Finance (No. 2) Bill

Mark Garnier Excerpts

Wednesday 25th March 2015 Commons Chamber

[Geraint Davies (Swansea West) (Lab/Co-op)]

It is a great pleasure and privilege to follow my hon. Friend the Member for Edmonton (Mr Love), who has been a distinguished Member of the House, particularly through his service on the Treasury Committee, which has added enormous insights into the deliberations of successive Governments. It is a great joy to follow my good friend and colleague.

I just want to make a few remarks. The budgetary process in the immediate run-up to the election has been very much a political stunt. The first thing to deal with is the illusion—or delusion—that there has been economic success and turnaround under the Conservatives. That is simply not the case; it is simply not borne out by the facts. The national debt is about £1.4 trillion—up 44%. Reference is made to the deficit and how much the debt is going up, but of course the current Government have borrowed more in five years than Labour did in 13 years—and we had to bail out the banks. The Government have lost the triple A rating. As I pointed out earlier, the number of people earning more than £20,000 is down by 800,000. There is a reliance on a fudging of the facts; this is a “fudge it” Budget, to make up for the fact that we have more and more low-paid people who cannot make a contribution towards the revenues in a sustainable way. Meanwhile, the Government continuously put up the tax threshold and say, “Who’s going to disagree with that?”, knowing everyone is scared to disagree. But that is the management of irresponsibility, because the money simply is not coming in to pay the bills.

So what we need is not a spat about tax and spend, but a serious consideration of how we generate productivity and growth, in order to have higher wages and a more sustainable plan for the future. Obviously, part of that was the debate about tuition fees and about enabling people to go, without fear, to university, so that we could get higher productivity and the students would not be hobbled by massive debt throughout their lives. Such debt can mean that they cannot get a credit rating and cannot get a house, and are scared of moving into a higher pay bracket because it pushes up their repayments.

Sadly, the Tories are creating a two-nation Britain. One nation will be the better off, who, lucky for them, own their own house, can get their sons and daughters into university and pass on money for them to put down a deposit on a property. There are others who may be equally or even more capable of going to university and of boosting the productivity in our collective economy but who are being stopped from getting houses in the future. We are at a turning point now. The party that gets elected will determine whether we have a more unequal or a less unequal future. I very much want us all to pull together as one nation to invest in the future.

The Conservatives have this massively political Budget profile, which has been described as a “rollercoaster”. Deep and savage cuts were going to take us back to the 1930s, but because that was pointed out by the BBC, the Office for Budget Responsibility and the Institute for Fiscal Studies, an adjustment was made. Bank shares were sold off and oil prices went down so that the public service time machine was moved back only to the year 2000. None the less, we all saw the Tories in their true oils. They were happy to make those savage cuts until the BBC highlighted what they were doing. Then they said, “Oh no, we’re not going to do that.” But there will still be savage cuts until the final year of the next Parliament, 2019-2020, when there will be a sudden acceleration in public spending—the biggest spending increase for 10 years—presumably to try to get Boris Johnson elected as the next Tory Prime Minister. That is probably what will happen in the unfortunate event of the Tories getting in again in some strange alliance with the UK Independence party, which would be a disaster for Britain.

We must strike a balance between trying to achieve economic growth and having to balance the books, instead of scrabbling around trying to decide which poor people to clobber. As my hon. Friend the Member for Edmonton pointed out, welfare cuts such as the bedroom tax raised only £400 million, which is small change compared with the numbers that we are talking about. Two thirds of the people hit by that tax are disabled. The cuts to tax credits are hitting people with children who are trying to work. It is ridiculous to try to squeeze more and more out of the poorest to make ends meet. Clearly, it is right that the richest pay more, whether those with more than £2 million pay the mansion tax—

[Mark Garnier (Wyre Forest) (Con)]

They do pay more.

[Geraint Davies]

They need to pay lots more, not a bit more. Of course some of the very rich are paying more, but that is because they are getting richer and richer on massive pay awards. They are earning so much more than anyone else, and the situation is getting out of control

Future Government Spending

Mark Garnier Excerpts

Wednesday 4th March 2015 Commons Chamber

[Chris Leslie]

That was a good try, but the hon. Gentleman knows very well that we do not have unfunded spending commitments. Our manifesto will be fully costed and fully funded. He does not need to take my word for it: we would be more than happy to let the OBR audit all of the proposals in our manifesto and to undertake to validate that they are, indeed, fully costed. I wonder if any Government Members would like to support the idea that all the political parties should have their manifestos fully costed by the OBR. Can I see a show of hands?

[Mark Garnier (Wyre Forest) (Con)]

rose—

[Chris Leslie]

There is one individual: the hon. Gentleman is an independent champion on Treasury matters. I wonder whether he would like to at least say that there is a strong case for letting the OBR cut through this political nonsense and make sure that we have proper independent validation of spending commitments. Does he agree with that?

[Mark Garnier]

I do—absolutely. In the early part of this Parliament the Treasury Committee looked at exactly that point and there was a big and heated debate about it. Conservative members were in favour of it, but Labour members were not, and they were led by the shadow Business Secretary, the hon. Member for Streatham (Mr Umunna), who was dead against it. What does the shadow Minister have to say about that?

--- Later in debate ---

[Mr Gauke]

My hon. Friend is absolutely right. The problem with the 50p policy is that it is not an effective way to raise revenue. Our record is very clear: we have been very effective at getting more money out of the wealthy. As we see from the IFS analysis today, the wealthiest have made the biggest contribution. What we are left with is a symbolic gesture, not a tax policy.

[Mark Garnier]

Does my hon. Friend not agree that it is quite remarkable that the Labour party has not yet come out categorically and refused to raise taxes through a jobs tax? Is it not worth remembering while we are debating a possible jobs tax—or not, depending on what they want to do—that there has never been a Labour Government who have not failed to increase unemployment?

[Mr Gauke]

My hon. Friend is absolutely right. It is right that we highlight that point. They do not like our spending plans, but what are they going to do? Are they willing to borrow more? Are they willing to tax more? It must be one or the other or both. Which is it to be: a borrowing bombshell or a tax bombshell?

--- Later in debate ---

[David Morris (Morecambe and Lunesdale) (Con)]

It has been a pleasure to speak twice this week under your guidance, Mr Deputy Speaker. If this is to be my last speech in this Parliament with you in the Chair, may I say that I have had an absolutely great time under your guidance as Deputy Speaker? However, I do hope to come back, and to see you there again and we could have another life of five years together.

Today’s issue is a serious one, but I would like this speech to be in the right vein; it should deal with what this means to those watching our debate today. We are bandying figures about all over the place, but what do they actually mean to people? I can talk only about my experiences over the past five years. I was a newly elected MP and we were going through the Lobby making decisions that we knew were going to affect people’s lives. But we had to take these decisions to get the country on the right track. Over my five years as a first-term MP—after the election I hope to be in a second term, but I do not count my chickens—I have wanted to see what has happened in my community. The first thing I remember talking about was a road in my community. I am glad to say that that road, which took 70 years to build, came to fruition with my guidance and under the coalition Government. Costing £123 million, the road will join up the M6 with the port at Heysham and will increase the prosperity in the area tenfold. For every £1 spent on the road, £10 will be put back into the local economy.

