government’s actions to reduce the additional rate have unambiguously been in the UK’s best interest. A return to the 50p rate would be to ignore the long-term interest of this country.
As a Government, our tax policy has focused on three broad areas: it has ensured that people play by the rules and pay the taxes they owe; that the highest earners make a fair contribution without damaging this country’s competitiveness; and that we lower taxes for hard-working people. I am proud that we have taken concrete action on all three fronts in every single Budget while delivering the fastest economic growth in the G7. This Government’s policies have repeatedly increased the tax contribution of the wealthy, creating a fairer tax system in which those with the broadest shoulders bear the greatest burden. We increased the rates of capital gains tax to 18% and 28%, ending the situation in which a director could pay a lower rate of tax than their secretary. We have introduced a stamp duty rise that will raise around £200 million a year from those who buy properties worth more than £2 million, and we have been particularly harsh on evasion and aggressive tax avoidance. For example, at Budget 2011, we introduced the disguised remuneration legislation, which raises £3 billion and protects almost £3 billion over the next five years, mainly from higher and additional rate taxpayers—a policy, by the way, that Labour voted against.
The loopholes that were closed at various Budgets mean that we have around three quarters of a billion pounds more coming into the Exchequer. Our policies do not stop there. We have also imposed a 15% rate of stamp duty land tax on residential properties bought through companies; introduced a cap on certain unlimited reliefs to limit their excessive use to reduce taxable incomes; and introduced the general anti-abuse rule. We are also requiring that tax is paid up front, preventing the richest from gaining unfair cash flow advantage by delaying tax payments. As we recognise that tax systems no longer operate on just a national level, we have signed information-sharing agreements with many countries to tackle overseas tax evasion, ensuring that no one can get away with evading payment of the tax they owe.
Oral Answers to Questions
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The Chief Secretary to the Treasury (Danny Alexander)
The hon. Gentleman raises an important point about child poverty, which under this Government is down. That does not in any way reduce the need for us to continue taking steps to reduce child poverty, the most important of which is having an economy that creates jobs. In the end, for most people the best route out of poverty is to get back into employment.
Guy Opperman (Hexham) (Con)
May I urge the Chancellor to meet me and my hon. Friend the Member for Carlisle (John Stevenson) so that we can make the case for including the dualling of the A69 in the autumn statement? Hopefully such a meeting could be before the autumn statement takes place.
Mr George Osborne
My hon. Friends the Members for Hexham (Guy Opperman) and for Carlisle (John Stevenson) have made a strong case for improving transport links in the north of England and between the north-east and Carlisle. They have already brought the A69 to my attention, and I would be happy to have that meeting.
Oral Answers to Questions
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Priti Patel
I thank my hon. Friend for his warm welcome and kind remarks. This Government scrapped the previous Government’s fuel duty escalator, which would have increased fuel duty by 1p per litre above inflation from 2011 to 2014. Were it not for this Government’s very clear actions on fuel duty since 2011, current pump prices would be 16p per litre higher and would be nearly 20p per litre higher by the end of this Parliament. I know that my hon. Friend’s constituents and businesses in Worcester will support the clear action that this Government have taken.
Guy Opperman (Hexham) (Con)
T1. If he will make a statement on his departmental responsibilities.
The Chancellor of the Exchequer (Mr George Osborne)
The core purpose of the Treasury is to ensure the stability and prosperity of the economy. That is delivered by our long-term plan. I can tell the House that the plan will be further expanded in the autumn statement, which I will deliver on Wednesday 3 December.
Guy Opperman
I thank the Chancellor for that answer. This summer, the Labour party set out a summer spending plan of some £21 billion of extra spending a year. I suggest this further debt will make our constituents wonder whether it has actually learned anything from bankrupting this country under Blair and his successors. Has my right hon. Friend assessed the impact on the public finances of such a disastrous decision?
Mr Osborne
My hon. Friend is right, of course. The Treasury’s own independent analysis of the Labour party’s approach to public spending shows that it could borrow over £166 billion more in the next Parliament. Labour Members have started to contribute to that with a £21 billion shopping list this summer. Perhaps the shadow Chancellor can get up and explain how he is going to pay for it.
Oral Answers to Questions
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Andrea Leadsom
The hon. Gentleman will know that the great recession in 2008-09 that the previous Government presided over left banks in an absolute mess, and it takes a very long time to recover from such a devastating position. The banks are still trying to sort out their balance sheets, and net lending has been down. It will take time to recover, but this Government are putting measures in place to create new access to finance from all sorts of different lenders. I was delighted yesterday to support the credit union movement on its 50th anniversary with a call for evidence on how we can expand that area of activity for.
Guy Opperman (Hexham) (Con)
I draw attention to my entry in the Register of Members’ Financial Interests. Does the Minister agree with me that, as well as stabilising and reforming the banking system, one of the key aspects of the long-term economic plan is the creation since 2010 of many new local banks that provide alternative and expanded lending to retail and business customers?
Andrea Leadsom
Yes, I absolutely agree with my hon. Friend. The Government want more competition and diversity in the banking sector, which is why we asked the old Financial Services Authority to review the barriers to entry for banks, why we legislated to give the Financial Conduct Authority strong competition powers, and why we created the payment systems regulator to look at fair access to payment systems.