Regulatory and Banking Reform

Chris Leslie Excerpts

Thursday 16th June 2011 Commons Chamber

[The Financial Secretary to the Treasury (Mr Mark Hoban)]

With permission, Mr Deputy Speaker, I should like to make a statement.

It is now well known that the tripartite system set up by the last Government failed spectacularly in its mission to maintain stability. The decision to divide responsibility for assessing systemic financial risks between three institutions meant that, in reality, no one took responsibility. The crisis dramatically exposed that flaw and cost the taxpayer a vast amount of money. We cannot allow another crisis such as the one we have just witnessed. Shortly after taking office, this Government set in train a consultation on reforming our system of financial regulation. Today, after two extensive rounds of consultation, I am presenting to the House a White Paper, including draft legislation, setting out the blueprint for a completely new system of regulation. Let me summarise the main proposals.

A permanent Financial Policy Committee will be established within the Bank of England. Its job will be to monitor overall risks in the financial system, to identify bubbles as they develop, to spot dangerous inter-connections and to stop excessive levels of leverage before it is too late. It has already started operating on an interim basis and is having its first formal meeting today. Subject to legislative process, the permanent body will be in place by the end of next year.

We will abolish the Financial Services Authority in its current form and transfer its significant prudential functions to a new Prudential Regulatory Authority that will sit in the Bank of England. The Prudential Regulatory Authority will focus on microprudential regulation and will bring judgment to the vital task of regulating the soundness of individual firms that manage risk on their balance sheet, particularly banks and insurance companies. We recognise, of course, that such firms engage in very different businesses, which is why we are proposing to provide the PRA with a specific statutory objective for its insurance responsibilities.

We are also bringing in a new approach to protecting consumers. A financial conduct authority will oversee the conduct of financial services firms, the operation of markets and the protection of consumers, with new powers to ban the sale of toxic products. I can confirm that as an integral part of its mission to secure better outcomes for consumers and investors, the authority will also have a new duty to promote competition. Judgment, discretion and proactive intervention will be the hallmark of our new regulators.

We are bringing forward the draft Bill for pre-legislative scrutiny, for which a Joint Committee of both Houses will shortly be convened. We are seeking valuable input from Members on both sides of the House as it is in all our interests to get this right.

Last week, we also established under Sir John Vickers an Independent Commission on Banking to resolve the debate about the structure of the banking sector in the UK. I am sure that the whole House will join me in paying tribute to Sir John and his fellow commissioners for the excellent job they are doing. The commission’s interim report made two particularly important proposals: bail-in, not bail-out, so that private investors, not taxpayers, bear the losses when things go wrong; and a ring fence around better capitalised high street banks to make them safer and protect their vital services to the economy if things go wrong. I can confirm that the Government agree in principle with both proposals.

Of course, we will await the commission’s final report, but I can tell the House that any reforms will need to meet the following principles: all banks should be allowed to fail safely without affecting vital banking services, without imposing costs on the taxpayer, through reforms that are applicable across our whole banking industry and in a manner consistent with EU and international law. I can also confirm today that we welcome the commission’s recommendations on increasing competition in retail banking and we are working closely with it to achieve this aim.

We are also taking the first steps towards normalising the Government’s involvement in the financial sector. One legacy of the crisis is that today’s taxpayers have a direct interest in several banks through large-scale guarantees and shareholdings. We do not believe the Government should be a long-term investor in financial institutions. It will take some time—possibly several years—before we can make a complete exit from our investments in the banks, but today I can confirm the start of that process.

On the advice of UK Financial Investments, we have decided to launch a sale process for Northern Rock. This follows extensive work over the past three months to consider potential options for returning Northern Rock to the private sector while generating the best possible taxpayer value. The sale process will be open and transparent and in line with state aid rules. I have already written to the chair of the all-party group on building societies and financial mutuals, my hon. Friend the Member for Cardiff North (Jonathan Evans), to reassure him that any interested parties can bid for it, including mutuals. This reaffirms the Government’s commitment actively to promote the mutuals sector. That does not mean that other options to return Northern Rock to the private sector have been ruled out, but I believe that at this point in time a sale process is the most promising.

I also want to make the House aware that following an application by the Bank of England to the High Court today, Southsea Mortgage and Investment Company Ltd, a very small bank, has been placed into the bank insolvency procedure. That follows a decision by the FSA that Southsea no longer satisfied its threshold conditions for operating as a deposit taker. The Financial Services Compensation Scheme has been triggered and eligible depositors with balances up to the limit of £85,000 are safeguarded. Eligible depositors with amounts in excess of the insured limit of £85,000 may be entitled to receive a share of their savings above this limit as part of the insolvency process.

