Finance (No. 4) Bill

Adrian Bailey Excerpts

Thursday 19th April 2012 Commons Chamber

[Ben Gummer]

My hon. Friend represents a seat with a huge personal vote. I was not lucky enough to take over from a Conservative Member of Parliament with a huge personal vote such as his. I was therefore targeted in the last few weeks of the campaign by the Labour party and its union friends, who issued a series of postcards claiming that we would abolish the winter fuel allowance, free TV licences and all those other things. It is a matter of great pride to me that even in coalition, when compromises must be made, those promises, made by my right hon. Friend the Prime Minister, were kept.

[Mr Adrian Bailey (West Bromwich West) (Lab/Co-op)]

Will the hon. Gentleman give way?

[Ben Gummer]

If the hon. Gentleman will allow me, I would like—

Finance (No. 4) Bill

Adrian Bailey Excerpts

Wednesday 18th April 2012 Commons Chamber

[Karen Bradley]

I was coming to exactly that point. It is, in fact, a revenue-raiser. We need to return to the question of how money can be raised from the banks, and if that is what we wish to do, I think that the bank levy is a better way of doing it.

In preparation for the debate, I rang various former colleagues and others involved in the financial services sector. I could not find anyone who would express the view that the bank levy was a terribly bad thing. They all accepted that the tax needed to be paid, and they thought that this was a reasonable way in which to pay it.

[Mr Adrian Bailey (West Bromwich West) (Lab/Co-op)]

I am trying to follow the hon. Lady’s argument. What impact does she think the bank levy has had on the level of bonuses given to bankers?

[Karen Bradley]

My point is that it is not the Government’s job to try to drive the level of bonuses. The last Government wanted to do that, and failed miserably. It must be accepted that the bank bonus tax is a revenue-raiser and not a behaviour-driver, and that it will not determine the way in which bonuses are paid. The actions taken by the present Government to limit the level of cash bonuses that can be paid, and other such measures, are far more effective in ensuring that the bonuses that are paid reflect the performance that contributes to the building and growth of a financial services business. That is what we want in our economy. We want businesses to grow, because if they do, they will pay more corporation tax. They will also pay more payroll tax, because a 13.8% national insurance charge is levied on all employers for the sums they pay their employees. Therefore, if the banks make more money, they will pay more in payroll tax, which is a good thing.

--- Later in debate ---

[Mr Bailey]

I had not intended to speak in the debate, but I felt it was necessary to contribute to try and counter the argument from Government Members that taxation does not drive behaviour. It does.

The arguments that I have heard from Government Members are contradictory. On the one hand we are told that the bank bonus tax did not change behaviour and there was therefore no point in imposing it. On the other hand it is argued that if we have excessive taxation, people will leave the country and move banking elsewhere. One cannot argue both cases at the same time. Either taxation alters people’s behaviour or it does not. I believe that it does, but it is incredibly difficult to assess what will happen. The Treasury predictions over the past few years have not been very good at doing that.

The point has been made by several speakers that the original bank bonus tax was designed to drive behaviour, rather than to raise money. That resulted in an original estimate of receipts of about £500 million. Although the then Chancellor made it clear that it was a one-off tax, it was also made clear in the pre-Budget report that

“the Government will consider extending the period of the charge so that the tax remains in place until the relevant provisions of the Financial Services Bill come into force. Where there is evidence of avoidance schemes being put in place, the Government will take action to close those schemes.”

Implicit in that is the anticipation that other measures would defeat the bonus culture that was so damaging to our economy. It leaves open the suggestion that the then Government were prepared to review the tax if that did not happen.

It is obvious that the tax did not affect the bonus culture, which is why the tax raised about £3.5 billion. It is interesting to note that even as late as March 2010 the Treasury estimated that it would get only £2 billion—a huge underestimate of the amount that the tax would raise. Given that it raised more, behaviour had, by definition, not changed.

It is difficult to know whether the absence of any change in behaviour was in anticipation of a Conservative Government coming in who would not tackle the problem. That is a possible assumption. I contend that the previous Government had left open the option to deal with that culture, and this may be one of the measures that they would have taken both to raise revenue and to deal with the bonus culture. Given the June 2010 Budget introduced by the subsequent Chancellor and the apocalyptic vision he presented of the nation’s finances, I find it strange that a bonus tax that was raising so much money should be abandoned so readily and ruled out of consideration. The substitute tax is quite obviously designed not to raise as much and is not in accordance with the principles of responsible capitalism to which the Government say that they are committed. If we want responsible capitalism, it seems to me to be quite sensible to have a taxation regime that penalises those who act irresponsibly while at the same time raising a considerable amount of money to offset any potential burdens on those who act responsibly.

[Alun Cairns]

If the motivation behind the bonus tax is to tax those who have acted irresponsibly, would the hon. Gentleman suggest that we had an additional tax on former Labour Ministers who led us into the situation that has contributed to the debt of the nation?

[Mr Bailey]

Perhaps we should. Perhaps we should introduce a tax on certain members or major funders of the Conservative party, too.

[Mr Watts]

Does my hon. Friend not think that it a bit ironic that people who are suggesting that the previous Labour Government’s problems created the financial crisis are the same people—the Liberal Democrats and the Conservatives—who were calling for less regulation? It is interesting how the Government are trying to rewrite history.

[Mr Bailey]

I have often made the same point myself. I was on the Government Benches at the time of the so-called financial crisis and the run-up to it, and I do not remember any demands whatsoever from the then Opposition for us to introduce heightened regulation of the banking system. It is very easy to be wise in retrospect.

[Mr Redwood]

I think the hon. Gentleman has experienced some memory loss on that point, because I can remember both the Conservative and Liberal Democrat parties pointing out—as I did, too—that the borrowing was excessive and needed to be reined in.

--- Later in debate ---

[Mr Bailey]

I believe that the right hon. Gentleman introduced a paper on reducing regulation which subsequently disappeared and sank without trace in the light of the financial crisis.

In conclusion, we can argue about the behavioural changes but one thing that is absolutely certain is that the bank bonus tax raised a lot of money, that it was consistent with the principles of responsible capitalism and that it may well have affected the behaviour of bankers in the long-term if they had known that the tax would be in place as long as their behaviour justified it. The fact that the Government have removed it has meant that the bonus culture has continued. There is still a sense of unfairness and outrage within the community at large that they will have to pay for the excesses of the banking community and that the Government are not prepared to do anything about it. Even at this late stage, if the Government believe that we are all in it together, that is one thing they could do that would both benefit the Treasury and demonstrate their commitment to that principle.

