The Economy

Debate between Lord Mann and Chris Leslie

Thursday 4th June 2015 Commons Chamber

[Chris Leslie]

Of course competition is essential, but so are important public services that support businesses and enable them to optimise the outputs from the inputs to the production process. That is the crucial point that we have to focus on.

[John Mann (Bassetlaw) (Lab)]

Does my hon. Friend agree that one of the issues with productivity is that we have become obsessed with mergers and acquisitions for short-term profitability, rather than allowing industry to invest for the longer term as economies such as Germany have been doing?

[Chris Leslie]

Long-term investment, especially production process technology and business investment, is crucial, which is why the stop-start approach of recent years from the Treasury has seen us underperform in business investment into the productive economy. It is essential.

Finance Bill

Debate between Lord Mann and Chris Leslie

Monday 1st July 2013 Commons Chamber

[Chris Leslie]

It is good to see the Minister popping up in the debates on the Finance Bill for the first time, at the eleventh hour. [Interruption.] That is not true; I apologise. He took part in Committee of the whole House, although he did not do the heavy lifting in Committee upstairs. Perhaps it seems now as though it never happened.

This is an interesting little Government new clause. Because of the hour, it would not be surprising if hon. Members’ eyes glazed over and they did not necessarily spot what is going on, but this is an admission from the Government that their bank levy has not been successful. In fact, they are having retrospectively to adjust the rules around the bank levy to make sure that they can net in the supposed £2.5 billion of revenue that the Prime Minister, no less, promised it would yield.

Let us recall the facts about the bank levy. In the last financial year, 2012-13, the bank levy did not bring in £2.5 billion, it did not even bring in £2 billion—it brought in a pathetic £1.6 billion. We should not forget that that does not include the cut in corporation tax that the Chief Secretary and others collaborating in the coalition gave away to the banks at that time. In other words, it raised a net £1.4 billion—a shortfall of over £1 billion on the amount that the Government said that it was supposed to produce. My hon. Friend the Member for Bassetlaw (John Mann), and others in the Chamber, could certainly think of ways in which £1 billion of revenue could be put to good use. That was the giveaway that the design of the bank levy set in train for the banks. It raised not £2.5 billion but just £1.4 billion in the last financial year.

It is worse than that, because in the previous financial year, 2011-12, the bank levy raised just £1.8 billion. Deducting from that the £100 million in corporation tax, it raised a net £1.7 billion. The levy has not brought in the money it should have. The Government said that it would raise £2.5 billion, but in total it has brought in £1.9 billion—nearly £2 billion—which is less than they said it would raise.

If any other Department promised to bring in £5 billion over those two financial years but raised only £3 billion, there should and would be outrage. However, given that the Treasury hide a lot of these issues in the complex lexicon of bank taxation, many would be forgiven for not spotting that this is an absolute scandal.

[John Mann]

I thank my hon. Friend for inviting me to suggest what this money could be spent on. The infrastructure projects of Serlby Park school and Elkesley bridge—not started in three years under this Government—are shovel-ready and could immediately be commenced. I have launched a campaign today to send a postcard a day to the Chancellor until he gets his shovel out and starts work on them.

[Chris Leslie]

That is the point. The Government like to say that they are trying their best to bring in revenues, but when it comes to the banks and the wealthy they have a blind spot. Is that any wonder when nearly £2 billion of bank levy money has gone uncollected over the past two financial years?

Will the Minister give us an absolute, cast-iron commitment that the £2.5 billion from both 2011-12 and 2012-13 will retrospectively be brought into the Treasury? That, as a basic minimum, should be the intention of this new clause, although I do not necessarily think that it is the only tweak that will have to be made to the bank levy. Can we be sure that the lost £2 billion will be brought into the Treasury?

Will the Minister confirm that, by making this change, he is in effect ceding the bank levy policy to the regulators? If tax deductibility for liquid asset buffers is to be set by the regulators, does that not mean that bank levy policy will henceforth be in the hands of the Financial Policy Committee and the Prudential Regulation Authority? Will the Minister explain the consequences of last week’s decision by the Financial Policy Committee to relax the liquidity buffer rules for many of the banks? That big change will reduce significantly the amount of liquidity that banks are required to hold. That could be good news, because it may mean that there will be less tax deductibility for bank levy purposes. Will the bank levy be allowed to rise above £2.5 billion—that would be welcome—or will the Minister adjust the revenue available back down to £2.5 billion for each financial year even though the liquidity deductibility is not relevant in this particular case?