Finally, I want to update the House on the ongoing negotiations on international financial regulation. When I was in Brussels yesterday, my message was clear. We must learn the lessons of the crisis and create the foundations for stable and sustainable economic growth without fragmenting global markets. That is why global standards are in our national interest. Much of the debate has focused on the implementation of Basel III and we have been busy making the case for implementing it in full right around the world, including here in Europe. Last week’s International Monetary Fund assessment supported our arguments for minimum standards here in the EU, with discretion for national authorities to increase them where necessary.

When the coalition Government came into office, questions were being asked about the future of banking and regulation but they had not been answered. It has been our job to resolve them. Our goal should be a new settlement between our financial system and the British people; a new settlement where the banks support the people, instead of the people bailing out the banks. The statement today sets out the progress we have made towards building this new settlement and the actions we are taking to complete it and I commend the statement to the House.

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

What utter contempt the Government are showing to Parliament by announcing these major proposals first to the bankers in the City yesterday and only today to elected representatives. Time and time again, Ministers give policy speeches outside this place and the House of Commons is merely an afterthought. Why is the Chancellor not here to make these announcements today?

That total disregard for the democratic process is reflected in the draft legislation, which hands vast new powers over the lives of all our constituents to the unelected Bank of England and leaves a gaping accountability deficit, with no mention of parliamentary accountability in all its 408 pages. Why are Ministers still so sketchy about the detail of these new powers for the Bank of England, with nothing on the face of the Bill, and is it true that there may be no further clarity on the toolkit for the Financial Policy Committee until next year?

Why is there still no clarity about the crisis management memorandum? Why have the Government not yet published the consolidated Financial Services and Markets Act 2000 draft for Parliament to see? Why is there no clarity about where consumer credit regulation will fit into this alphabet spaghetti of new quangos? Why are they still fumbling around with the composition of the Financial Policy Committee? Why have they failed to negotiate the flexibility needed from the European Union and the European banking regulators to ensure that all these new UK structures are allowed discretion to use the macro-prudential tools in the first place?

There will be significant concern, especially in the Portsmouth area, about the news on the Southsea mortgage bank—Southsea is perhaps a name that resonates in other ways—but we will need to watch developments closely.

Although there are clear inadequacies in the proposals published today, we will consider them carefully, and there are areas where we agree with the Government. The Chancellor is right that this was not a financial crisis made in Britain. It was caused by a failure in the banking industry in every major financial centre and a global failure in banking regulation. Families and businesses worldwide have paid a heavy price for the irresponsible actions of the banks, but Governments and regulators failed to see this coming and we in the Opposition must accept our part in that. Thankfully, however, we ignored the advice of the Chancellor, who called for lighter regulation and opposed the previous Labour Government’s decisions to step in to prevent financial catastrophe by nationalising Northern Rock and Royal Bank of Scotland and by cutting VAT to get the recovery moving.

Today’s announcement vindicates the rescue measures taken by my right hon. Friends at the time and shows that taxpayers always had a good chance of recouping the lion’s share of the sums involved. But on Northern Rock, can the Minister explain the haste in the sale? We hope he is not playing politics and rushing for a fire sale when a measured approach to maximising value and diversifying the banking system would be better. Why has the Treasury failed to consider mutualising Northern Rock and is the Minister really content to see it return to business as usual as yet another plc without exploring the benefits that a new building society might bring?

There are three tests by which the Chancellor and the Minister should be judged. First, are taxpayers and bank customers adequately protected from future bail- outs by the so-called firewalls in the bank structures? How can the Chancellor say he agrees with the conclusions of the Vickers Banking Commission before it has even published its final report?

Secondly, has the Minister secured sufficient international agreement on regulation and bank restructuring to secure a workable system protecting jobs here in Britain? Sadly, the Treasury has already shown a woeful lack of leadership internationally on pay transparency and bankers’ bonuses, which, by the way, should be taxed to pay for jobs and businesses here at home.

Thirdly, will we end up with a banking system that delivers the goods for our economy as a whole? Are small businesses getting the bank loans they need and why is Project Merlin already unravelling with confusion between the Department for Business, Innovation and Skills and the Treasury over so-called “stretch” targets, or capacity targets, how they are going to be enforced and whether the banks are really participating wholeheartedly? We need a diverse banking system, which should include a strong mutual sector—something that was promised in the coalition agreement but that the Government seem uninterested in delivering. We need clear and comprehensible regulatory structures with far clearer lines of accountability, and we need a Government who put customers, taxpayers and the real economy first.

