Finance (No. 3) Bill

Debate between Alison McGovern and Geoffrey Robinson

Tuesday 5th July 2011 Commons Chamber

[Mr Robinson]

They are hoping to collect them, I imagine, when they lose the next election.

What I do not understand about this whole debate is how the banks can make so much money. The retail sector is usually profitable. It is like a utility: there is a regular amount of income, those involved have a fairly nice oligopoly between them, and it works quite well. I do not think anybody is complaining about that, apart from the fact that every time the investment sector does badly, the poor retail customer gets it in the neck—the small companies and others—when the banks immediately try to recoup their losses by increasing fees and charges. While all is going well, we have one rule for the investment banks and one rule for the rest of the world. The investment banks continue to coin it in and take every penny they can in bonuses, and the rest are left with the remaining share of profitability, which is diminished by the excess amounts that the investment side is taking.

The first thing that I would recommend the Government to do is look at the spread of profitability throughout the economy. If we are serious about rebalancing the economy, the first thing that has to be rebalanced is the power differential between the banking sector and manufacturing—and, equally, the share of profitability as between the banking sector and the rest of the economy. It cannot be possible for those in the banking sector—RBS, Barclays and others—to go from a position of massive losses one year to huge profits on their investment trade in the next. In six months RBS made £5 billion profit. We are pleased to receive our share of that, but how can it be making such disproportionate profits compared with the rest of the economy? That does not quite stand up. Either they are real profits, in which case there is clearly a dysfunction in the economy as regards competitiveness that needs to be investigated and addressed, or the bank is creating fictitious profits, taking the bonuses while it can, and leaving the taxpayer to bail it out later. I do not know the answer to that question, but I put it to the Financial Secretary that it needs to be looked into. The profits are unreasonably high. He should forget about whether they are offensive or poisonous and address this as a purely economic phenomenon. How can the banking sector make those profits without sucking profitability out of the rest of the economy, particularly the manufacturing sector?

That brings me to the Government’s policy on rebalancing the economy. We all agree with that, but why do they not address the problem by taxing bonuses through the levy—and, for that matter, through the bonus tax that we propose? Unless we do something about that, the banking sector’s preponderance in being the master and not the servant of industry will continue, and for as long as it does, any talk about rebalancing the economy and the rebirth of manufacturing is make-believe. Nowhere can we see that better than in Derby, with yet another death of one of the few remaining conventional manufacturing industries in the UK. We are all in favour of advanced manufacturing and high-tech industries, but the German success has been based on superb engineering in the traditional conventional industries, which we—particularly those on the Treasury Bench, under both the Conservative and Labour parties—have tended to look down on.

If the Government are serious about rebalancing the economy in favour of manufacturing—we must all be serious about that—they will have to do better than saying that the market and the banks are the master. I am pleased that the Transport Secretary announced an investigation this morning—on the “Today” programme, as usual. The next instalment of the growth plan must consider how the Government can use their purchasing power to the benefit of this country, as is done superbly well in Germany and France.

We should look back. I have not made a study in advance of this speech and it would take us too long to go through everything. The death of the telecoms industry was down to a Government purchasing decision that ditched GPT. Ericsson came in with a great fanfare, then closed the whole of its works in Coventry and pulled its horns back to Sweden. We also pulled our support from the motor car industry. Years ago, people thought it was great because we would move into high-tech manufacturing. What happened? One industry after another closed in the wake of the car industry, including the machine tools industry and the capital goods industry in general. Throughout the history of post-war British manufacturing there has been a progressive loss of self-confidence and self-belief in British manufacturing throughout the country. That has to be addressed, and I put it to the Financial Secretary that it needs to be done now.

[Alison McGovern]

Does my hon. Friend agree that one moment in history when the British Government did not act in that way, which I raise because it was important to my constituents, was when the Labour Government stood behind General Motors at Ellesmere Port to maintain that industry in my area at a time of deep economic troubles in this country?

[Mr Robinson]

That is right, and I supported that entirely. I support any large manufacturing company with a base in the UK that we are seeking not to protect, but to develop and expand. I have stressed the progressive loss of self-confidence in British manufacturing across the nation. That example involves a large American company. Although it had got into a much worse mess than the old British motor industry ever got into, because it was American it had a naive faith that it would be able to pull itself, and us, out of that situation.

There has been a loss of confidence in our industries. I will not delay the House by giving example after example, but the view of the Treasury, the old Board of Trade and the old Department for Industry—unbelievably misnamed—has always prevailed: that the Government can do nothing, and market forces must prevail. That is despite the fact that every country that was a real competitor of ours took exactly the opposite view, and ensured that their industries thrived and prospered. They were not protected, but they were supported. We have so many latent advantages that we simply ignored, to the advantage of others and to our own continuing and cumulative disadvantage. That is the point that I am trying to make.

This is by no means a digression from the debate, Mr Deputy Speaker. This is why the tax on the banks should be increased. The banking sector’s preponderance in the economy has to be reduced if we are to survive as a manufacturing and balanced economy in the future. In one way or another, that has to be done. What we have seen from the Government is a pathetic capitulation to the banks. It was difficult enough for us when we were trying to save the banking industry in the crisis, when it was in a bad state. When the banking industry is clearly on the way to recovery, there is absolutely no reason not to proceed with the bonus tax.

The only reason—with which I disagree—is that if we dare tax the banks, they will go abroad because they are being taxed too highly in the UK. This is another area where I would like a study to be done. To what extent is that really a risk? If it were a risk that major bankers would leave the UK in droves and we would have a denuded financial sector over night, it would have some benefits and a lot of disadvantages, but to what extent is it a risk? That could be studied. There are some hard-headed people in the Treasury who would certainly not agree with the banking point of view.

What is so special about the bankers that they can generate these huge profits and bonuses? I do not think that anybody knows. Anybody who thinks about it objectively thinks, “How can that be done?” The manufacturing industries in Germany and France, such as the telecoms sector and the car and lorry manufacturers, are sweating it out in their export markets. They are rebuilding the east of Germany and eastern Europe, and are now helping to industrialise China with massive exports of huge engineering resources. How can it be that they struggle to make 10% on turnover, but bankers can come in and generate huge profits—unrelated, as far as one can see, to any meaningful or socially useful activity, as Lord Turner said in another place?