[Mr Hoban]

This has been a useful debate and the clause and schedule that we are debating legislate for a change in the rate of the bank levy, increasing the full rate to 0.088% from January 2012 and making a further increase to 0.105 % from 1 January 2013. The rate changes are intended to ensure that the levy will raise the £2.5 billion a year that we said that it would and ensure that the additional corporation tax rates do not benefit the banks, a point that the hon. Member for Pontypridd (Owen Smith) did not seem to recognise.

The amendment looks remarkably familiar, as it was proposed last year, and it is good to see it being given another outing this year, but in the shadow spokesman’s 43-minute speech we heard remarkably little about it. We saw him dig himself out of a few holes of his own making, but we did not hear anything about whom it was targeting, what measures would be taken into account or, indeed, how much it would raise.

I say that because I have been going through some transcripts of radio interviews, and so far the Opposition have claimed that their measure would be used to finance £29.6 billion of additional spending or taxation. That is 10 times the amount the bank payroll tax raised when the Labour party was in government, but that is not just protestation on my part. The Leader of the Opposition, when quizzed by Jeremy Vine on 6 January 2011 about how the Labour party would pay for its VAT rise reversal, replied:

“I said for example we should have a higher bank levy.”

He was asked in a Fresh Ideas question and answer session—we have not heard many fresh ideas in today’s debate—on 25 March 2011 about how to cut the deficit, and he said that there should be “another bankers’ bonus tax”.

That is not a concoction; those are the words of the hon. Gentleman’s party leader, and I am afraid to say that the starting bid is £29.6 billion—[Interruption.] The hon. Gentleman should not question people’s arithmetic when his own was earlier found to be flawed. He should be very careful what he says. I suggested to him last night that he should have spent more time on his speech and less time in the Members’ Dining Room, but he ignored that advice. He should have followed it, shouldn’t he, really?

So we do not know how much the Opposition’s proposal would raise or at whom it would be targeted, and there is a stark difference between it and the levy that we introduced when we came into office. The bank levy is a tax on the balance sheets of banks, banking groups and building societies, and it complements wider regulatory reforms aimed at improving financial stability, including higher capital and liquidity standards. The levy ensures that the banking sector makes a fair and substantial contribution, reflecting the risks that it poses to the financial system and to the wider economy. The levy is also intended to encourage banks to move away from risky funding models.

From the outset, the Government have clearly stated that they intend the levy to raise at least £2.5 billion each year. That is an appropriate contribution, which was set with consideration to the wider environment, and it reflects the international programme of regulatory reform, the global economic conditions and the need to maintain the competitiveness of the UK financial sector.

The forecasts produced by the Office for Budget Responsibility implied that, if we did not adjust the rate, receipts for future years would fall short of the expected £2.5 billion. We will undertake a full assessment, before next year’s operational review of the bank levy, of the reasons why there is a shortfall, but fragility in the eurozone will inevitably have had a greater than the previously expected impact on last year’s balance sheets. The rate increase introduced in the clause puts us back on track to ensure that from 2013 and in future years the levy will raise at least £2.5 billion.

The target yield was set out in this Government's first Budget, when we also announced our intention to make significant cuts to the main rate of corporation tax. We were clear at the time, as we are now, that the bank levy yield far outweighs the benefit that banks receive from the corporation tax change. Other sectors, including manufacturing, will benefit from the reduction in corporation tax, but the banks will not benefit because the bank levy rate increase will offset it.

Since our first Budget, we have gone further: we have announced additional reductions in the main rate of corporation tax, so that it now stands at 24%; and we will continue with the two further cuts planned next year and the year after. As a consequence, Britain will have a 22% rate of corporation tax—the lowest in the G7. To offset the benefits to the banking sector, and to maintain the same incentives on the banks to move to less risky funding, the increase in the levy rate in this clause takes into account additional cuts in corporation tax.

The Opposition’s amendment seeks to reintroduce the bank payroll tax, and, as I said earlier, this is not the first time that we have heard it suggested. The House disagreed with it last year, and now, as then, the Government believe that such a tax would be counter-productive and unnecessary. The tax was introduced in the last Parliament as a one-off interim measure ahead of changes in remuneration practices from corporate governance and regulatory reforms. As the previous Chancellor clearly stated, it could not be repeated. The net yield of this one-off tax, accounting for the impact that it would have on income tax and national insurance contribution receipts, was £2.3 billion—less than our annual target for the permanent bank levy. The previous Government told us that they would apply the bank bonus tax only until changes in remuneration practices were put in place.

Amendment of the Law

Adrian Bailey Excerpts

Wednesday 21st March 2012 Commons Chamber

[Chris Heaton-Harris]

I thank my hon. Friend for his intervention, and of course I agree with what he says. The more we can spread lower interest rates, the better it is. As hon. Members from across the House will know, it has been difficult getting the banks to lend to all sorts of small businesses in the past two years. Any measure we take that strengthens lending to small businesses is a thoroughly good thing, because these businesses are the acorns from which big businesses grow. The Labour Government had this fantastic policy of how to manufacture small businesses: they took a big business, taxed it and added loads of regulation, and a few months or years later they had a small business. We are doing exactly the opposite.

[Mr Adrian Bailey (West Bromwich West) (Lab/Co-op)]

The hon. Gentleman has been extolling the virtues of low interest rates. I would certainly agree with the thrust of his argument, but what has he got to say about, and would he condemn, those financial institutions that have started to raise interest rates for mortgage holders?

[Chris Heaton-Harris]

I would not necessarily condemn them, but I would very much like them to answer the case on why they are doing that. I understand their business case, and people find it interesting when they start to talk to them. I like to think that the measures we have taken in the Budget, whereby we are trying to allow the flow of low interest rate money through our business sector in bigger and better ways—I think, for example, of the seven partners that the Chancellor is now looking at to do that in the future—are a valid way of proceeding.