We are considering building a new power station. My constituency already has two nuclear power stations, which account for 2,000 jobs in the area. Thankfully, again under this coalition Government, we have a footprint for a third nuclear power station, which will be completed in the next five to 10 years, creating a further 2,000 new jobs.

Let me turn now to schools. Without wanting to be overtly political, schools that were closed down under the previous Government have reopened under the coalition. In my constituency, a school was closed down and has now reopened. Sadly, another school, Skerton, has closed, but I am fighting to get it reopened as a free school. We can find the money to carry out all this work at a time when austerity is at its worst.

Sea wall defences have been built in my constituency, at a cost of more than £10 million. A mandate went out just before the last general election in which five out of the 10 categories of coastal protection were wiped away. Thankfully, we have put two of them back, and we have saved an area off Sunderland Point.

[Mark Garnier]

My hon. Friend has talked a great deal about how much money the Government have put into his area. Does he also not recognise that private sector investment, such as the £140 million of private sector investment that will be put into the Wyre Forest in the future—

Bankers’ Bonuses and the Banking Industry

Mark Garnier Excerpts

Wednesday 25th February 2015 Commons Chamber

[Cathy Jamieson]

I thank the hon. Gentleman for giving some clarity. He is absolutely right that regulation is part of the process, but we also need a culture change and an attitudinal change. He is correct to identify the lack of prosecutions. Although that is not mentioned specifically in the motion, I recommend that he reads Labour’s document, which takes account of that point. Our agenda is not entirely punitive, because it is driven by economic imperatives. We all know that the performance of the banking sector is vital to the health of Britain’s economy. It employs more than 1 million people, each of whom has an important role to play in advising businesses and consumers, and helping them to manage their money, invest wisely and plan for the future. Without the banks, consumers would be unable to save and borrow. Businesses would not have access to the patient finance that they need if they are to grow and to create high-quality, well-paid jobs.

Too often in recent years, many banks have fallen short of the very high standards that we expect of them; that is a view shared across the House. In many instances, they have not acted with trust and they have not acted fairly. At times, they have acted recklessly and unethically. Instead of helping their customers, they have exploited them.

Banks and their employees operate in a high-skilled environment, dealing with sophisticated financial instruments that are often beyond the ken of the average consumer and small business owner. Rather than using that knowledge to guide and advise consumers, they have, in some instances, abused that knowledge to exploit them. In investment, consumer and business banking, banks have betrayed the trust of customers and undermined the integrity of the industry. In doing so, they have totted up some truly colossal sums in fines.

Indeed, 2014 was a record year for fines in the City of London, culminating in the £1.1 billion fine levied by the Financial Conduct Authority on five banks, including HSBC and the Royal Bank of Scotland, for their part in the forex fixing scandal. In recent times, four UK banks—Barclays, HSBC, RBS and Lloyds—have also paid £1.5 billion in compensation for mis-selling interest rate hedging products. Other recent scandals include LIBOR fixing and the mis-selling of payment protection insurance.

[Mark Garnier (Wyre Forest) (Con)]

I am grateful to the hon. Lady for giving way; she is making an intelligent speech. With regard to the recent fines, is it not fair to say that in the vast majority of cases the actions that led to those fines were perpetrated under the old regulator, the Financial Services Authority, and that the bringing to justice, meaning the fining, has been done under the new regulatory regime? Does that not reinforce how bad the old system was and how good the new one is?

[Cathy Jamieson]

I thank the hon. Gentleman for what I think was a bit of a compliment about me making an intelligent speech. Of course, he then proceeded to make a party political point by trying to shift the emphasis back on to what happened before, and I understand why he would seek to do so. It is important to acknowledge that there have been changes, but there is no evidence yet to suggest that all the behaviours that led to wrong decisions being taken have changed, so we still need to keep an eye on that.

--- Later in debate ---

[Cathy Jamieson]

My hon. Friend makes a useful point. I am confident that he has read the paper we published on that, which highlights the need to ensure that finance gets to small and medium-sized enterprises, in particular, and the important role that a proper British investment bank can play.

Earlier this month we saw a new and startling example of impropriety, with the allegations that HSBC’s Swiss subsidiary actively advised customers on how to avoid, and indeed evade, tax. I want to emphasis again that all those activities are symptoms of a wider culture that has seeped from investment to retail banking. That culture has been characterised by short-termism and the pursuit of profit at the expense of all else—in many cases, at the expense of the banks’ own customers and the wider economy. That culture led to banks exploiting their consumers and ripping off the taxpayer.

That culture has also caused banks to lose sight of what should be their core function. The role of our high street banks is, or should be, twofold: they must serve the needs of consumers, providing basic borrowing and saving facilities and loans for mortgages to buy homes; and they must provide finance to businesses, as my hon. Friend the Member for Denton and Reddish (Andrew Gwynne) suggested, enabling them to start up, grow and create well-paid and secure jobs. However, lending to business has fallen by over £55 billion since 2010, despite an array of Government schemes, such as Project Merlin and the funding for lending scheme, all of which have to varying degrees failed to deliver. Despite that, however, and despite all the scandals, the banks have continued to pay lavish bonuses to a small cohort of senior employees.

[Mark Garnier]

The hon. Lady is being very generous in giving way. She says that business lending is not quite what it was in the old days, but is it not fair to say that business lending in the old days was incredibly irrational and irresponsible, and that that led to the financial crisis that brought the banks down? We want the banks to lend, but we do not want them to lend irresponsibly and create another crisis.

[Cathy Jamieson]

I do not think that anyone is suggesting that we want irresponsible lending. We want those businesses that are valuable, sustainable and want to grow—I am sure that the hon. Gentleman has heard from them in his constituency, as I have in mine—to be able to access finance. That is the important point.

[Cathy Jamieson]

I was planning to say something about the cap later, but my hon. Friend has made her point with words that I would have difficulty bettering.

Let me return to banks paying lavish bonuses. The public are understandably still questioning why, with wage stagnation and the cost of living crisis that they are all facing, senior bankers have continued to reward themselves in that way. Let us look at the figures. Last year, bonuses at Barclays were up 10% to £2.4 billion and those at Lloyds were up 8% to £395 million. The Royal Bank of Scotland, 79% of which is owned by the taxpayer, announced a bonus pool of £577 million. Some may say that that is all well and good, because it is just senior bankers enjoying the hard-earned fruits of their labour, but that is more difficult to justify in the light of recent scandals and given that two of the UK’s four largest banks—Barclays and RBS—have experienced drastic falls in profits. Earlier this week, with impeccable timing, of course, HSBC announced its bonus pool for the year, awarding its chief executive, Stuart Gulliver, £7.6 million—I repeat, £7.6 million—and paying 330 of its top employees in excess of €1 million, despite the revelations of recent weeks and a 17% fall in profits.