Will the Minister also explain whether the regulators will be given the right in statute to define equity or other liabilities? Other aspects of the bank levy that are enshrined in legislation could nevertheless be affected by the regulators, such as the definition of capital requirement.

I want a sense of what the new clause will do. We know that the Government are soft on the bankers because they do not want to repeat the bonus levy, which will result in a big tax cut for those bankers who did very well on their bonuses—they went up 64% in one month—in April. We also know that the millionaires’ tax cut has handed 643 bankers in this country a tax cut of at least £54,000 a year, so they are doing very well. We want to hear commitments on the bank levy. Will the Minister bring in the full £2.5 billion for financial years 2011-12 and 2012-13?

Financial Services (Banking Reform) Bill

Debate between Lord Mann and Chris Leslie

Monday 11th March 2013 Commons Chamber

[Chris Leslie]

We have to learn the lessons of that global financial crisis, one of which is that leverage has come to the fore as a way of illustrating the over-extended nature of the banking system. I am glad that consensus is breaking out across the Chamber on this point. As the hon. Gentleman knows, he and I have almost been in concert in voting on a variety of amendments, some of which have been inspired by his very own articles. I therefore look forward to him joining us in the Division Lobby—if it comes to that—on the question of the leverage ratio.

[John Mann]

Before too much consensus breaks out, may I ask my hon. Friend to say a little more about how he envisages the problem of small building societies being addressed? They are saying unambiguously—although privately, of course, for commercial reasons—that their future is imperilled. Is a one-size-fits-all approach the right one? Is that the approach that my hon. Friend would take if he were in power?

[Chris Leslie]

Of course there are ways of ensuring that the building society sector can be accommodated in the leverage ratio framework. Building societies have a totally different equity structure, as my hon. Friend knows; they do not have the same equity as a plc structure. There are therefore important differences in that sector. In my view, however, it is important that all institutions, large and small, should be subject to safety requirements regarding capital loss absorbency and protection against over-extension in certain risk areas. There are ways and means of dealing with that, but I am annoyed that the Government have not seen fit to put any provisions on the leverage ratio in the Bill.

Budget Responsibility and National Audit Bill [Lords]

Debate between Lord Mann and Chris Leslie

Tuesday 22nd March 2011 Commons Chamber

[Chris Leslie]

My hon. Friend is entirely correct, and I am glad that the Bank of England is being flexible, but absolutely, if such mandates are set out rigidly in legislation, as the mandate is before us, and if they are interpreted as they currently are, it is hardly any wonder that the Treasury has a blinkered view of the economy and is obsessively—some might say, fetishistically—focused on deficit reduction and debt to the exclusion of almost any other facet of the economy. What we need right now is a flexible approach to economic policy which can take account of environmental and external facts, jobs and growth, and those are the issues we are raising today.

[John Mann (Bassetlaw) (Lab)]

I thank my hon. Friend for giving way on the point about flexibility. Where does he think the 2% inflation target, set for the Bank of England, should be, not least in the context of the Japanese economic crisis, with the pressures on US dollars and the insurance industry, and with the potential for rapidly growing inflation, which might require the 2% figure to be reconsidered imminently?

[Chris Leslie]

Of course, those issues are in the hands of the Chancellor. He has a Budget tomorrow, and I do not know whether he is thinking of revising his monetary policy mandate, but I would be very surprised if he were. My hon. Friend will notice, however, because I know he follows the small print of the Budget and of financial documents, that in the small print the Treasury has chosen for its GDP deflator, when it comes to public expenditure, an inflation rate of 1.9%, which is slightly at odds with the fact that the retail prices index is 5.5%. Again, the cynic in me would suggest that the Treasury has chosen that approach, because to do otherwise would blow a hole in the middle of the Government’s financial plans.

[John Mann]

I thank my hon. Friend for generously giving way a second time. The reason for exploring the issue is in this “charter”—this grandiose term—set out before Parliament. Chancellors might change their point of view, perhaps sensibly, if they look at the real economy, but how hamstrung will a Chancellor be in the future if some back-dated charter has been agreed but is itself too restrictive and requires change? Is not the measure before us rather a stranglehold—purely presentational—that could come to haunt this or future Chancellors?

[Chris Leslie]

My hon. Friend suggests that the measure is phantom paraphernalia, enrobing the creation of the Office for Budget Responsibility simply to give it a sense of grand importance, and in fact it could have deleterious consequences. That is certainly one crucial reason why we felt it important to table the amendment, stating that at the very least there should be a broader set of mandates within the charter, and that a growth mandate would be especially important.