I also welcome the broadband investment. My constituency is in the heart of England and could not be more different from that of the hon. Member for Hackney South and Shoreditch. My constituency is largely rural with lots of dynamic businesses, including lots of small businesses, based in it. However, we have awful broadband connection. When hon. Members talk about trying to get regular download speeds of 2 megabits, I look at them in awe, because my area is at the end of a copper exchange and we barely get speeds of 1 megabit. Where I live, I still watch my e-mails download, and plenty of hon. Members from across the country find themselves in exactly the same position. If we want proper inclusion across the whole country, we have to have fast broadband. I would settle for fast broadband, although superfast broadband would be a delight, and I very much welcome the measures we are taking on that.

I welcome—not because I am a Tory, but because I was in business—the fact that corporation tax is being lowered. We want to encourage businesses to invest. One way of doing that is by lowering corporation tax and I welcome the trajectory in which we are travelling.

I welcomed the waving of Order Papers when it was announced that this Government are lifting 2 million people out of paying tax, but—

--- Later in debate ---

[Gavin Williamson]

My hon. Friend makes a valid point. Manufacturing was destroyed under the Labour Government. When the Conservatives were last in power during the 1990s, there was growth in manufacturing. We saw the same amount of gross value added in manufacturing and the industrial sector in the United Kingdom—

[Mr Bailey]

Will the hon. Gentleman give way?

[Gavin Williamson]

No I will not. In the 1990s, there was the same amount of gross value added in manufacturing and the industrial sector in the UK as in Germany. That has now been halved. That is down to the incompetence and neglect of the last Labour Government. I happily give way to the hon. Gentleman.

[Mr Bailey]

I thank the hon. Gentleman for giving way belatedly. As a fellow west midlands MP, I am slightly surprised by his comments about the record of the previous Conservative Government on manufacturing in the west midlands. Will he list the major employers—employers of thousands of people—that failed during the period of the previous Conservative Government in the black country and the west midlands?

[Gavin Williamson]

I will happily talk about what happened under the previous Conservative Government, although it is going a little way back. Between 1992 and 1997, exports from the manufacturing base in this country grew and gross value added grew, because we created an environment in which manufacturers could grow. That did not happen under the last Labour Government, when jobs and businesses were destroyed. The Chancellor is committed to reversing that. I can give many examples of businesses that failed under the Labour Administration. This Government are committed to helping businesses grow, which is to be welcomed.

--- Later in debate ---

[Mr Adrian Bailey (West Bromwich West) (Lab/Co-op)]

The Chancellor opened his statement by promising us that this is a Budget that “rewards work”, “backs business” and “is on the side of aspiration”. Fine words, but I remember the last Budget, which he said would

“put fuel into the tank of the British economy.”—[Official Report, 23 March 2011; Vol. 525, c. 966.]

I have an uncomfortable feeling that in one year’s time, I will be looking back on the Chancellor’s opening words today with the same scepticism and cynicism with which I look back on the words that he used to describe his previous Budget. The fact remains that this Budget is set against a background of increasing unemployment, a squeeze on living standards and flatlining economic growth. It was significant that Government Members were so enthusiastic about the revised Office for Budget Responsibility projection which showed that the economy could grow by an extra 0.1%, given the fact that the economy is performing way below the Chancellor’s original projections. I sensed a hopeless clutching of straws.

[Andrew Bridgen]

Is the hon. Gentleman aware of recent predictions that the UK economy will grow twice as fast as the German economy and three times as fast as the French economy this year?

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[Mr Bailey]

I am afraid I do not read comics such as The Dandy, and I have not come across any such predictions at all. I do not think that they are in the OBR’s projection, either.

From the moment the Chancellor came into office, he has ruled out any intelligent debate on the right balance of supply-side and demand-side measures that would achieve a level of economic growth that would eliminate the deficit and provide employment. When the Labour Government left office, the economy was growing, unemployment and inflation were falling and our public sector deficit was declining, but the Chancellor seemed to think that that was all wrong, and that the only recipe was austerity. His justification for that was the perceived threat that a credit rating agency would downgrade Britain’s triple A status, with all the horrors that that would entail. I congratulate the Chancellor on one thing: he has transformed credit rating agencies from being the most anonymous part of our financial services infrastructure into bedroom monsters that he conjures out of the wardrobe to frighten anyone who has the temerity to question the underlying philosophy behind the measures that he is taking. We have to suffer job losses, cuts to our public services and pay freezes, because if we do not, Moody’s and Fitch will get us. That is the Chancellor’s underlying approach.

[Barry Gardiner]

Could they possibly be the same Moody’s and Fitch that gave Lehman Brothers its triple A rating?

[Mr Bailey]

I think they probably were.

After we have endured two years of pain since the Government came into office, Moody’s and Fitch have rewarded the Chancellor for all his efforts by putting Britain’s triple A rating on negative outlook. The monsters have turned on their master. The pain has been in vain, and the Chancellor should acknowledge that and start genuinely to consider a more balanced approach that would enable us to implement the changes that we need to grow our way out of the deficit.

I remind Members that it was only last August when the Chancellor sneered at the American model and told us that the American economy was growing more slowly than Britain’s. Now, however, America has taken a balanced approach. Its economy grew 3% in the last quarter of 2011, and is predicted to grow further. Its deficit is predicted to drop next year, as is its unemployment. The fact is that the model that the Chancellor sneered at is actually delivering, while his is not. Last week, when I saw the Prime Minister having his cosy discussions with President Obama, I wondered whether he might have taken him aside and said, “Mr President, how is it that you have got your economic strategy so right and my Chancellor has got his so wrong?” But perhaps that was just a fantasy.

Parts of the Budget are good, and they might help, even though they deal with the supply side, when the demand side needs to be addressed. The national loan guarantee scheme is obviously a welcome measure, and some companies will benefit from it. However—this might be a good thing for those companies—some companies that use it would have invested anyway, while companies on the margins will not be able to access it: they will run up against the same problems as before. One cannot help but think that if more were done to inflate the economy and improve the demand side, more companies would become more viable in the future and more companies would be able to access the scheme.

The fact remains that while access to finance is still a barrier for many sound companies, this is not the only issue. Many companies are not going to the banks because their future market projections are such that they do not have enough confidence to invest any more. Although there has been a very modest improvement in business confidence, it is still very fragile overall, and this measure alone is not likely to counteract it.