It would be remiss of me not to refer to the role that the Government have played in all this. As well as the failure of their schemes to galvanise lending, they have failed—this point was made my hon. Friend the Member for Denton and Reddish—to implement all the reforms recommended by the Independent Commission on Banking and the Parliamentary Commission on Banking Standards. They ignored Labour’s pleas for action to regulate benchmarks when the LIBOR scandal first came to light, and they have actively aided and abetted bankers’ efforts to safeguard their bonuses. As my hon. Friend the Member for Clwyd South (Susan Elan Jones) pointed out, the Chancellor launched an ill-fated and misguided legal challenge to the EU bonus cap, which limits bonuses to 100% of fixed pay or 200% with shareholder approval, which still seems fairly generous.

[Mark Garnier]

What troubles me about a lot of what the hon. Lady is saying is that she is confusing how much bankers have been paid with how one goes about paying them. While many of us would agree that having pay packages of millions of pounds is an issue in itself, it is not to do with bonuses. She will probably propose in due course that bonuses should be clawed back over a period of 10 years, which I recommended as a member of the Parliamentary Commission on Banking Standards, so I agree with her entirely about that. However, capping bonuses reduces the amount of money that can be clawed back. In fact, if one pays a banker £1, 90p should be paid as a bonus, because then there will be more to claw back and therefore more sway over that banker to encourage them to behave better.

[Cathy Jamieson]

I thank the hon. Gentleman for that intervention. I know that he made those points during the work that he did. I am glad to hear that he agrees with us on some of this, and I will deal with a number of his points later.

We still have to look at the actions of this Government in taking on the legal challenge to the EU bonus cap, however. I am sure that the hon. Gentleman does not suggest for a moment that that was a sensible thing to do. I do not think that the public saw it in that way—

[Mark Garnier]

rose—

[Charlie Elphicke]

Will the hon. Lady give way?

--- Later in debate ---

[Cathy Jamieson]

I am not going to give way because I am making important and serious points about the future of our young people. I have been very generous in giving way and I want to finish this point. Our bank bonus tax not only will offer a lifeline for thousands of young people, helping them to earn, learn, and get a foot on the career ladder, but will help the economy and mean that the banks give something back to society.

In addition to that and our wider programme of reform, we will extend the deferral and clawback period for bonuses, ensuring that rewards are paid out proportionately and can be recouped when evidence of reckless or inappropriate behaviour is revealed further down the line. As I said, the financial crisis and recent scandals have shown that risky decisions can take up to a decade to have an impact. The next Labour Government will therefore ensure that if bankers have been shown to have acted inappropriately or made reckless decisions, banks will be able to claw back any bonuses awarded. We will act on the recommendations of the Parliamentary Commission on Banking Standards by extending the period for the clawback of bank bonuses that have already been paid to at least 10 years. We will also extend deferral periods for senior managers to at least 10 years, which will help to deter the rash and short-sighted behaviour that we have seen in the past, and to encourage banks and their employers to have a view of the long term.

[Mark Garnier]

rose—

[Cathy Jamieson]

I will give way to the hon. Gentleman once more, given his role on the Parliamentary Commission.

[Mark Garnier]

I am extremely grateful to the hon. Lady; she really is being incredibly generous. Capping bonuses and targeting the bonus with a tax in itself will inevitably drive banks’ behaviour towards the perverse outcomes that none of us in the Chamber wants. If we tax bonuses, the banks will change them into something else. They cannot wriggle out of a balance sheet tax, which this Government have imposed, but they will be able to wriggle out of a bonus tax, and we cannot avoid that.

[Cathy Jamieson]

I believe that the hon. Gentleman is trying to be helpful by making points that I know have been made before, but I refer him to the previous occasion on which a bankers bonus tax was implemented, when a number of anti-avoidance measures were put in place to deal with such a problem. We do not want any unintended consequences.

I am trying to signal our intent. When we are in government, we intend to make the tax work to change the culture and practice in banking, as well as to ensure that we help our young people. I am sure that any folks listening to my speech who are thinking about devising ways of not paying up or not making a fair contribution will hear the intent in what I am saying and therefore not pursue such a course.

I remind hon. Members who have not already read our “Plan for Banking Reform”, which was published last week, that it sets out a series of wide-ranging reforms to the banking sector. It builds on much of the work done by the commissions and is informed by speaking to people in the industry. It focuses on the four key areas of stability, competition, access to finance, and culture and pay. The one-off tax on bankers bonuses is just one part of the reform process, but it is an important part.

Last week, I hosted a jobs fair in my constituency, as have many hon. Members on both sides of the House. I saw at first hand how much the young unemployed people who came along want to work and to contribute to society. I met people who have been out of work over a fairly lengthy period and are desperate for the opportunity to get back into employment and to contribute to society. They want decent jobs with decent pay; they do not want the instability of being on zero-hours contracts or of working for umbrella companies that are more interested in avoiding paying their taxes than in paying their way in society. We need to ensure that such young people and the long-term unemployed—not just in my constituency, but right across the UK—get the help that they need. These young people need to make the first step on to the careers ladder, and the long-term unemployed need help to get back into real jobs. It is absolutely vital that such support is given to not only our young people, but the long-term unemployed, who are almost at risk of being frozen out of the jobs market.

As I said, Labour’s programme of banking reform is driven by economic imperatives. The motion sets out that banks should make a social contribution as well as an economic one, and that the bonuses they pay should be a reward for exceptional performance, not a compensation for failure. I believe that those are vital steps along the road to restoring fairness, stability and trust to the sector so that banks serve the needs of the wider economy. I hope that the Government see fit on this occasion to support our motion.

Tax Avoidance (HSBC)

Mark Garnier Excerpts

Monday 23rd February 2015 Commons Chamber

[Mr Osborne]

He nods his head, but the information was provided in April 2010, when there was a Labour Government and he was in the Cabinet. He has nothing to say either about the agreement with the French authorities restricting the use that could be made of this information—an agreement that we are now busily trying to change.

None of these things has the shadow Chancellor admitted to or apologised for, and none of it is of any surprise to Government Members, because the Labour party was the friend of the tax avoiders and the tax evaders when it was in office. When we entered office, City bankers were paying lower tax rates than those who cleaned for them; foreigners were not paying capital gains tax; hedge funds were abusing partnership rules; and the richest in our society routinely did not pay stamp duty at all. We have put at end to all of that, and we will take more action in the Budget. All we have on the Opposition Benches is a bunch of arsonists throwing rocks at the firefighters who are putting out the fire that they started.

The shadow Chancellor comes to the House fighting for his political life. He asks about tax evasion, but he was the principal tax adviser when tax evasion occurred. His economic policy is in tatters, and he cannot name a single business supporter of his business policy. His tax avoidance campaign has turned into a war with his own window cleaner. Now he has lost the confidence of his colleagues and his leader, but he lost the confidence of the country a long time ago.

[Mark Garnier (Wyre Forest) (Con)]

Will the Chancellor confirm that British taxpayers will receive more money back from tax evaders as a result of civil actions than they would through criminal actions?

