Finance (No. 4) Bill

Debate between Alun Cairns and Adrian Bailey

Wednesday 18th April 2012 Commons Chamber

[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.