The Institute for Fiscal Studies projections show that we are only a quarter of the way through the public sector cuts. If future public sector cuts designed to deliver on the Government’s objectives result in further unemployment, I foresee only a further squeeze on the financial situation of individuals and a further decline in the domestic market needed to give those companies the sort of confidence they need.

An earlier speaker mentioned the national insurance holiday that was introduced in a previous Budget. No mention of that whatever was made in this Budget; it has been a colossal flop. However, small businesses are campaigning up and down the country, arguing that if this were reshaped and if the money that has not been used were ploughed into it, all small businesses could qualify, provided that they employ more people. That would be a relatively minor tweaking to the Government’s Budget strategy, yet it could result in a significant increase in employment and a significant increase in demand. I am disappointed that the Government did not look at that.

On construction, much has been said about the national infrastructure plan. Fine, it is a great plan, but it is being projected as if having a plan results in delivery. So far, what has been conspicuously absent is any sort of funding mechanism to achieve this. We have heard about using pension funds, which may be a great idea, and we have heard about private investment, which may also be a great idea—we will see. The key point is that until there is a model for the financing of the delivery of these infrastructure plans, these are really pie-in-the-sky ideas. I have an uncomfortable feeling that these so-called plans are being used as a substitute for doing something.

The construction industry needs action on this level. Having enjoyed a revival in 2010 and early 2011—largely as a result of contracts initiated under the previous Labour Government—it is now shrinking. As of this moment, employment is predicted to drop by 45,000, with a further 3% in output in 2012. If the Government really want an infrastructure-led revival in our economy, they need to move quickly. We have the companies capable of delivering it, and we have the skills within those companies; what we need is Government action. Let me make one qualifying point. About 60% of the projects in the national infrastructure plan are based in London, but the greatest unemployment in the construction industry is outside in the regions, so the plan needs to be revamped to take that into consideration.

The Government are certainly making all the right noises about exports. What the Chancellor did not mention is that if we are to expand our exports to the BRIC countries—Brazil, Russia, India and China—reducing UK Trade & Investment’s budget by 17% is perhaps not the best way of doing it. Also, he did not mention that two of the most significant growing markets that we need to access, India and China—other Members have talked about this—are, as a result of the visa regime, hugely concerned about whether Britain is open to business. There is considerable evidence that that is damaging our economic relations with them.

My last point is very much a personal one. As a long-standing co-operator and as a believer in mutuality and employee share ownership, I believe that measures should be taken to foster and develop employee share ownership in this country. There is a huge body of evidence demonstrating that it leads to greater employee and consumer satisfaction, and greater productivity. The tax allowable savings rate for members who wish to invest in their companies has not been increased for donkey’s years. The Government have said that they will review it. Given the commitment made by both the Prime Minister and the Deputy Prime Minister, I would have wished for something a little more solid than that, and I hope that the review will deliver it.

[Several hon. Members]

rose—

Banking (Responsibility and Reform)

Adrian Bailey Excerpts

Tuesday 7th February 2012 Commons Chamber

[Mr Adrian Bailey (West Bromwich West) (Lab/Co-op)]

Obviously, I support the motion. The manner in which my hon. Friend the Member for Streatham (Mr Umunna) introduced it reflected the widespread concern among the public about the issues it encompasses. He gave a proportionate and balanced view of what has happened over the past few years and gave us an insight into how we have arrived where we are now.

I support my hon. Friend in saying that the Labour Government did not get it all right, and as a supporter of that Government I take my share of the responsibility. It will be interesting to read speeches made by some Government Members in debates before the 2008 recession. They advocated less regulation, not more. Indeed, the only person I can remember continually warning us about the consequences of the banking system was the current Secretary of State for Business, Innovation and Skills. In opposition, as a Lib Dem spokesman, he repeated the warnings so often and so apocalyptically that he became known as the Member for doom and gloom. I can assure Members that now that he is in a position to do something about it, the Select Committee on Business, Innovation and Skills will interview him to see whether, in government, he lives up to the statements that he made in opposition.

[Stephen Williams (Bristol West) (LD)]

I thank the hon. Gentleman for giving way and for remembering accurately that my right hon. Friend the Member for Twickenham (Vince Cable) warned repeatedly, in the run-up to the crash, that we were heading for a crash. Does the hon. Gentleman recall—I am sure that he did not do this—that many Labour Members used to jeer my right hon. Friend, saying that he was indeed a doom-monger and that he was wrong?

[Mr Bailey]

I acknowledge that, shall we say, continued repetition on that theme earned the right hon. Gentleman a certain notoriety among Government Back Benchers of the time. Most people would look back and say, “Yes, there was some truth in what he said,” but they would also say, “Let’s see if he lives up to what he said.” That is what my Committee and I will seek to find out.

The situation is profoundly worrying and contravenes the sense of fairness in this country. To most people in the street, there is something perverse about a system that punishes people on low and medium incomes for something for which they were not responsible, yet those who were responsible are rewarded. Even worse, that sense of injustice is compounded when the taxes of people on low and medium incomes finance that reward. It not only offends a deep sense of fairness but, it could be argued, it is socially and economically dysfunctional. That is the context of the debate.

[Mark Lazarowicz]

Does my hon. Friend agree that among those who have the right to be most angry at what happened are the many thousands of people who work for banks, such as many individuals in my constituency, who are not on higher pay and do not receive massive bonuses, but who keep the banks going by working in offices, branches and so on? They are the real victims of this saga, more so than anyone else.

[Mr Bailey]

I agree. Lower-paid bank employees, of whom I was once one many years ago, have suffered collateral damage as a result of the antics of those who were their superiors and managers. If we are to debate the matter in the round, we must make that distinction.

[Mr Adam Holloway (Gravesham) (Con)]

Will the hon. Gentleman give way?

[Mr Bailey]

No, I have given way twice, and there is a time limit on speeches.

There is a disconnect between wealth creation and money making in our society, which is offensive to our sense of fairness and bad for the economy as well. The business context can be demonstrated in a number of ways, one of which came home to me when I visited Rolls-Royce in Derby, and spoke to a bright, young girl at the company who was an Oxbridge engineering graduate. She told me that of her Oxbridge cohort she was the only one to go into engineering with an engineering degree: other engineers went into banking. Given the debate about the importance of manufacturing, engineering excellence and rebalancing the economy, to my mind, that demonstrates an important issue: we will not rebalance the economy unless we rebalance the rewards for working in different sectors. We cannot achieve one without the other.