[Mr Osborne]

When we can pursue criminal prosecutions, of course we do so, but that is a matter for the independent prosecuting authorities. Frankly, the suggestion from some on the Labour Benches that the Chancellor of the Exchequer should direct the prosecutions of our independent prosecuting authorities shows how far they have gone from the constitutional principles of government. We set the overall resourcing for HMRC and pass the tax laws, but we have independent prosecuting authorities. The shadow Chancellor goes on about the policy, but the policy was set out by the right hon. Member for Kirkcaldy and Cowdenbeath in 2002 and repeated in 2005.

Tax Avoidance

Mark Garnier Excerpts

Wednesday 11th February 2015 Commons Chamber

[Shabana Mahmood (Birmingham, Ladywood) (Lab)]

I beg to move,

That this House notes with concern that following the revelations of malpractice at HSBC bank, which were first given to the Government in May 2010, just one out of 1,100 people who have avoided or evaded tax have been prosecuted; calls upon Lord Green and the Prime Minister to make a full statement about Lord Green’s role at HSBC and his appointment as a Minister; regrets the failure of the Government’s deal on tax disclosure with Switzerland, which has raised less than a third of the amount promised by Ministers; welcomes the proposals of charities and campaigning organisations for an anti-tax dodging Bill; and further calls on the Government to clamp down on tax avoidance by introducing a penalty regime for the general anti-abuse rule, which is currently too weak to be effective, closing the Quoted Eurobonds exemption loophole, ensuring that hedge funds trading shares pay the same amount of tax as other investors, introducing deeming criteria to restrict false self-employment in the construction industry, and scrapping the shares for rights scheme, which the Office for Budget Responsibility has warned could cost £1 billion in avoidance.

When citizens hand over their hard-earned cash to the Government in the form of taxation, they do so on the basis that at some level they have faith in our system of democratic governance—a system in which the Government are entrusted to make decisions about how to use that money in the best interests of all their people, and to keep them safe. The collection of tax is a core responsibility, and trust underpins the whole structure—trust that if I pay my fair share, so will my neighbour, and trust that the rules are applied as vigorously to the sole trader as to the huge multinational, and as fairly to the basic rate taxpayer as to those in the higher band. However, that foundation has been profoundly shaken.

The global crisis, austerity and a series of media disclosures about the low tax bills and complex avoidance schemes of multinationals and high net worth individuals have led members of the public to question like never before whether, when they pay their tax, their neighbour is doing the same. This week’s revelation that an arm of a leading high street bank, HSBC, helped clients to evade and avoid tax using Swiss bank accounts has simply added fuel to an already roaring fire. It seems that the Government have neither the will nor the ability to get a grip on the situation, which is fast spiralling out of control.

[Mark Garnier (Wyre Forest) (Con)]

The hon. Lady is quite right that the news is coming out this week, but is it not fair to say that the crime, if you like, happened in 2007 during the lead-up to the financial crisis? This is old news being brought out today, not new news.

[Shabana Mahmood]

I am grateful to the hon. Gentleman for his intervention. He and I have had a number of discussions on the airwaves about these issues, given that the Government have failed to field any Ministers to debate on those media channels. He has been doing a grand job of trying to defend the indefensible, but he is quite wrong. The central point in what we have discovered about HSBC this week is that the data with evidence of what had happened with tax avoidance and tax evasion were handed over by the French authorities to this Government in May 2010. That is the central point: that is the point at which we had evidence of wrongdoing that needed to be acted on, but that is not what happened.

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[Frank Dobson (Holborn and St Pancras) (Lab)]

HSBC had a lot of customers in Switzerland with secret bank accounts, and it helped them and conspired with them to break British law. Even if HMRC does not want to do anything about it, it seems to me that this was obtaining financial advantage by deception, which is a general crime, not something that needs to be prosecuted by HMRC.

Why are the names of these self-confessed tax swindlers kept secret? The names of small businesses that get into trouble with HMRC—it is worth bearing in mind the fact that that organisation puts more companies in this country out of business than any other—are not kept secret, even if all that happened was that they could not keep up their tax payments: they have not been doing any fiddling or swindling, or breaking the law.

I want to move on to the much wider question of whether the HSBC subsidiary in Switzerland was the only offender. HSBC has 556 subsidiary companies located in tax havens. Why are they there? It might be because of the weather in some tax havens, but not in all of them. Was the Swiss racket a one-off? No answer. Barclays has 390 subsidiaries in tax havens and RBS has 406, while Lloyds, to be fair, has rather fewer with just 297.

[Mark Garnier]

Will the right hon. Gentleman give way?

[Frank Dobson]

No I will not, because other Members want to speak.

Between them, the big four banks have 1,649 subsidiaries located in tax havens. So far, we know about the wrongdoing of only one of them. When will the Government start to find out what the other 1,648 have been up to, and probably still are up to, in tax havens abroad? We know that all four big banks will have been involved in money laundering, sanctions busting, fiddling foreign exchanges and fiddling LIBOR, and some of that is facilitated by having subsidiaries in tax havens. Basically, subsidiaries in tax havens exist to help people and companies avoid paying tax. There is no other good reason for being located in a tax haven other than to save tax.

The fact is that nothing is being done. Many small businesses find it difficult to meet their tax obligations in this country. Firms in Norwich, Carlisle, Worcester or Gloucester that find it difficult to do so will be hounded by the Inland Revenue, but these big companies and big individual tax swindlers in tax havens will not. It is about time that there was a thoroughgoing inquiry into the whole thing.

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[Helen Goodman (Bishop Auckland) (Lab)]

I am pleased to follow the hon. Member for Redcar (Ian Swales). Much of what he said, apart from the last sentence, was very sensible.

I am pleased to be called in this debate but disappointed that the debate is necessary. The recent revelations about what has been going on at HSBC are shocking. They are shocking because of the scale of the problem and because of the apparent lack of shame. Even according to the Government’s own figures, the tax gap, which shows the amount of tax avoidance, has gone up from £30 billion to £34 billion in this Parliament.

For two weeks in a row, the Prime Minister has been avoiding—some might say evading—questions about this tax problem. Last week he refused to say why he would not increase tax for hedge funds, and the very next day the Financial Times revealed that the number of big City donors to the Tories has doubled, and that they now account for a third of the Tory party’s income. Today he refused to explain about HSBC and what happened with Stephen Green. In Newcastle there are buses going around asking, “Do you know a benefit cheat?” One wonders whether there were chauffeur-driven cars at the black and white ball saying, “Do you know a tax cheat?” They might have found a few people.

We must take the international dimension seriously. Between 2006 and 2011, Google’s turnover in this country was estimated at £18 billion but it paid only £16 million of tax.

[Mark Garnier]

I hate to interrupt the hon. Lady, but does she realise that tax is paid on profit and not turnover?

[Helen Goodman]

I will come to that point.

Facebook’s turnover was £200 million, and its tax payment £0.25 million—[Interruption.] Will the hon. Gentleman just wait? What is going on at the moment? One big thing is the division by multilateral companies of different subsidiaries, and a key aspect is the payment of branding through trade marks and licences registered in low-tax domains. We all understand that marketing and advertising are legitimate business interests, and it is completely reasonable to set them against revenues in order to determine profits and decide the tax liability. That, however, is not what is going on, because brands and trade marks are registered in low-tax domains, and licences and royalties are then paid into those low-tax domains to shift money around.

