Bankers’ Bonuses and the Banking Industry

Debate between Lord Jackson of Peterborough and William Bain

Wednesday 25th February 2015 Commons Chamber

[Mr Bain]

I was here for four months of the previous Parliament, when a tax on bankers’ bonuses brought in £3.4 billion in revenue and we introduced a 50p top rate of tax for people earning £150,000 a year or more. The next Parliament should reintroduce that to ensure that the wealthiest in society make a fairer contribution to getting our deficit down, and so that we bring back opportunities for young people who have been denied them during this Parliament.

[Mr Stewart Jackson]

I admire the hon. Gentleman’s sincerity, but his argument would carry more weight were it not for the fact that under the previous Government—run by the party of which he is a member and supports—during a period of economic growth 5.2 million people were left on out-of-work benefits and youth unemployment doubled. The gap between the richest and poorest 10% widened. That is his Government’s record, and it ill behoves him to lecture our Government who have done a lot to address those key issues.

[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.

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[Mr Bain]

I agree with my hon. Friend. In this country people want targets for abolishing long-term youth and adult unemployment, not targets in jobcentres for sanctions. We see that in our constituency offices when people arrive in a desperate state having been sanctioned because of edicts from the office of the Secretary of State for Work and Pensions.

The vision of a different economy was picked up by the OECD yesterday in its report. It stated that future growth and rises in living standards in this country will come only if our economy sees increases in productivity, exports and levels of investment. We must improve our skills record and, importantly, sort out more secure and long-term pathways to finance for business and industry in this country—real structural reform for our banks must happen in the next Parliament.

A high-skill, high-investment, higher-wage economy cannot be built when thousands of people are locked outside the labour market for long periods, with skills going to waste and promise left unfulfilled. In 10 weeks’ time—10 weeks tomorrow—my constituents and the rest of the country will go to the polling stations in the hope that change is on the way with a new Government. However, the House does not have to wait that long. By passing the motion today, it can send a powerful message to the Chancellor that a Budget that will command support in the country in a few weeks’ time must have the purpose of abolishing the scourge of long-term unemployment that is so destructive of long-term income prospects, and corrosive of the human spirit.

The House should do more. We must restore fairness to our taxation system and reintroduce that tax on highly paid financiers who have pocketed some of the biggest gains from this Government over the past five years. With the 50p tax cut, for the last few years they have had a Government who have been on their side. Now the British people, who are meeting the burden of high long-term unemployment costs through our social security system, need a new Government who are on their side instead.

With as much as £34 billion a year in taxes going uncollected under this Government, we need policies that maximise revenues and encourage excluded parts of our society back into the labour market. Sweden’s equivalent of the jobs guarantee policy was first introduced in 1983 under a social democratic Government, and it helped balance the books there in the mid-1990s while restoring the right to work to thousands of people. That jobs guarantee was followed in Norway, Finland and Denmark. We should match that ambition in this country by having more people in work and paying into the system, and becoming better off and improving our public finances at the same time.

With bonuses paid by the financial sector since the onset of the financial crisis in 2007 having reached £100 billion this year, and with a few at the top pocketing the biggest gains, the case for asking for a greater contribution from those people—given the taxpayer assistance that has been provided to the banks and financial sector since 2008—is unanswerable. With the Office for Budget Responsibility having revised down by £48 billion at the autumn statement the levels of revenue from income tax and national insurance from the next financial year until 2018-19, the case for more people being in work, and for the super-rich to pay their fair share, makes best economic sense. That is why it is right to increase the clawback period for bonuses paid to people guilty of misconduct in the financial sector from seven years to 10 years, and—crucially—to introduce penalties in law for breaches of the general anti-abuse rule on avoidance.

As the High Pay Centre has shown in recent months, the link between company performance and executive remuneration and bonuses at the very top is tenuous at best. Reform of corporate governance so as to have an employee representative on remuneration committees would help secure greater accountability over what highly rewarded executives receive, and the wider commercial and social obligations that they should have in mind.

Too often, pay structures reward failure when instead there must be a greater relationship with long-term performance. That can be dealt with by the Financial Conduct Authority and greater legal transparency on bonuses, and secured by reform of the laws and corporate governance. Through the taxation system, we in this House can do a great deal more to discourage irresponsibility in the financial sector, and secure justice for the disadvantaged by raising £1.5 billion to £2 billion through a repeat of the bank bonus tax, to fund the jobs guarantee policy that will help so many long-term and young unemployed people. But as has also come up in this debate, we also need to deal with the structural reforms in the banking system which are needed to restore proper channels of finance to small and medium businesses.

A British investment bank, constructed for the purpose and capitalised by some of the revenues we can expect from 3G and 4G licences in the future, is the best way to deal with the gap in the British economy and ensure stable finance for small businesses. As the OECD pointed out yesterday, ensuring consistent lending for businesses is vital for future growth, and policies such as funding for lending have not bridged the gap. They have not delivered the necessary impetus to net lending and the next Parliament and Government need to be much more ambitious on that front.

[Mr Stewart Jackson]

The hon. Gentleman is elucidating another straw man, which was articulated by the shadow Minister—that we somehow have a crisis in lending. The fact is that businesses of all sizes hold unprecedented levels of cash reserves and they will spend if we have a benign macro-economic policy framework. That is not what is being offered by his party, so any accusations of missing lending targets obscures the bigger picture.

[Mr Bain]

I am citing evidence—I hope that the hon. Gentleman has been listening carefully—from the OECD and Bank of England reports that net lending to business has continued to fall. The OECD said yesterday that weak lending is a structural problem in the British economy. He might think that I am raising a straw man, but I hope that he is not accusing those organisations of doing so. It is their argument that this Government have left unsolved that structural weakness in the past five years. Tougher action is needed in the next Parliament to secure stable finance for our businesses, because that is how we will get the jobs and growth that will generate the tax revenues and lower the deficit.