Another factor is the relationship between banks and industry. It is fair to say that the German economy has survived better than those of other European countries, and one of the reasons for that—I accept that it is not the whole picture—is the relationship between banks and industry, which historically have worked together on a much longer-term basis. German SMEs are not totally immune to the problems facing their British counterparts, but they are not nearly as great. The Minister set out the situation with Project Merlin and gave a litany of schemes that have been put in place to help small businesses, but the fact is that lending is falling. Probably every Member has an example of an SME in their constituency coming to them and saying, “If only we could get a grant or get the bank to help, we could invest this or buy that, and we would be able to employ more people and expand, and that could get us out of recession.” The fact is that there is a dysfunctionality in our banking system’s relationship with industry that is grossly impeding our ability to create jobs and grow our way out of recession.

My hon. Friend the Member for Streatham (Mr Umunna) quoted Robert Jenkins, a member of the Bank of England’s Financial Policy Committee, when he made the point that £1 billion less in bonuses could provide £20 billion for SMEs. Banks must factor in risk when lending to businesses, but that £1 billion, if diverted, would be written off their balance sheets anyway. Why not look at some scheme whereby money that might have been allocated for bonuses is diverted, either through taxation or another scheme, to lending for small businesses? That could make a huge difference to the capacity of small businesses to play a full role in growing us out of recession.

Alternatively, we must look at tax. The bankers bonus tax would provide the basis for stimulating the economy. A high proportion of small businesses say they are not applying for loans because they are so lacking in confidence about their future prospects and current levels of consumer spending, and that is a barrier. Getting 100,000 more people into work as a result of that stimulus would help to overcome the problem.

I will conclude my remarks by acknowledging—one or two Members have mentioned this, quite validly—that our financial services industry in itself is hugely important to our economy, so we must be careful to ensure that any measures are proportionate and will not have unintended consequences that could damage the industry. However, there is no doubt whatsoever that the industry is not serving our wider economy or society as well as it could do. The sorts of measures that the Opposition propose would go a considerable way towards changing that.

We have a window of opportunity, with public opinion behind us and all the economic and social statistics demonstrating the validity of the case for taking action. The Government should lead on this, but at the moment they seem to be finding excuses for not doing so. If they would only apply to this matter the same resolution and commitment they have shown on welfare reform and other areas, we could have a change that would transform the economy and generate that sense of fairness in this country.

Oral Answers to Questions

Adrian Bailey Excerpts

Tuesday 24th January 2012 Commons Chamber

[Danny Alexander]

My hon. Friend is right to point out that youth unemployment has been rising since 2004, which suggests that it is a deep-rooted structural issue in our economy, not just the subject of political knockabout at the Dispatch Box. That is why we are, as a Government, investing far more in apprenticeships. That is a very good way to give young people the skills that they need to survive and thrive in today’s labour market. That is why, in relation to youth unemployment, we will not be deflected from the path that we are on.

[Mr Adrian Bailey (West Bromwich West) (Lab/Co-op)]

The Government’s national insurance holiday for new companies to employ new workers has been acknowledged by the Prime Minister to be a flop. So far just £6 million has been spent on supporting jobs and £12 million in administering them, out of a budget of £1 billion. Will the Minister consider taking the advice of the Federation of Small Businesses and extending that support to all small businesses prepared to take on new staff?

[Mr Gauke]

The take-up has indeed been disappointing, but there have been 12,000 successful applications and we estimate that about 40,000 jobs have been supported in total. There are 17 participating businesses in the hon. Gentleman’s constituency. If I may correct him on one thing, the administration costs are not £12 million, but £325,000. As for extending the scheme further, we have to bear in mind the cost. We are concerned about that, even if the Opposition are not.

The Economy

Adrian Bailey Excerpts

Tuesday 6th December 2011 Commons Chamber

[Richard Fuller]

The right hon. Gentleman makes a helpful point. It is precisely my point, although unfortunately the shadow Chancellor missed it when he seemed to think that the responsibility of the Government towards debt management was to do with Government debt alone. It is not. The responsibility of the Government is to look at the whole economy. The debt of a nation, whether taken on by the Government, households or companies, has to be repaid by the nation. That is what got so out of control over the past 10 years.

[Mr Adrian Bailey (West Bromwich West) (Lab/Co-op)]

I assume that in his figures for debt, the hon. Gentleman is talking about secured debt as well as unsecured debt. Did he read the article in the Financial Times about three weeks ago demonstrating that the level of unsecured debt under the Labour Government actually lagged behind economic growth, which means that our boom was not led by unsustainable borrowing?

[Richard Fuller]

I thank the hon. Gentleman for his intervention. He makes one correct point but draws a false conclusion. It may well be true that unsecured debt did not rise as rapidly as secured household debt under the last, Labour Government, but it is absolutely not true that the last, Labour Government did not preside over one of the most massive increases in debt of any nation on earth.

In response to the right hon. Member for Rotherham (Mr MacShane), let me make four points. The first is about the potentially crushing impact of household mortgage debt. Let us compare a household deciding whether to purchase a house with a mortgage in 1997 with one making that decision in 2007, looking at the loan-to-value ratio and average house prices in those two periods, and ask how much money the average household will lose over the next 25 years because house prices were allowed to rise so much. The answer is that the average household will have £250,000 less to spend—it will be a quarter of a million pounds worse off—in the next 25 years precisely because the last, Labour Government thought that they were creating wealth by making average house prices escalate way out of the range of the average family.

As a Government we need to look at building more houses and regulating mortgage lending to maintain sustainable norms. We need to look—as we are—at simplifying planning controls and removing obstacles standing in the way of house building. At some stage we also need to analyse the impact of the reintroduction of mortgage interest tax relief, should interest rates rise precipitously.

--- Later in debate ---

[Mr Adrian Bailey (West Bromwich West) (Lab/Co-op)]

I will resist the temptation to answer the points made by the previous speaker, the hon. Member for Bedford (Richard Fuller).