[Mark Garnier]

indicated assent.

[Helen Goodman]

I am glad that the hon. Gentleman is now nodding his agreement.

That is a way of moving money from high-tax jurisdictions to low-tax jurisdictions. Now, of course, these prices are not contested; they are not the result of supply and demand, but are administered just as much as prices in the Soviet Union were administered. Sometimes they are administered at suspiciously high levels, and as far as one can tell that device has been used by Starbucks and Facebook, which is why there is a big discrepancy.

I also want to call in aid our noble Friend Lord Mandelson, who said that we must deal with this issue at an international level. At the moment we have constant competition to see who can cut corporation tax the most, and an arbitraging day-ahead market that is undermining everybody’s tax base—we have seen that with the Irish Republic, and now new freedoms must be given to Northern Ireland. The situation is simply not sustainable, but agreeing international changes to the rules of the game takes time. We in this country must take more urgent, unilateral action, and I hope we can consider the way that trade marks, royalties and licences are being abused.

These arrangements are complex, and to tackle them we need Ministers with determination, the right legal framework, and enough experienced HMRC officials. It is disappointing that Ministers have reduced the number of experienced officials in HMRC who have the expertise to follow up such matters. The Minister kept saying that he has a good record of which he is confident, but the Financial Times says that the amount of tax that will be brought to the British Exchequer from measures taken by the previous Government is 10 times the amount that he will bring in. The truth is that this Government are defending the tax loopholes. We want to address them in order to abolish the bedroom tax, which is paid by the most vulnerable and by disabled people in this country. The Government are defending the hedge funds and the City loopholes because they want the money for the Tory coffers for their attempt to buy the next general election.

--- Later in debate ---

[Charlie Elphicke]

That is indeed a huge change. The Government have also supported entrepreneurs with entrepreneurs’ relief, which I greatly welcome.

Under this Government, the tax gap for 2012-13 is lower as a percentage of tax receipts than in any year under the previous Labour Government. Tax yield for HMRC has gone up by £7 billion since 2010-11. The Government have been very effective at dealing with the tax gap and bringing in receipts. The corporation tax gap for large businesses in 2009-10 was £2 billion, whereas in 2012-13 it was lower, at £1.8 billion. We see a lot of revisionism from Labour, but when it came to getting money through the door they had an atrocious record. The Conservative party and this Government have had an effective record. Why? We understand that to up the take one must cut the rate. That is what the Government have done with corporation tax, with massive success.

Let me draw attention to another problem with the Labour party: its proposals are completely and utterly muddled. Labour talks about UK overseas territories that do not have a public central register for offshore companies being on some sort of OECD blacklist. The only problem is that countries such as America, Luxembourg, Ireland and the Netherlands and a whole stream of other countries do not do that. The chances of getting the OECD nations that do not do that to agree to blacklist a whole lot of other nations that do not do it are minimal, and that shows the absurdity of the Labour position.

[Mark Garnier]

A further absurdity of the Labour position is the comments that have been made about tax havens. In the talk about subsidiaries in so-called tax havens, how we define a tax haven was not mentioned. It is a relative thing. Many people look to the UK as a tax haven, yet there are plenty of banks in the UK that nobody would suggest closing down.

[Charlie Elphicke]

My hon. Friend makes a powerful point. If I wanted to avoid tax on an industrial scale, I would not use the Channel Islands. I would use the European Union: I would use Luxembourg, Ireland and the Netherlands—and, goodness me, that is exactly what happens. Why? Because European Union tax rules are structured to enable that to happen. Labour did nothing in their years in power to deal with the massive problems of the European Union and the nature of the parent-subsidiary directive. They should be ashamed of themselves. Nor did they do anything to deal with the problems of international tax avoidance. Companies such as Starbucks, Amazon, Google and Apple—the list goes on—pay hardly any tax in this country because the tax rules were set up in the 19th century and are not fit for purpose.

In the past decade, the previous Government did nothing at all on this. They were utterly asleep at the wheel. They were in denial. They were too busy snuggling up to businesses to hold them to account. They did not make the case for reform of the international tax rules. What have this Government done? They have made the case internationally to the OECD. This Chancellor and this Prime Minister have said that the rules for branch and tax presence are out of date and need to be updated. The rules on transfer pricing and many other international tax rules are out of date and not fit for purpose in the internet age. They need to be updated. It is this Government who have made the running, not just here at home but internationally. It is this Government who have introduced the diverted profit tax and are seeking to deal with this enormous problem.

As for Labour’s other ideas, they are hopelessly muddled. Who was it who brought in the stamp duty reserve tax on share transfers? My recollection is that it was the previous Labour Government. Now they are saying it is all a terrible mistake. What about the issue of the stamp duty reserve tax and schedule 19? They say it is a relief for hedge funds, but they do not understand that a hedge fund could not actually use this relief. This is another Labour pension tax. We in this House know about Labour’s pension taxes, their attack on thrift, on savings, on the savings culture, and the undermining of anyone who wants to take personal responsibility. This proposal is another attempt at a pensions tax. Again, we see Labour coming to this House with an Opposition day debate, claiming to be concerned about tax avoidance when their record in government suggests the complete opposite. The record of this Government suggests a very strong approach. Labour’s policies and proposals are completely and utterly muddled.

This Government have a strong record that I am proud of. I am proud of what we have done. I am proud of the fact that we have ensured that those who have been gaming the system are increasingly being brought to book. I am ashamed of what the previous Government did and ashamed of the Opposition coming to the House and talking the way they do, when they had such a shocking and disgraceful record in office.

Tax Avoidance (HSBC)

Mark Garnier Excerpts

Monday 9th February 2015 Commons Chamber

[Mr Gauke]

I am afraid that the hon. Gentleman’s numbers are wrong. The biggest department in HMRC deals with enforcement and compliance. He may be referring specifically to the affluent unit or the high net worth unit, both of which are raising substantially more money now than under the previous Government. Again and again, the reality is that HMRC is now more successful in raising money from the wealthy and anyone else who tries to avoid their taxes.

[Mark Garnier (Wyre Forest) (Con)]

The Parliamentary Commission on Banking Standards spent the thick end of 18 months looking into the activities and standards of banks, as well as the abject failure of regulation under the Financial Services and Markets Act 2000. Does my hon. Friend agree that had the system in its report, which resulted in the Financial Services (Banking Reform) Act 2013, been in place, this would not have happened in the first place?

[Mr Gauke]

My hon. Friend makes an important point. One element of this is that we have to look at the regulation of banks, and there were clearly weaknesses in the system that we inherited. Just as we have addressed weaknesses in the way that tax was collected, we have addressed weaknesses in the way that banks were regulated.

Oral Answers to Questions

Mark Garnier Excerpts

Tuesday 27th January 2015 Commons Chamber

[Andrea Leadsom]

No. The amount spent was £43,000. The Government believe fundamentally that we need to have the toughest regime in the world of any global financial centre on pay, and that is what we have. We have ensured that bankers will be remunerated in future on performance and that pay can be clawed back. We have put in place a system that is far better and far more accountable than anything that the previous Government attempted.