[Mr Hoban]

That response clearly demonstrated the emptiness of the Opposition’s thoughts on these matters. They have had a year to consider whether these reforms are in the interests of strengthening financial regulation and whether they will strengthen the banking system, but here they are today, a year later, with no idea on the best way to proceed. That is not surprising given that the shadow Chancellor was a champion of light-touch regulation when he was the City Minister and he presented that argument not just in London but across the world. It is time for the Opposition to make their mind up: are they prepared to acknowledge the mistakes of the past and accept the tougher regulatory regime we have proposed, or are they going to cling to the legacy and wreckage of the previous Government’s financial regulation system?

Let me deal with one or two of the points that the hon. Gentleman raised. It has been clear from the outset that one of the roles of the interim Financial Policy Committee, which is meeting formally for the first time this afternoon, is to provide advice to the Treasury on the macro-prudential tools that it believes would be appropriate for the FPC. Until the interim FPC has concluded its work it is very difficult to give the House information on that, but what we are doing in the Bill is making sure there is a process in place to ensure there is consultation and that there is discussion in the House. Those tools will not be given to the Bank until we have gone through a legislative process in this place.

The hon. Gentleman raised the issue of Northern Rock. As someone who was born and brought up the north-east, I understand his concern and the importance of Northern Rock to the regional economy. We have, as part of our review, considered remutualisation and our financial adviser Deutsche Bank is reporting to UK Financial Investments on Northern Rock. The advice is to proceed in the first instance with a sale option and the option of remutualisation has been explored with Co-operatives UK and the Building Societies Association, which commissioned the report by Professor Michie. The final decision will be judged against such other options as an initial public offering or a stand-alone remutualisation, but I remind the Opposition that it is important to secure taxpayers’ interests, as we have invested £1.4 billion in Northern Rock.

On the Independent Commission on Banking, we have indicated that we would support the proposal, but we have said that we want to see the final proposal that Sir John Vickers makes. We have dealt with an issue that the previous Government failed to tackle. They closed down the topic of whether there were some structural issues in the UK banking sector that put taxpayers at risk. They were not prepared to confront that debate, but this Government have been prepared to do that and to take some serious and difficult decisions on that matter.

On the issue of bank lending, it is all very well the hon. Gentleman preaching, but the previous Government did not in any way attempt to get the big banks together to talk about increasing lending to small businesses. As the banking sector and the economy deleverage, it is important that those businesses seeking finance have that opportunity. That is why we secured commitments from the banks, and they are held to account on the published targets that were announced earlier this year. The package of measures we have announced demonstrates the progress we are making towards a new settlement on financial regulation and banking, and it is a pity that the Opposition are not prepared to face up to their responsibilities and take part in this debate.

Eurozone Financial Assistance

Chris Leslie Excerpts

Tuesday 24th May 2011 Commons Chamber

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

May I pay tribute to the hon. Member for Rochester and Strood (Mark Reckless) for securing this important debate? This is one of those occasions that make me think that there are not just two parties in the coalition.

We need to clarify some of the history to this issue because I get the impression that certain hon. Members are labouring under a false set of impressions about the European financial stabilisation mechanism. Of course there were the ECOFIN meetings of 9 and 10 May at which the EFSM was agreed to as part of the package of measures to maintain financial stability across Europe. It was against that backdrop that my right hon. Friend the Member for Edinburgh South West (Mr Darling), the former Chancellor of the Exchequer, consulted both the current Chancellor and the Business Secretary, and cross-party consensus had been gained. Those are not my words but those of the Economic Secretary to the Treasury. The explanatory memorandum that she signed on 15 July 2010 in her own fair hand—Justine Greening, Economic Secretary—says those words:

“cross-party consensus had been gained.”

I know it is convenient for Ministers and some hon. Members to rewrite history and to give a partial account of what happened and about these important facts, but there it is in writing. [Interruption.] If hon. Members want to dispute the words of their honourable colleague on the Front Bench I am happy to give way to them.

[Mr Cash]

rose—

[Chris Leslie]

In a moment. In a letter of 18 July 2010 to the Chairman of the European Scrutiny Committee, to whom I shall give way in a moment, the Economic Secretary also said, very helpfully, that

“this Government judges”

the EFSM

“to be an appropriate response to the crisis.”