The autumn statement last week was the most astonishing litany of failure. The shadow Chancellor described the Chancellor’s view as Panglossian; I myself thought it was more like something from “Alice in Wonderland”. I just cannot see how the situation that the Chancellor inherited 18 months ago—a growing economy, and inflation, unemployment and our debt dropping—was so bad that it had to be destroyed and a set of policies put in place that have done the reverse. Now the Chancellor stands there and says, “This is what is needed. This is what the rest of the world admires and praises us for.” Quite frankly, that bears no resemblance to reality whatever. I cast my mind back to 1997, when the former Prime Minister, then the Chancellor, resisted the temptation when he came into power to overturn everything that the previous Government had done. He kept within the previous Government’s public spending limits for two years, laying the fiscal foundation for 10 years of prosperity. Perhaps the current Chancellor should eat humble pie and look at his example.

When the Chancellor announced his policies, I tried to pick from them the rationale for why they might work. As far as I could see, they were predicated on two assumptions. The first was that we would export our way out of trouble, the second that we would invest domestically to grow the private sector so that it could take the unemployment arising from the public sector. He did not really take into account the fact that in many regions the private sector is dependent on the public sector; indeed, the main thrust behind the surge in our manufacturing exports was because of the weaker pound and the sustained high demand in Europe. At the same time, he failed to co-ordinate the rest of the departmental policies to sustain that. He removed the regional development agencies. He also failed to deal with the banks and enable them to borrow to companies so that they could export, which meant that those companies immediately ran into capacity problems.

Then, of course, the squeeze hit, and confidence—not helped by the apocalyptic economic rhetoric that the Chancellor used to justify his policies—fell, reducing demand from companies to invest more. Now we face the problem of a difficult credit situation from the banking sector alongside low confidence, which means that people do not have the incentive to apply for loans. When I look at the measures in the autumn Budget, I fail to see how that would be addressed.

The Chancellor has introduced a whole set of supply-side measures that are in themselves a recognition of the mistakes he made when he first took office. I refer to things like the bank loan guarantees, which are just an extension of Labour’s enterprise finance guarantee scheme. Then there are the infrastructure commitments, the regional growth fund, which is a poor alternative to the regional development agencies, and the youth jobs measures. These are basically repackaged measures, which the Chancellor claimed when Labour delivered them were one reason why we had this record deficit.

The problem is that the Chancellor is funding these measures out of cuts in current expenditure. We have long-term infrastructure projects, which do not have a short pay-off period; we have credit easing, which is borrowing by another name, and neither bankers nor businesses know how it will work—it will not work unless people feel they can sell the products that come from the extra investment; and we have RGF funding, which is glacial in its progress in tackling unemployment. I have asked the Minister several times how many jobs have been created nearly a year after its first implementation, but he cannot even give me a figure.

What we have at this moment is a set of long-term supply-side projects, which are not in themselves bad—I would support them—but they are funded out of short-term current expenditure at a time when we have the worst possible squeeze on personal expenditure. The real danger is that our capacity to grow in the future will be impaired by the present squeeze because many companies will either shed skilled workers in the meantime or will go under. When we get into a position to grow out, we will not have the capacity to do so. The Office for Budget Responsibility has drawn attention to that very point.

Autumn Statement

Adrian Bailey Excerpts

Tuesday 29th November 2011 Commons Chamber

[Mr Osborne]

We are helping businesses with their cash flow, but it is not a subsidy to those businesses, more a cash-flow measure.

[Mr Adrian Bailey (West Bromwich West) (Lab/Co-op)]

The Chancellor has announced a number of supply-side measures designed to help small businesses. However, that is only one part of the equation. One of the main obstacles now for small businesses applying for loans or investment is the squeeze on personal incomes in their market. Can he explain to me how removing current expenditure and squeezing incomes further at this time, albeit for some very worthy projects in two or three years’ time, will benefit unemployment and alleviate the feeling of deep insecurity that there is in my area at this moment?

[Mr Osborne]

I would argue that we are not squeezing incomes. We have frozen fuel duty in January and taken measures to uprate non-working benefits in line with CPI, which is a very big increase, and pensioners are getting the largest ever increase in the basic state pension. However, we cannot afford the additional £110 on top of the uprating that we promised on the child tax credit.

Oral Answers to Questions

Adrian Bailey Excerpts

Tuesday 6th September 2011 Commons Chamber

[Mr Hoban]

My hon. Friend is absolutely right. We need to reduce the burden of red tape to encourage small businesses to set up and to create more jobs. That is one reason why, for example, we introduced a moratorium exempting micro and start-up businesses from new domestic regulation for three years from 1 April 2011.

[Mr Adrian Bailey (West Bromwich West) (Lab/Co-op)]

A year ago the Chancellor claimed that 400,000 small business start-ups would be assisted by the national insurance holiday in the regions. To date the figure is, I believe, 5,000. Will the Chancellor undertake to bring a report before the House saying how many new jobs have been created by those 5,000 new start-ups and what the cost to the Exchequer has so far been per job?

[Mr Hoban]

The hon. Gentleman should be aware that HMRC is writing to all new businesses set up in the last 12 months to ensure that they are aware of the scheme and to encourage them to apply for it. It is important that they do so, but this is just one of a series of measures that we have taken to ensure that more new jobs are created in the private sector. I would have thought that the hon. Gentleman welcomed the fact that over the last year there have been 500,000 net new jobs created in the private sector.

The Economy

Adrian Bailey Excerpts

Wednesday 22nd June 2011 Commons Chamber

[James Morris]

As I said, one year in, following the policies being implemented by the coalition Government, we are beginning to see clear signs that private sector jobs are coming back into the west midlands after 13 years in which, despite quarter after quarter of economic growth, we saw substantial declines in private—

[Mr Adrian Bailey (West Bromwich West) (Lab/Co-op)]

rose—

[James Morris]

I will not give way. I will make progress.

The Government faced a considerable challenge when they came to power. With the growth plan that they have begun to implement, in addition to the important steps that they are taking on deficit reduction, we are moving in the right direction. In the west midlands and the broader black country economy, skills is the No. 1 issue that we need to tackle. It is holding business back. We are investing considerably more in high-quality apprenticeships, involving the voluntary sector and other parts of the economy in making sure that we build a proper skill base in the black country and the wider west midlands economy. We are beginning to build better relationships between small and medium-sized enterprises and institutions of further education, such as Halesowen college and Sandwell college. We are beginning the job that the previous Government did not address, and making sure that we match appropriate supply of skills with demand in the local economy.