[Mark Garnier (Wyre Forest) (Con)]

In the light of all the hard work by the Government to ensure that bonuses are held back by banks to secure better behaviour by staff and greater stability for banks, is not the bonus cap a crude measure that will increase bank instability and bad behaviour by bankers?

[Andrea Leadsom]

My hon. Friend is exactly right. The Government wanted to challenge that cap because it would push up fixed pay, which means bankers being paid not for performing but for simply turning up and raises prudential risks associated with higher fixed costs. It was vital to the interests of this important sector to the UK that we introduced a better regime, and I am delighted that the Chancellor has written to the Governor of the Bank of England in his role on the Financial Stability Board to ask him to look at other ways of ensuring accountability.

Charter for Budget Responsibility

Mark Garnier Excerpts

Tuesday 13th January 2015 Commons Chamber

[Steve Baker]

I am well aware of that, but it was necessary in the context of the hideous mess left by the hon. Gentleman’s party. It is always the same and this is the essence of the problem: there is no kindness whatsoever in making to those in need attractive promises that subsequently cannot be kept. That is not kind; it is cruel.

[Mark Garnier (Wyre Forest) (Con)]

My hon. Friend is making a powerful speech. Does he agree that the chaos that could be brought about by a lack of fiscal discipline would result in huge uncertainty for public sector workers, who will not be able to rely on their jobs if balanced books are not maintained, because they will lose them? More importantly, for the thousands—possibly millions—of households across the country who were encouraged to pick up an extra £1 trillion-worth of household debt in the Brown bubble in the lead-up to the financial crisis, the uncertainty of unbalanced books could result in much higher interest rates and imported inflation as a result of reduced currency. An enormous amount of pressure would be put on those households as a result of chaos through ill-discipline.

[Steve Baker]

My hon. Friend is, of course, right. He and I sit on the Treasury Committee and we have heard from the Debt Management Office about the factors propping up the current level of borrowing. Not only has borrowing been back-stopped by the Bank of England, but bond market traders are aware of the Chancellor’s and the Government’s intention to balance the books, have confidence in it and, therefore, will keep lending to us. The situation, however, is precarious and the Labour party would put it in danger.

VAT cannot really go up. If it went up further, it would hit the poorest hardest and that would be wrong. On income tax, perhaps Labour would reduce the personal allowance. The truth is that the top 1% already pay a quarter of income tax. How much further can we go? My right hon. and learned Friend the Member for Rushcliffe (Mr Clarke) said that the 50p rate was pointless, I think—I will have to check whether that is what he said, but it is pointless. It is an act of spite to pretend that the rich will pay through their income tax; all they will do is adjust their behaviour. We put up capital gains tax and the revenues from it went down. My right hon. Friend the Member for Wokingham (Mr Redwood) has explained that in detail on his blog.

The truth is that the evidence shows that in this country there is a hard limit to how much the public will pay in taxation. Depending on how we measure GDP, it is somewhere between 35% and 40% of GDP. If we are committed to balancing the books, we have to take overall Government spending down to the level that people will pay in tax, and there is a historical limit.

Labour Members have been rather hysterical about the Government consumption chart, which shows us going back to the 1930s. This is about balancing the books. I believe that Labour Members want to put up capital spending, and debt interest is already forecast to overtake education spending. There is a really tough problem here. The truth is that hysterics on either side of the argument will not do. For example, wealth taxes will not work. Opposition Members seem to think we will get the rich to pay, but Denis Healey said of a wealth tax:

“I found it impossible to draft one which would yield enough revenue to be worth the administrative cost and political hassle.”

The truth is that there is very little chance of getting out of the mess we are in without taking extremely difficult decisions. Unlike turning around a commercial company, we cannot cut to the bone once and then build back up; reducing the deficit has to be taken gently, and we have done it at an appropriate pace. The Chancellor has the right plan, and I shall certainly back him tonight.

Financial Conduct Authority Redress Scheme

Mark Garnier Excerpts

Thursday 4th December 2014 Commons Chamber

[Guto Bebb]

The hon. Gentleman makes an important point. There have been concerns throughout the process about the level of provision within banks. In view of some of the information provided by the KPMG whistleblower, RBS’s confidence in having a very low level of provision probably justifies its attitude to the review.

Another point about the lack of consistency relates again, unfortunately, to the behaviour of RBS. It has been argued that a good result for a business from the redress scheme is to have a full tear-up of the agreement or to implement a cap rather than a swap. Indeed, it has been argued that a cap would in many cases have been a much better original product. From the detail of many of the caps offered to RBS customers, it transpires that most of them are for 10 years. I do not claim to be an expert, but experts in the field of derivatives and interest rate protection tell me that there is no demand in the marketplace for a 10-year cap. They have challenged RBS to give one example of a 10-year cap that it has sold commercially in the past 10 years, but as yet RBS has not come back with such an example. Yet, time and again when businesses are offered a cap as an alternative product, the cap is for 10 years. It will not surprise hon. Members to learn that a 10-year cap is significantly more expensive than a five-year one. That added cost comes out of the redress made available to the relevant businesses. There are therefore questions to be asked about the behaviour of some banks, including RBS, and those questions raise doubts about the consistency of the scheme.

On transparency, I am concerned that the agreement between the banks has not been disclosed. That means that it is very difficult to assess the success or otherwise of an outcome, because we do not know what to measure it against. The agreement has not been made available to the all-party group or the Treasury Committee, but I must ask why, because when the FCA says that it is robustly ensuring that the agreement is maintained, we cannot assess whether that is the case.

[Mark Garnier (Wyre Forest) (Con)]

Will my hon. Friend give way?

[Guto Bebb]

I will of course give way to a member of the Treasury Committee.

[Mark Garnier]

I, too, congratulate my hon. Friend on all the work he has done so far. Given that this is the first time that a voluntary scheme has been used, does he agree that full transparency of the whole system is absolutely crucial in ensuring that the scheme can safely be used again in future? Otherwise, there will be long-term fundamental doubt about whether it should ever be used again.

[Guto Bebb]

I could not agree more. I am concerned that some of the banks involved in the scheme now fear that they have played by the rules, while others have not. If there is no transparency on that issue, banks may go into future schemes with the same attitude as RBS’s attitude to this scheme.

We do not have bank-by-bank details on outcomes, so it is very difficult to measure whether they are appropriate. In the same way, there is real concern that the FCA has not fully shared its legal opinion on excluding businesses with embedded swaps from the whole review process. In the briefing that the FCA provided for this debate, it implies that it has fully shared its information on that with the Treasury Committee, but my understanding is that it was willing only to allow a QC acting on the Treasury Committee’s behalf, not its members, to see the information. I do not consider that to be full accountability to Parliament.

I said that I would call on the FCA to consider an appeal process. In view of the revelations about the possible activities of the KPMG reviewers of RBS, there is merit in a proposal made by the all-party group a year and a half ago. All the independent reviewers have been trained to the FCA’s satisfaction, so if an RBS client is unhappy with its outcome it would surely be appropriate to ask another independent reviewer—for example, Deloitte, which acts in relation to HSBC—to review the case. That would not unduly complicate the situation, because the reviewers have been trained by the FCA and have satisfied it as to their expertise. It would give clients a degree of independence if those unhappy with the redress outcome could have all the case notes reviewed by a third party that is independent of the original bank and of its independent reviewer. Will the Economic Secretary consider that request?