--- Later in debate ---

[Chris Leslie]

Before I give way to the hon. Gentleman, I just want to point out that in Committee we debated the remit of the Office for Budget Responsibility and whether it should be broader and take account of wider economic and social policies. So, for example, we tested out the notion of whether the OBR could have responsibility for assessing the impact of Treasury policy on child poverty, or whether it should have responsibility for assessing the impartiality of the local government finance settlement.

One promise in the Conservative party’s localism paper, which came out before the general election, was to have the Audit Commission undertake an independent test of whether there was impartiality in the settlement. That has been dropped subsequently.

[John Mann]

It’s been dropped?

[Chris Leslie]

It has been dropped, and that is indeed something that we should come back to at another point.

This time, on Report, we thought, “Let’s look as strategically as anybody could possibly want to,” and having a growth mandate—a responsibility for growth and employment—and assessing the impact of Treasury policy seemed quite unobjectionable, at least to me when tabling the amendment.

--- Later in debate ---

[Chris Leslie]

That is absolutely right. The Government have given the concession to the Treasury Committee that it can hold pre-appointment hearings for three of the five members of the OBR board. That is, of course, welcome.

[John Mann]

Why not all five?

[Chris Leslie]

We debated that point in the Public Bill Committee. Having consulted the Treasury Committee Chair subsequently, I understand that it has to weigh up how much time it has for such matters versus other things. That may well be a matter for the Treasury Committee to revisit. I urge it to ask for the ability to appoint all five members, not least because the two non-executive members who will not have a pre-appointment hearing are essentially appointed by the Chancellor of the Exchequer. To ensure their impartiality beyond doubt, it would seem necessary for the Treasury Committee to have the right, if it saw fit, to scrutinise all five.

[John Mann]

As a member of the Treasury Committee, I wholeheartedly back the principle that all five members should be scrutinised appropriately, not least because of the point that my hon. Friend the Member for Luton North (Kelvin Hopkins) made about ensuring that there is the maximum possible specialist input, including from the labour market, in the decision making. Let us scrutinise all five.

[Chris Leslie]

I look forward very much to those pre-appointment hearings and the reports of them. It is important to have people who understand the real economy. That is the gist of our amendments. We are worried about these matters.

--- Later in debate ---

[Chris Leslie]

I am quite sure that there are influences, but we tabled the amendment to draw out answers to some of these questions.

[John Mann]

One statistic that is not currently provided by the OBR is its projection of the number of new employees entering the country from abroad, including from within the EU. The amendment might mean that the OBR must provide that statistic, which is important in social and economic policy. At the moment, the OBR gives only a general figure from which we cannot deduce, without more detailed and hidden questioning, precisely how many new jobs come from abroad. My understanding is that currently, 700,000 to 800,000 of the new jobs being created will involve EU migrants. What does my hon. Friend say to that?

Banking Reform

Debate between Lord Mann and Chris Leslie

Monday 29th November 2010 Commons Chamber

[Chris Leslie (Nottingham East) (Lab/Co-op)]

I, too, congratulate the Backbench Business Committee and my right hon. Friend the Member for Oldham West and Royton (Mr Meacher) on setting up this thoughtful and well-tempered debate. A number of good ideas have been shared among all parts of the House. In fact, there has been much more consensus between the Back Benchers on both sides of the Chamber than between the Front Benchers. We will see whether policy can be shaped by the virtues of our debate, because there has been quite a lot to take away from these discussions.

It is important to reflect on the wide-ranging set of reforms needed to bolster our banks against a repeat of the credit crunch and, as we all want eventually, to create a financial services industry that is sustainable and diverse, and that serves the best interests of both savers and borrowers. There are a number of significant systemic reforms that it is important to reflect on. I shall touch on many of the comments that have been made, but the first point is to look at the motion that is before us. As we can see from the Order Paper, the Government and the Opposition each tabled an amendment to the motion, although neither of us were fortunate enough to have our amendment selected. For our part, although we agree almost entirely with my right hon. Friend, the element in the motion touching on derivatives requires a little more thought.

Many commentators have rung alarm bells about the swirling volumes of derivatives activity in the past decade, with multi-trillion dollar flows and British banks holding at least £l trillion in derivatives. However, derivatives are, for good or ill, a reality of the modern global economy whereby companies and other investors gain exposure to an underlying asset or offset their exposure to that asset without actually buying or selling that asset in the first place. Derivatives are supposed to be designed to reduce risk and volatility for companies, employees and consumers. For example, an airline can hedge—or insure itself—against volatility in fuel prices by taking out a futures derivative, thereby offsetting its exposure to price changes. However, as my right hon. Friend and others have said, the problem is that betting on the future prices of financial assets has proved irresistibly alluring to traders and bankers, who can make billions off the back of this market without having to own the assets on which they are gambling.