As “The Plan for Growth” recognises, we also need a more local approach to stimulating economic development. That is why I have been a strong advocate for the black country local enterprise zone. I have been working with its representatives to define the best way to drive economic growth in the black country, and on how to maximise the potential of the Chancellor’s Budget announcement on enterprise zones to stimulate new investment and new jobs and ensure that the local enterprise partnership is able to drive economic development.

--- Later in debate ---

[Margot James]

My hon. Friend makes an extremely good point and I thank him for his intervention.

[Mr Bailey]

rose—

[Margot James]

I will certainly give way to the Chairman of the Business, Innovation and Skills Committee, of which I am a member.

[Mr Bailey]

I thank the hon. Lady, as a fellow black country Member of Parliament, for giving way, particularly as the other black country Member on the Conservative Benches, the hon. Member for Halesowen and Rowley Regis (James Morris), refused to take an intervention from me.

We can talk for a long time about the unemployment statistics in the black country over the past decades. I recognise that the hon. Lady is prepared to acknowledge that this problem started long before the previous Labour Government. She is correct that the local hospital was financed by PFI. Would she prefer not to have had that hospital built or to have had it built out of public expenditure, thereby increasing the national debt?

[Margot James]

I thank the hon. Gentleman for his intervention. Clearly, I would not have wanted the hospital not to be built. However, I think that Labour took a good idea, PFI, which was started by a previous Conservative Government, and ran amok with it, accepting deals on far too generous terms so that our hospitals are stuck with being forced to pay absurd, non-competitive rates for all sorts of services from their PFI partners.

--- Later in debate ---

[Kwasi Kwarteng (Spelthorne) (Con)]

I was not expecting to be called so early in this debate, Mr Deputy Speaker, but I am very grateful.

It is easy in this environment and this highly partisan—[Interruption.] I know exactly what I am going to say, so please hear me out. It is easy to lose sight of the big picture in terms of where we were when we came into government in 2010, and it is easy for Labour Members to forget the huge deficit and the terrible mess they made of the country’s finances.

[Mr Bailey]

The hon. Gentleman talks about the big picture, but will he acknowledge that when the Labour Government came to power in 1997, the national debt as a proportion of GDP was 6% higher than when we left it?

[Kwasi Kwarteng]

I will acknowledge that the budget in 1997 was balanced, in that we took in £315 billion of revenue and spent £315 billion. I also have to acknowledge—I have to be candid—that under the first Labour Administration, between 1997 and 2001, the budget remained in balance. That was the prudent Chancellor whom many in the House will remember. We did not get into fiscal trouble with an increasing deficit until the 2001 to 2005 Parliament, in which, as people will remember, we had sustained growth. However, just at the moment when we were growing sustainably, the naughty, imprudent Chancellor took over. Having been prudent in the first four years of the Labour Government, between 2001 and 2005 he turned on the taps, to speak metaphorically.

[Mr Bailey]

I am following the hon. Gentleman’s argument, but it is somewhat incoherent given that, in 2008 I think, the current Chancellor, then in opposition, said that he would match the Labour Government’s public spending plans.

[Kwasi Kwarteng]

The principal point—if the hon. Gentleman will listen—is that Labour gambled with the country’s economy. It sincerely believed that it had abolished boom and bust, so it made spending commitments on the basis that the economy would grow indefinitely year after year. Unfortunately those spending commitments could not be rescinded when reality dawned—when the economy faltered and the revenues collapsed, leaving us with huge spending commitments and creating this unprecedented peacetime deficit.

It is unfair and wrong for Labour Members to say that it was a global phenomenon. Our deficit was not comparable to Germany’s. As far as I know, Germany operates in the same global space and is a competitor in many of the same markets as us, yet its deficit-to-GDP ratio was 3%. Ours, I believe, was 12.8%—the highest in the OECD and the G20. These facts are known to everybody, including all economists and many journalists—everyone knows them—yet consistently, ever since I have been a Member of Parliament, Labour Members have completely denied any responsibility and have given every reason under the sun for the appalling fiscal position we were left in. It is vital that every single Member bears in mind those big facts. Labour’s stewardship of the public finances was catastrophically negligent.

[Mr Bailey]

Will the hon. Gentleman give way?

[Kwasi Kwarteng]

This is the third time that the hon. Gentleman has tried to intervene, and I am afraid that I must press on. I am willing to take interventions from other colleagues, but he has had his say and I would like to have mine.

We have had a difficult time over the last year, during which time my right hon. Friend the Member for Tatton (Mr Osborne) has been Chancellor of the Exchequer. No one will dispute that: the situation has been tough. However, it would have been far worse if we had followed the policies of the right hon. Member for Morley and Outwood (Ed Balls) and not tackled the deficit in the rather aggressive but timely way in which we decided to. Hon. Members referred earlier to Greece, which has indeed been a Greek tragedy. People are on the streets, the Government are practically insolvent and there is a real risk of some kind of political revolution—I am choosing my words carefully, but the situation is very unstable. The situation facing this country was, I confess, not as bad. However, if we had not been serious about tackling the deficit, there was every likelihood that the international markets would have forced our interest rates up, that our cost of borrowing would have increased and that markets would not have bought gilts in the way that, over the past year, they have. The consequent rise in interest rates would have affected every family in this country, who would have had to pay high interest rates simply because the Government did not have the courage or the conviction to deal with the deficit.

Amendment of the Law

Adrian Bailey Excerpts

Thursday 24th March 2011 Commons Chamber

[Vince Cable]

Let me press on a little first, and then I will take an intervention.

In future, growth and jobs will come from the private sector, and in particular from small-scale business. Taken in conjunction with the trade White Paper to which I have referred, the Budget’s commitment to lower and stable corporation tax gives the strong signal that we are open for business and we warmly welcome inward investors. Growth and jobs also depend on small companies, which provided a giant proportion of the 300,000 additional jobs created in the private sector in the past six months, and they will be helped by the Budget’s extension of small company business rate relief and cuts in small company corporation tax.

[Mr Adrian Bailey (West Bromwich West) (Lab/Co-op)]

On inward investment, this Administration’s “ The Plan for Growth” states

“the Government will provide a bespoke service to key inward investors, giving them direct access to UK ministers and speedy resolution of bureaucratic obstacles to investment”.