--- Later in debate ---

[Guto Bebb]

I agree entirely, and that is why we need a review of the current redress scheme.

My final point, which the Government could respond to positively, concerns the decision by HMRC to tax redress received by businesses. HMRC has decided to treat any redress received as income generated in the year in question, which means that many small businesses will pay tax on that redress at their marginal tax rate. Has HMRC taken seriously the possibility of using extra statutory concession D33, paragraph 11, which states:

“A right of action may be acquired in a situation where it is not possible to identify a separate underlying asset. For example, where a professional adviser has given misleading advice on a tax or other financial matter, or in relation to private or domestic matters…Broadly, when we are looking at capital sums without an underlying asset which fall within paragraph 11 of ESC D33 we are looking at a financial loss, for example compensation for poor professional advice or for mis-selling of financial products.”?

In effect, that means that when the compensation is for bad financial advice or mis-selling a financial product, it should be treated not as income but as a gain for capital gains tax purposes, which would be a fairer resolution. Currently, banks are able to offset any redress paid for their tax purposes, although businesses end up paying tax on any redress they receive. It is unacceptable that the wrongdoers get tax relief while the wronged have to pay tax on their compensation, and I ask the Minister to consider that point.

I wanted to touch on businesses sold in embedded swaps. If the advice from the FCA is comprehensive, I appeal to it to make it public. Those businesses are in limbo. They believe they have a right to be in the redress scheme and are told that legal advice is clear. I call on the FCA to make that advice available so that those businesses know what possibilities they have when trying to resolve their situation. [Interruption.] The hon. Member for Wyre Forest (Mark Garnier) seems to want to intervene.

[Mark Garnier]

I am grateful for that prompted intervention. My hon. Friend refers to legal advice given to the FCA, but it is clear that these are unregulated products and therefore the FCA is not addressing them. It could be argued that selling an unregulated product to a non-professional customer is a regulated activity and should be covered by regulated activity rules. There is a lot of confusion about that.

[Guto Bebb]

I am grateful to my hon. Friend for that intervention.

It is fair and right to acknowledge that the redress scheme has been better than no action whatsoever, but concerns clearly remain. Action is required on consequential losses, and there is no justification for refusing an internal appeals process within the review process. The lack of transparency allows people to make assumptions about the behaviour of banks and the FCA, which is damaging to the financial system, and more transparency would give greater confidence in the way the scheme works. HMRC needs to address the issue of taxing redress paid to businesses with a degree of sympathy that has not so far been shown.

Crucially, allegations about the behaviour of some banks in the scheme should be a cause for concern not just to Members of the House but to those on the Government and Opposition Front Benches. The issue must be considered carefully, which is why the motion asks for consideration to be given to the establishment of a review of the current redress scheme. If the regulator is unable to regulate the scheme it has established and make right the wrongs committed by the banks, it is important for the Government to take responsibility.

--- Later in debate ---

[Mark Garnier (Wyre Forest) (Con)]

It is a great pleasure to follow my hon. Friend the Member for Beckenham (Bob Stewart). I should like to add my congratulations to my hon. Friend the Member for Aberconwy (Guto Bebb) on securing the third of these debates. This is turning into a running series, although I hope that we shall not need a further debate on this matter in the next Parliament because we will have resolved the issue by that time.

Great progress has been made as a result of the huge amount of work that my hon. Friend has done, and it should be recognised that, in many cases, the banks have stepped up to the plate to handle the problems that they have created. However, we have been left with a cohort of claimants who feel that they are not getting the redress they deserve, and I want to concentrate on them today.

When I consider the plight of those businesses that have been mis-sold interest rate hedging products, I have yet to find a victim for whom I do not have enormous sympathy. This appalling scandal has destroyed many people’s lives, including those of people who have not been directly affected. For example, people have found themselves out of a job when their employer went bust as a result of the scandal. Other people have been creditors who could not suffer the cash flow shortfall resulting from banks taking too long to make redress payments, especially consequential loss payments, to the businesses that owed them money.

The scandal’s implications go far beyond the victims who were mis-sold swaps, and it is therefore right that we should consider the regulator’s response. The response of the Financial Conduct Authority is incredibly important, not least because this is one of the first full-blown scandals to which it has had to respond. How the new regulator behaves over this scandal will set a precedent for how it behaves in the future and tell us whether it is fit for purpose.

I want to raise a couple of issues, given that the regulator has opted for a voluntary redress scheme. That in itself is probably not unreasonable, and it gives the banks an opportunity to show how they have changed their culture and responded to the chaos they have caused. However, this is a brand new way of responding to such a crisis, and it must be looked at very carefully. The briefing note that the FCA prepared for this debate states, in the frequently asked questions section, that the voluntary approach is different from previous redress schemes, citing speed in compensation. Speedy outcomes have not been achieved in all cases, however.

It is noteworthy that the regulator cites part of the Financial Services and Markets Act 2000 as a reason for not having to make public the arrangements between itself and the banks. Any new process needs to be fully transparent if there is to be confidence in that process. There is no confidence in this process, and the situation is fundamentally flawed.

[Bob Stewart]

How can anyone possibly think that there should not be full transparency in this sort of activity? I do not understand how the FCA can justify not being transparent about all its dealings.

[Mark Garnier]

I am not sure that the FCA can justify it. The FCA is answerable to Parliament and to the Treasury Committee, and until such time as we can conduct a proper investigation into what it has been up to, how can anyone believe that this is a good system?

[Tessa Munt (Wells) (LD)]

Does the hon. Gentleman anticipate that the eventual outcome of this complete lack of transparency is that the FCA will have to revisit this whole process, as it has done relatively recently with payment protection insurance, because so many people have had a very poor deal?

[Mark Garnier]

The hon. Lady is absolutely right, and I shall return to that as I progress through my speech.

My first point is that there is little consistency between the banks in how they tackle the problems they have created. One of the FCA’s frequently asked questions is:

“Are the offers consistent between banks?”

Interestingly, its response reads:

“The independent reviewers report regularly to the FCA, both on the judgements they are making and how the banks are performing, and will regularly bring all the independent reviewers together to ensure consistency of approach. The FCA also collects data on the offers being made by each bank and we carefully consider any variances to ensure that the standards are being applied consistently.”

That in itself demonstrates that there is a huge amount of useful information that we are not getting a chance to see. It goes on:

“We also regularly select individual case studies to follow up with banks”.

The FCA is trying to be consistent, but cannot say that it is being consistent. We have heard on many occasions this afternoon about its not being consistent.