So the official voice of the Government, according to what the Economic Secretary has written in her own fair hand, was that there was a consensus approach during the transitional period following the general election and that the current Government judged the EFSM to be an appropriate response to the crisis.

[Mr Cash]

Does the shadow Minister accept that the date on which that particular statement was made, 15 July 2010, was four days after the expiry of the date on which a challenge to the European Court could have been made? Furthermore, does he accept that since then the Government have insisted that they oppose the proposal of the former Chancellor of the Exchequer?

[Chris Leslie]

That is an extremely illuminating fact and it would be perfectly legitimate for Members on the Government side, perhaps in private meetings elsewhere, to ask a few more searching questions about what exactly their Front Benchers have been doing in their name. Either the Minister who signed the memorandum was wrong—perhaps she was misled in her understanding or she and her officials were ignorant of the facts—or perhaps she was actually speaking the truth but was subsequently slapped down by the Chancellor.

[Joseph Johnson]

Will the hon. Gentleman give way?

[Chris Leslie]

I will not because I have only a few minutes left.

The situation has changed markedly since last May. The circumstances under which the EFSM was then agreed have altered, casting doubt on whether it is being used appropriately, as many hon. Members have said. Because of the various weaknesses shown by the current Administration in Europe, we have ended up increasingly paying more than our fair share in relation to the EFSM facility, especially as time and again the junior EFSM fund in the bail-out package has ended up shouldering up to a third of the bail-out costs, as some hon. Members have pointed out. We have found that the agreement in May regarding the EFSM sum of €60 billion would represent only 12% of the non-IMF contribution, with the remaining €440 billion being borne by the wider eurozone fund. The British liability for that was going to be only 12.5%, but the proportion contributed from the EU-wide EFSM to the Irish bail-out was greater than the eurozone proportion. The Portuguese bail-out was hardly an improvement, with one third coming from the EFSF, one third from the EFSM and another third from the IMF.

The Minister must explain to the House why the EFSM, which makes up only 12% of the non-IMF contribution, is being drawn upon to the same extent as or more than the EFSF. That forms a crucial part of the motion tabled by Back Benchers. The Minister is under an obligation at least to say why we are using the EFSM to such a high degree. That is incredibly important. It has been in the gift of Ministers to answer that question, but so far they have neglected to do so.

The EFSM was supposed to be a temporary mechanism all along. The failure of the Government to push forward with a permanent mechanism, despite opportunities to do so, is an abandonment of UK interests. The temporary emergency EFSM was only ever meant to be a short-lived interim arrangement. We should have been moving on as quickly as possible to a permanent eurozone-only mechanism. Why has the Chancellor failed to press his European colleagues to sort out a permanent eurozone-only fund more urgently?

The Chancellor attended an ECOFIN meeting on 18 May. The Financial Secretary attended ECOFIN on 8 June last year, the Chancellor on 13 July, the Chancellor again on 7 September and the Financial Secretary again on 30 September, yet the press releases from each of those ECOFIN meetings suggest that not once did Ministers raise the issue of pressing forward with that permanent arrangement. Can the Minister explain why not?

[Mr Davidson]

The shadow Minister is rightly attacking the Government for being weak and vacillating. Will he tell us what bold, straightforward and clear position he is urging us to take on the vote?

[Chris Leslie]

I am happy to do that. Unfortunately, the wording of the motion refers to the legality of the EFSM, and I do not think the former Chancellor, my right hon. Friend the Member for Edinburgh South West (Mr Darling), would have acted illegally to sign up to it. I accept that that is a small point, but it is for that reason that we will abstain today.

We will have to revisit the issue time and again. It is hugely important that hon. Members understand the situation. We have not yet seen any occasion on which Ministers have raised the subject of moving to the permanent arrangement as swiftly as they can. They claim that they are responsible for having secured a commitment to move to a permanent arrangement in 2013. The temporary arrangements were always going to expire in 2013 anyway. So much for the famous victories claimed by the Prime Minister, the Minister and other hon. Members.

Too often we have an empty chair at the European table. Only a few weeks ago, on 6 May, Britain was excluded again from a meeting that took place in Luxembourg—the empty-chair approach was very evident when ECB officials met the Finance Ministers of Germany, France, Italy, Spain and Greece. Will the Minister say whether there was an active decision by the Treasury to continue to take an empty-seat policy, or were we simply not invited? We see in the Financial Times that Swedish officials are concerned that the Prime Minister is not pressing harder to prevent key decisions from being made only among eurozone members. Will the Minister say what we are doing to stop being sidelined at that European level?