Does the right hon. Gentleman not think that that could leave the Government open to rather difficult situations with foreign investors, and how does he think British businessmen will feel when they see inward investors getting priority access to Ministers that they do not enjoy?

[Vince Cable]

I would have thought that Opposition Members who want the economy to flourish and new jobs in their constituencies welcomed the fact that I and other Ministers spend a lot of our time talking to potential inward investors. That is good not only for them but for the British companies that then become part of their supply chain and whose confidence is reinforced.

Especially for small businesses, growth requires the Government not to put unnecessary obstacles in the way. When we searched the archives, we discovered that we had inherited a stock of 21,800 regulations and that the last Government were responsible for roughly 10,000 of them. Rather sad people like me who have spent some of the best years of our political lives in Statutory Instrument Committees will have seen all of that happening.

We have taken action to stop the gold-plating of EU regulations, to ensure that every new regulation is matched by the value of an “out”, and to mandate sunset clauses. We have launched a reform of the expensive and time-consuming tribunal system, and we have injected common sense into Health and Safety Executive inspections. The Budget confirmed the statement I made last week that there will be a three-year moratorium on new regulation affecting micro-businesses with fewer than 10 employees.

--- Later in debate ---

[Mr Adrian Bailey (West Bromwich West) (Lab/Co-op)]

As Chair of the Select Committee on Business, Innovation and Skills, I wish to address my remarks to the so-called plan for growth. It is fair to say that I share with many people a sense of bafflement that the plan was published in the context of a Budget that shows that this year’s projected growth rates are lower than last year’s. That makes me wonder how a plan for growth works within the Government’s overall policies. This is the first plan for growth that I have ever known to predict a drop in the growth rate.

The plan is conspicuously devoid of references to jobs. If we have a plan for growth, we should reasonably expect an element of job creation to be included. The private sector is supposed to be mopping up those cut from the public sector as a result of cuts in public spending, and we ought reasonably to be able to expect to see how the plan deals with that.

The problem is that the plan incorporates a series of micro-measures. I approve of some and would not object to others, but they are intended to deal with a macro-economic programme that fundamentally undermines their objectives. The statistics have been reeled out several times, but the most important one is that the Government, in trying to keep interest rates down, have a fiscal policy that includes VAT increases. Those push inflation up, therefore increasing the chances that interest rates will go up. That could fundamentally damage the potential for growth in our economic capacity.

I welcome some elements of the plan, not least because some, such as the export credit insurance measures, were recommended by my Committee. I have to hand it to the Government, because I pushed for those when I was a Government Member, but I did not make much progress. At least on the surface, those measures address some of the issues that the manufacturing industry raises. I do not know whether they will be successful, but they are a step in the right direction.

Similarly, the creation of a creative industry council addresses a gap in the recognition that the creative industries play in exports and employment. My churlish quibble might be that among the 32 or so industrial ambassadors who promote our industries abroad there is not a representative of the creative industries. Given the huge export market of our creative industries, and in the light of some of the issues involving IPT abroad in particular, I would ask the Government to consider that point in order to reinforce the measures they have already taken.

Many of the objectives and plans of other Departments cut across what the Department for Business, Innovation and Skills is trying to do. We are just recovering—I hope—from the damage that the visa issue has inflicted on our export potential and ability to attract bright research students and undergraduates into our universities. All the feedback that the Select Committee received during its recent visit to China demonstrated that in the country that will be the economic driver of the world economy over the next 30 years, that issue has given the impression that Britain is not open for business. It is too early to say whether the measures announced on Tuesday will address that problem, but the initial indications from universities are that they will go some way towards doing so. However, damage has been done that is fundamentally at odds with all the objectives incorporated in the plan.

[Mr Binley]

I am delighted that the hon. Gentleman has found space in his speech to make the point about visas. I had the good fortune, owing to the sad occurrence that happened to the Chairman of the Select Committee, to lead that delegation to China, and I want to impress on the House how many people in both the British and the Chinese business community made the same point. This is a really important issue, because they think that Britain is closed for business. We need to change that perception. Does he agree that the Home Secretary needs to do more to ensure that the message gets through loud and clear in China?

[Mr Bailey]

I thank the hon. Gentleman for that intervention. For personal reasons, I could not join the Committee’s visit to China. However, he put those proposals to me forcefully, and I have spent the morning with the appropriate Ministers pressing that very point, because a lot of damage has been done. We need to rectify it if we are to realise any of the potential in the document.

On the localism agenda, noises were made in the Budget about improving planning for local businesses. Despite the fact, however, that the Localism Bill places planning priorities in the hands of local communities and neighbour planners, the local organisations set up by the Government—the local enterprise partnerships—have no defined role in that. I do not understand how we can have a legal process for devising planning programmes locally without incorporating the representatives of the local business community. There is enormous concern among the business community about the potential damage that that could cause.

[Martin Horwood]

Will the hon. Gentleman give way?

[Mr Bailey]

I am sorry but I am not taking any more interventions, because a lot of Members want to speak.

There are a number of measures that in themselves might be good, but which I do not think address the scale of the problem created by the Government’s macro- economic policy. First, research and development tax credits are very welcome. Business has been pushing for them, particularly in high-quality manufacturing, but at the end of the day they will affect only a few thousand businesses. They are very welcome but will not in themselves transform the economic landscape. Entrepreneur reliefs are also welcome, but they affect only a few hundred people. National insurance holidays for start-ups were announced some time ago, but so far only some 1,500 of the 400,000 that it was thought would apply have done so. The Government need to look at that again.

I have mixed feelings about enterprise zones. There will be one in my area, which I very much hope will work—I will certainly be working with the black country business community to ensure that it does. However, the reality is that enterprise zones are a recycled policy from the 1980s, which was not even very successful then. Indeed, those fears were expressed yesterday by the hon. Member for Chichester (Mr Tyrie), the Conservative Chair of the Treasury Committee. If the policy is to succeed, we have to prevent existing businesses from relocating just to pay less tax, while not necessarily employing more people. I am concerned that we may end up trying to prevent that by incorporating a lot of regulations that will defeat the purpose of having enterprise zones in the first place.

Although there are some measures in the plan that are good, they are not sufficient to address the core problem of the macro-economic policy that undermines them. They are hot on rhetoric, but they will not deliver very much, I am afraid—although my Committee will be probing and supporting those that can.