My example concerns not one of my constituents but someone else who came to see me and involves how the banks treat businesses that have gone into insolvency. Clearly, any insolvent business will have an insolvency practitioner winding up that business. It is a tragic time, but somebody has to come in and do it. In the event of an insolvency, the banks are involved both as a creditor, as they have lent money to the business in the first place, and as a debtor, as they owe redress and in many cases consequential losses to the business. Some banks behave quite well. HSBC is a reasonably good example and recognises that the insolvency practitioner is duty bound fairly to distribute the assets of an insolvent business to a wide range of creditors. To that end, HSBC will pay what is owed under the redress and consequential loss scheme into the insolvency practitioner’s funds and then put in a bid for what it is owed from the original bank loan. The insolvency practitioner therefore makes a correct and fair assessment of who is owed what, and in some cases HSBC will get back not just less than it lent but less than it would have got back had it done what RBS does.

RBS is a frequent flyer in this debate, so I shall have a go at it, too. I am told that RBS will offset what it owes by way of redress and consequential loss against what it is owed by way of repayment of the loan. Therefore, although it is still owed money by the bankrupt business, it is owed less than it otherwise would have been, and when RBS seeks to limit its losses at the expense of other creditors’ owed money, those creditors will lose money as a result of RBS’s mis-selling. That is just plain wrong.

It is also wrong that some loans have been left outside the redress scheme. Those who took on tailored business loans, otherwise known as hidden or embedded swaps, have had exactly the same financial problem but for a technical reason are outside the regulated arena. Under article 85 of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, due to some pretty technical reasoning, if a loan looks like a duck, swims like a duck and quacks, it is in fact a donkey. Some pretty smart lawyers have looked at that and the inescapable fact is that the legislation was written in a way that allowed many businesses to be mis-sold swaps in an area that is unregulated.

The FCA’s frequently asked questions talk about these so-called commercial loans, stating:

“Commercial loans generally fall outside the regulatory remit of the FCA and we therefore cannot direct the banks to set up a review of these products”.

That might possibly be so, but is not the act of an FCA member’s selling any product to an unsophisticated customer a regulated activity that therefore falls under the FCA’s remit?

[Mr Bellingham]

I agree entirely with my hon. Friend. Many of these businesses are not large concerns—some are SMEs and some are micro-businesses—and one could not describe some of the proprietors as highly sophisticated business people. As far as they were concerned, they were mis-sold these fixed-rate tailored business loans with the hidden swaps attached to them. Some have been dealt with very quickly by the banks, but others have not and the banks have just ignored them completely.

[Mark Garnier]

My hon. Friend makes an incredibly important point. The point of the regulator, the FCA, is to protect unsophisticated consumers, but it has manifestly let down the consumers who subscribed.

The paragraph in the FCA briefing note continues:

“The FCA has received legal advice supporting this view”—

about article 85. It goes on to say that the Treasury Committee has carried out scrutiny of that advice. I am a member of the Treasury Committee and I think it is worth putting on the record just what that constitutes.

The Treasury Committee asked the regulator on many occasions for sight of the legal advice on these embedded swaps and on many occasions it said no. We asked whether we could send our legal advisers around to have a look at the advice on our behalf, but it continued to say no. We had a public evidence session with the chief executive officer and chairman recently and questioned them about the issue again. The answer they gave was that they were not prepared to let us see the advice as it was confidential. We pressed them on whether we could send our legal team to have a look at it and they answered that they needed space from Parliament to conduct their activities.

The regulator is answerable to Parliament. Although I am sympathetic to the submission that the regulator cannot have every confidential document shown to all hon. Members, who may well then tell the press, the CEO and chairman simply cannot say that they need to be excused one of their most fundamental duties—that of answering to us here in this place. In the end, we pressured them to relent and our legal adviser looked at the advice they had been given, and in fact they were right. But this is a sorry story of the regulator not understanding its duties and its constitutional place as answerable to Parliament.

In any sort of resolution scheme, it is inevitable that some people will feel well treated and others hard done by. One of my constituents was entitled to redress but felt that he did not need it, because he had bought exactly the product that he wanted and expected and he thinks it unfair on other people that he should seek redress when he took what he thinks was a fair deal. But he is unusual. I have constituents who have been completely and totally rolled over by the banks. Consequential loss offers are derisory for businesses that have taken a lifetime to establish and just a few telephone calls by mis-incentivised relationship managers to destroy. There are no consequential loss payments for reputations destroyed, or for goodwill wasted and track records smashed.

I was a member of the Parliamentary Commission on Banking Standards. We looked hard at how the regulator could drive better standards in the banking industry. There should be incentives for better behaviour, and banks are working on making their staff perform to higher ethical standards, but for every carrot there must be some sort of stick. If it is possible for banks to be fined for fixing LIBOR and forex benchmarks and for mis-selling insurance products, why have those banks who have destroyed so many businesses been allowed to choose their own form of redress with no further financial penalty?

I am baffled why the regulator has set up a redress scheme that is voluntary, has just one opportunity for appeal and is not being reviewed or assessed. Surely, it is right that people who are unsatisfied can have an independent appeal assessed by the Financial Ombudsman Service. A special unit could easily be set up at the FOS, funded by the banks, to give one last chance of appeal to those small businesses that fall outside the FOS’s remit but inside the redress scheme. I am also baffled why the regulator will not publish the terms of reference and the agreements between the regulator and the banks on how the scheme is managed and run and what is expected of it all. That lack of transparency can only lead to mistrust in the system and the regulator. I am also concerned that the regulator is so reluctant to share with agents of the Treasury Committee legal advice on whether embedded swaps are regulated.

With so many people left destitute and impoverished by what has happened, it is wrong that no one has been brought to account over this. Until such time as fines are levied and front-line staff guilty of mis-selling brought to book, confidence in the banking sector and the regulator will struggle to improve and standards may languish at an unacceptable level.

The last sentence of the motion before us calls respectfully for the Government to consider a review of this whole process and the conduct of the regulator. I urge my hon. Friend the Economic Secretary to the Treasury to look carefully at whether to hold an independent review of this whole regrettable scheme.

The Economy

Mark Garnier Excerpts

Wednesday 26th November 2014 Commons Chamber

[Chris Leslie]

The Prime Minister likes to say—the Tories have said it in party political broadcasts and keep repeating it—that the national debt is somehow falling. The national debt has got larger and larger—[Interruption.] No, let me correct the hon. Member for Wyre Forest (Mark Garnier)—there is a difference between the national debt and the deficit. The national debt has got higher and higher and higher. My hon. Friend the Member for Leeds East (Mr Mudie) was right to say that it now stands at more than £1.4 trillion. He knows that the Prime Minister and the Chancellor have added more to the national debt in their four and a half years in power than the previous Administration did in 13 years.

[Mark Garnier (Wyre Forest) (Con)]

The hon. Gentleman is clearly struggling a little with the definitions of how we run the public finances. The reason why the national debt is going up is that in 2010 this Government inherited a deficit, which is the difference between income and outgoings, of £156 billion. That had been set in place some time before. If the hon. Gentleman remembers, the deficit in 2005—fully two or three years before the financial crisis—was already around £50 billion a year. The previous Government, then, were increasing the national debt. It is going up because the only way to account for the deficit is by putting it on the national debt. The hon. Gentleman must understand the most basic facts of fiscal policy.

[Chris Leslie]

We have an admission there—that the national debt is rising and has risen more in the past four and a half years than it did in the 13 years of the previous Administration.