We know very well that that temporary fund was needed. We recognise that it was part of a concerted pan-European action, standing together against the global forces that threatened the bond market with contagion. That is especially the case now in the eurozone. We have to acknowledge that we have trading partners in Europe and it is in our interest to support their continued economic stability, but Britain has already paid its fair share in the stabilisation process in the case of Ireland and Portugal. The time has come for a stronger voice with real influence in Europe to ensure that British interests are properly served, which must mean a swifter move to a permanent eurozone-only bail-out mechanism.

The fund was always due to expire in 2013. That was not Ministers’ doing; it was the original design. We know that Ministers were involved in the cross-party consensus during the transition from the previous Government to the present one. Ministers cannot wriggle out of their responsibility now in relation to the EFSM. The Government are on extremely shaky ground and even their natural allies are questioning the coalition’s leadership. The issue will no doubt return on another day.

--- Later in debate ---

[Mr Hoban]

If my right hon. Friend will be patient with me, I want to respond to some of the important points raised by a number of Members who have contributed to the debate. If I have time at the end, I will take interventions.

My hon. Friend the Member for Rochester and Strood said that taxpayers had contributed £12.5 billion to bail out euro area states, but that is simply not the case. Let me explain why. The European financial stability mechanism is funded by the European Commission borrowing from capital markets, and it is only in the event that a beneficiary member state defaults that the EU budget, and so the UK, will be called upon to contribute. The UK does not fund the EFSM, which is a contingent liability. Not a single pound of taxpayers’ money has gone into the EFSM. On Ireland, as my hon. Friend the Member for Devizes (Claire Perry) has said, we have made a loan, not a gift or a grant, and we expect to get our money back. Not a penny of the money that we have saved through spending cuts has been used to make that loan.

Let me go back to the events of a year ago. Europe faced a crisis, with concerns about the stability of Greece, and in the May ECOFIN meeting the EFSM and the EFSF were created. They were created at the height of the Greek crisis, in exceptionally turbulent conditions, before the Government took office. Markets were increasingly questioning the EU’s response to the situation. Indeed, there were fears about the stability of the entire euro area and the risk of contagion was real and dangerous. European Finance Ministers decided to create a broader package to restore confidence and stability. ECOFIN agreed to establish the EFSM and at the same time euro area Finance Ministers agreed to create the much bigger EFSF, which is backed entirely by euro area countries and does not create any liability for the UK.

It is worth reminding hon. Members that, although the Greek crisis triggered the creation of the new mechanism, the EFSM was not used by Greece. The Greek rescue package was financed by the IMF and a series of bilateral loans between individual euro area member states and the Greek Government.

The EFSM was agreed at ECOFIN by qualified majority voting and before this Government took office, and Cabinet Office protocol was followed throughout. At the time, in a conversation with his predecessor, the current Chancellor made his views on the EFSM clear and cautioned against committing the UK to proposals that would have a lasting effect on the UK’s public finances. Members need not take my words for it; the right hon. Member for Edinburgh South West (Mr Darling) gave his recollection of the conversation to the House on 15 December 2010:

“I discussed with the Chancellor what we should do about the financial stability mechanism. He had his reservations and stated very clearly that he was against deploying it”.—[Official Report, 15 December 2010; Vol. 520, c. 954.]

That exactly matches the account given by my right hon. Friend the Chancellor.

[Chris Leslie]

Will the hon. Gentleman give way?

[Mr Hoban]

No. As I said earlier, I want to make some progress on the matter.

My right hon. Friend was also clear that, in the days prior to the formation of the coalition, the right hon. Member for Edinburgh South West was still the Chancellor of the Exchequer, representing the UK in a dynamic negotiating environment, and it was for him to reach that decision.

The hon. Member for Nottingham East (Chris Leslie) quoted an extract from an explanatory memorandum, and yes there was consensus between the parties about the process, but not about the outcome—as the former Chancellor of the Exchequer made clear in his statement to the House in December. It was a matter for the previous Chancellor to decide, and he was the man occupying the office at the time.

Some of my hon. Friends have today articulated concerns about the use of article 122. The EFSM was created following agreement by a qualified majority of member states at the ECOFIN meeting on 9 May 2010, and the terms of the mechanism are set out in an EU Council regulation. It is based on article 122 and states:

“Where a Member State is in difficulties or is seriously threatened with severe difficulties caused by natural disasters or exceptional circumstances beyond its control, the Council, acting by a qualified majority on a proposal from the Commission, may grant, under certain conditions, Community financial assistance to the Member State concerned.”