There is therefore quite an irony in the fact that products that are intended to help alleviate risk have in many ways massively increased the systemic risk to the economy. Add to that the sheer complexity and opacity, as many hon. Members have mentioned, of some derivative products—collateralised debt obligations-squared, and so forth—and we end up with companies holding derivatives positions that their own management do not understand, failing to appreciate the risks involved. That is why the history of recent collapses has been intricately tied to that problem—including at Bear Stearns, Lehman Brothers, AIG, Long-Term Capital Management and even Barings—yet we have still not properly grappled with it.

The reason why we on the Opposition Front Bench cannot quite support my right hon. Friend’s motion is that it essentially calls for an end to over-the-counter derivatives trading and the introduction of a central clearing house. I can see the attraction of that—the standardisation of products and the stronger likelihood that the regulator could peer inside and comprehend the nature of the risks involved—but the downsides are that derivatives could not be easily tailored to the specific needs of the buyer. With the vast majority of derivatives currently privately traded between two parties, the consequences of that structural requirement for exchange trading in all circumstances could be disadvantageous. For instance, could there be a constraint on the specific maturity of the futures options? Would we be unwittingly re-injecting risk into the economy by constraining the ability to hedge responsibly?

The Opposition need, however, to recognise the urgent and far-reaching reforms that are required. Do we need an urgent and thorough review of derivatives and policy on them? Yes, absolutely: both regulators and markets need more transparency in over-the-counter derivatives activities, particularly given the possibility of greater exchange trading. By the way, we also need greater scrutiny of the role played by the credit rating agencies, as the hon. Member for South Northamptonshire (Andrea Leadsom) and others said, given that they have blessed many products with triple A ratings that did not necessarily translate into reality. Should we require greater registration and transparency in these over-the-counter deals? Yes, absolutely. There is too much secrecy, and the consequences for the taxpayer are ultimately too great.

[John Mann]

I am just trying to get my head round my hon. Friend’s statement that there should be greater exchange trading of derivatives. Precisely how does he think that that should be enabled?

[Chris Leslie]

We do not necessarily need to end all bilateral trading of derivatives, but to pick up where the G20 in Pittsburgh left off in 2009. It resolved to move towards greater exchange trading, but not necessarily the end of all over-the-counter trading. I know that we disagree on this specific point in the wording of the motion, but it is important that we should be responsible when considering some of the reforms that are being suggested. It is good that the Backbench Business Committee has enabled this debate to take place today.

I have doubts about the Government's policy on this because they are leaving it very much to the European institutions to lead on this matter, and leaving it up to the European market infrastructure regulations, which are now emerging as the only likely vehicle for reform. It is striking that Ministers are happy to be led, rather than showing leadership on this matter themselves, especially as the UK financial services industry is at the forefront of many of these activities. I urge Ministers to be far more front-footed on these reforms, rather than hanging back and complaining that details and policy are being foisted upon them.

We also need to consider some of the other regulatory shortcomings that have been raised in the debate, including those relating to bonuses, to management incentives skewing behaviour, and to transparency. I do not want to be too partisan, but I find certain aspects of this situation astonishing. My hon. Friends the Members for Streatham (Mr Umunna) and for Leeds East (Mr Mudie) said that the Government needed to show more leadership on banker remuneration. We have seen the appalling confusion and weak will of Ministers even over listing the number of bankers earning more than £1 million. Even that seems to have been a difficult step for them to take.

It is a particular shame that the Business Secretary is not here tonight—at least we have a couple of Liberal Democrats representing him here—especially as he was so vociferous on this subject exactly a year ago in his article in the Daily Mail. He described the proposal to disclose simply the number of bankers earning more than £1 million as a “whitewash”, saying that it would represent only “a small advance”. He went on to say:

“Shareholders who own the banks and the taxpayers who guarantee them have every right to know who is being paid how much and for what…Directors of public companies are already required to declare their earnings…The failure of Walker to grasp this is compounded by Alistair Darling’s meek acceptance of his recommendations. There are splits in the Government…Taxpayers sign the bankers’ bonus cheques, so we must see the names and numbers on them.”

We clearly do not need to wait to see the Business Secretary’s appearance on the Christmas special of “Strictly Come Dancing”; he is perfectly able to perform his volte-faces, somersaults and U-turns one after the other. He is performing spectacular political cartwheels more often than ever before.