The Council decided that in those circumstances those criteria applied.

Several hon. Members have raised the issue of article 125 of the treaty, the so-called “no bail-out” clause, but article 125 does not preclude member states from providing loans to one another, and, as evidence of that, the EU’s balance of payments facility has already provided medium-term financial assistance to a number of member states.

Over the past year, we have had to deal with the legacy that we inherited from the previous Government and the previous Chancellor of the Exchequer, but we have made sure that the permanent arrangements to sort out the euro area are the ultimate responsibility of euro area member states.

My right hon. Friend the Prime Minister made that his goal at last December’s European Council, where he secured two significant victories for the UK. First, he made sure that article 122 could not be used for euro area bail-outs in the future. Secondly, he ensured that the UK would not have to contribute to the European stabilisation mechanism, the permanent mechanism that will replace the EFSM and the EFSF. As the Prime Minister said, we have a good “belt and braces” approach—a no need, no use approach.

Common Consolidated Corporate Tax Base

Chris Leslie Excerpts

Wednesday 11th May 2011 Commons Chamber

[Justine Greening]

My right hon. Friend says that that is fine, but there is a danger for our country that even that would have an impact on the tax planning that we could undertake with corporations as member states choose whether to opt in or out. We want to ensure that we are in those discussions at this earlier stage, before we get to that part of any future process. We do not know whether we will get to that stage—many member states might share our concerns—but we absolutely need to be in there now, making our case, because we do not want to end up with a smaller group of member states going down that route, which could, depending on their decisions on tax loopholes and avoidance, which are complex, lead to negative unforeseen consequences for the UK tax system’s competitiveness, which might happen even if the UK were outside any possible future proposals.

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

That was a lucid explanation—irony, of course, sometimes does not work in Hansard. The right hon. Member for Wokingham (Mr Redwood) has hit the nail on the head. Why does the motion not say no to the consolidated corporate tax base proposal?

[Justine Greening]

At the moment, there is no proposal on the table. A proposal is being worked up, but things are at an early stage. Member states have had, I believe, two working group meetings with the Commission to talk about how any proposal might operate. Fundamental questions are still being developed on, for example, how the formula will work, and a host of other issues. As I have said, part of the challenge is how any avoidance loopholes might work in practice, and whether they would be substantial. We are at a very early point in the process. Today’s debate allows Members of our Parliament to have their say, which we can then add to the Commission’s process.

--- Later in debate ---

[Chris Leslie]

The Minister has essentially enunciated a continuation of the policy advocated by the previous Administration. In fact, this common consolidated corporation tax base proposal has been around for a decade or so. In that time there has not been a massive change in policy, which is interesting, because I had anticipated that, in her quasi-Thatcherite mode, the Minister would say, “No, no, no!” to this proposal—but she did not.

As I said, it is interesting that the motion is quite carefully worded. It specifically mentions “reasoned opinion”, “subsidiarity and proportionality” and so forth, but if passed it would not actually instruct the House of Commons to reject the directive as drafted. I suspect—on this point I was considering intervening on the hon. Lady, but I thought I would let her finish—that it might be more to do with the Liberal Democrat position on this issue. [Interruption.] The Minister rolls her eyes, but there are no Lib Dems here so it is difficult to put them on the spot.

Hon. Members will be interested to hear the Lib Dems' official policy on a common consolidated corporate tax base. In their 2009 document, they stated that they would “address the variability issue” on cross-border corporation tax

“by developing a medium and long-term statement of business tax policy, covering a minimum two parliament timeframe. This statement would…identify areas for greater international co-operation on tax policy. A clear area for co-operation is in the movement towards a harmonised tax base in the EU, often referred to as a Common Consolidated Corporate Tax Base”.

So, there is a loud voice—muscular and visible, as we now know—in the coalition arguing vociferously in favour of a common consolidated corporate tax base. I say that for the benefit of the House, because it is important that hon. Members know the facts. Given that the motion was published only this morning on the Order Paper—hon. Members did not really have notice of exactly the Government’s proposition, which is quite ridiculous—and that all 298 pages of the supporting papers were published only yesterday, I am not surprised that many hon. Members have not yet woken up to the opinion being taken of the Government on this matter.

[Mr Cash]

In this new guise of the Pym or Hampden of the British Parliament, am I to imagine, beyond the wildest speculation, that the Labour party is about to announce that it will vote against these proposals on the grounds that it does not veto the Commission’s proposals?

--- Later in debate ---

[Chris Leslie]

I am very tempted by the hon. Gentleman’s invitation to do so. As I said, we have not changed our policy from when we were in office, and the Government have decided to pick that up. We do not wish to see the harmonisation of corporation tax rates; nor do we believe that this CCCTB proposal is justified, although there are legitimate cross-border issues that we need to discuss. For example, the CBI has raised the important issue of how businesses operate and the compliance costs that companies working on a cross-border basis can sometimes incur. It is legitimate to listen to those points, although there may be other, non-EU ways of addressing them. For example, we could make bilateral, country-to-country arrangements—through some of the double taxation treaties, and so on—to deal with those issues. Indeed, I would like the Minister to address the issue of bilateral discussions, which I understand the Treasury says in the reasoned opinion it might wish to pursue. It would be very helpful indeed if she could tell the House what negotiations the Government have already entered into along those lines.

[Mr Redwood]

Does the shadow Minister, like me, find it democratically distasteful that a 102-page draft law governing the whole of our corporation tax regime, along with supporting papers amounting to 298 pages, should get only one and a half hours of debate, and that this is all the scrutiny that we are allowed?

[Chris Leslie]

Yes, I agree with the right hon. Gentleman on that. We need to begin to readdress entirely the accountability deficit. I know that this Parliament already tries valiantly to address it—in Scrutiny Committees and elsewhere—but this is a debate about serious proposals. The Treasury is often an intermediary these days when it comes to new regulations and policy changes. It is important that we should think about the design of our Government and our Parliament in tackling proposals as they come along.

As I said, I am interested in the Government’s line. We will not take issue with them on this proposal this evening, but we want to watch where they go with it. All I am asking of the Minister is whether coalition policy is taking into account the Liberal Democrat official line.

[Justine Greening]

We are one Government and this is a Government motion. The hon. Gentleman can take it from the motion that it has the support of the coalition Government, who include two parties.

[Chris Leslie]

That is very helpful, and it means that the Liberal Democrats must have undergone a de facto change of opinion. I suppose that we can ask the Liberal Democrats. [Interruption.] The hon. Lady says, “Ask them,” but we cannot. Anyway, I do not want to intrude on private grief, one Government or not—although probably not—and neither do I want to take up too much more of the House’s time.

The hon. Lady has said that she is anxious that, if we are not careful, a smaller group of states might just go ahead with the enhanced co-operation procedure in any case. What assessment has been made of the potential impact on UK businesses, tax revenues and so forth? Which other member states does she think are most likely to go ahead? What role could we play in ensuring that we are not sidelined or excluded from those discussions, but instead have an impact on them?

Those are the key points that we need to address right now. I am generally worried about the Government’s disengagement from those European issues that really matter to this country. As we know, the Minister has a habit of signing Treasury memorandums about European matters that are perhaps not always agreed to by others in her party. I am referring to the European stability mechanism documentation that she signed, when she agreed that cross-party consensus was gained between the previous Government and her Administration. We will obviously be debating that on another occasion, but, for the time being, we will be keeping a watching brief on where the Government stand on this matter.

Oral Answers to Questions

Chris Leslie Excerpts

Tuesday 10th May 2011 Commons Chamber

[Mr Hoban]

I cannot comment on the particular circumstances that my hon. Friend has raised, although I am happy to look at them more carefully. I am sure that she would welcome, as does the whole House, the commitment of banks to increase their capacity to lend to businesses of all sizes.

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

I wonder whether the Minister still thinks that Project Merlin was such a great deal with the big banks. Lending to small businesses continues to fall, while the charges for those loans are rising. The banks’ promise to support the big society bank looks less generous, as we learn that money will be lent only on commercial terms, and now we hear that Santander is pulling out of the business growth fund, which was a key plank of the deal. Is this a failure of Project Merlin or a failure of the Government?

[Mr Hoban]

It is rather churlish of the hon. Gentleman to be critical of Project Merlin. When his party was in office it was able to secure lending commitments from only two banks. We have achieved a comprehensive package with all banks, including Santander, to increase the amount of money that they will lend to businesses, including small businesses. The business growth fund, which he also raised, is an opportunity for businesses to seek equity finance in a way that is currently not available and that meets the equity gap, which the previous Government did little to resolve.

Finance (No. 3) Bill

Chris Leslie Excerpts

Tuesday 3rd May 2011 Commons Chamber

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

I beg to move amendment 9, page 41, line 27, at end add—

‘(2) The Chancellor shall review the bank levy and publish a report, before 31 December 2011, on—

(a) the Government’s analysis behind the rate and threshold chosen for the bank levy;

(b) the adequacy of the bank levy in the context of other reforms to the wider banking system; and

(c) the total tax revenues expected from banks across all categories of taxation in each year from 2011-12 to 2016-17.’.

[The First Deputy Chairman of Ways and Means (Mr Nigel Evans)]

With this it will be convenient to discuss clause stand part.

[Chris Leslie]

We find ourselves in the Committee stage of the Finance Bill, a rather large two-volume measure that, over the coming two days on the Floor of the House, we will no doubt explore in some detail. The Bill will then progress upstairs to Committee, where more detailed scrutiny will take place.

It is a peculiarity of Ways and Means resolutions and of the way in which proposed finance legislation is scrutinised in the House of Commons that hon. Members who are not Ministers may not table amendments to Finance Bills that would have the effect of raising the level of taxation. That was news to me, perhaps because I was in government and did not think about tabling such amendments, but the rules of order are as they are, so the amendment does not propose—because we cannot—an increase in the rate of the bank levy. Instead, it calls for a review of the rate and the general approach to bank taxation adopted by the Treasury. It seeks to look into the rationale behind the rate that the Treasury has chosen for the bank levy and why a number of other choices were made.

[Mr Andrew Love (Edmonton) (Lab/Co-op)]

Does my hon. Friend agree that in setting the rate the Government missed an opportunity? The bank levy could have raised significant sums to help with the other policies that we hoped they might pursue.

[Chris Leslie]

Indeed. Were it possible under the rules of order for the Opposition to table an amendment to increase the bank levy rate, we probably would have done so. However, we were unable to do so because of the slightly arcane rules of order. We need to examine the rationale behind the rate chosen by the Minister and understand why the Government moved from a threshold approach to triggering the bank levy, to a tax-free allowance of a certain amount before which banks would pay against the chargeable liabilities of the bank levy.

We also need to understand whether the bank levy is, as my hon. Friend suggests, an adequate step when considered in the context of the wider economy and public finances. Ultimately, we need to understand whether the Treasury is being straight with the public and honest about the taxes that the banks will pay over the years ahead. We have debated the Government’s approach to the banking sector before, and we look forward to the final report of the Vickers commission on the state of competition and regulation of the banks so that never again can these institutions take such extreme risks and gambles that land in the lap of the taxpayer when the going gets tough, as they did before the credit crunch.

[Barry Gardiner (Brent North) (Lab)]

The Government are seeking to take £2.5 billion in revenue from the tax that they have imposed, but has my hon. Friend assessed the corporation tax reductions that the banks will experience, which are thought to be £100 million this year? Has he projected the figure by the end of the Parliament? Can we arrive at a net figure to see the real impact of the Government’s policy?

[Chris Leslie]

My hon. Friend makes an extremely prescient intervention, because the Chancellor, under pressure from the Opposition, had to cave in to a concession on corporation tax in the March Budget. The Government announced the bank levy last June, so we knew that they would be introducing this tax, yet the corporation tax cuts will clearly benefit the banks significantly. The Treasury claims that in the March Budget it offset the benefit that the banks will apparently get as a result of the reduction in corporation tax rates, but we will have to wait to see whether the slight increase in the bank levy—around £100 million—introduced in the Budget will be sufficient to offset the full corporation tax cuts that the banks will enjoy over the lifetime of this Parliament. I recall that the written answer to a question I tabled on the predicted benefits to the banks of the corporation tax reductions suggested that that would be about £100 million in year one, £200 million in year two, £300 million in year three, and so on, but that largely reflects the reductions in corporation tax rates. That is something of a moot point, because we contend that the design of the bank levy is insufficient. Today’s debate should provide an opportunity to seek proper redress for the crisis and ensure that we put the banks on a fair tax basis, but that is not what the Government are seeking with this pathetically small bank levy proposal.

[Mr Love]

Will not the combination of measures on corporation tax being introduced in the Bill advantage the banks over other businesses, and must we not be very careful not to make it appear that the banks are being let off lightly?

--- Later in debate ---

[Chris Leslie]

It is indeed, and that is the crux of the argument that we will make to try to encourage hon. Members to support our amendment. The overall situation is that taxation levels on the banks are reducing, not increasing. The previous Administration introduced a bank bonus tax, which yielded more than £3 billion in revenue. The bank levy needs to be put in place alongside a bank bonus tax, which would be a fairer approach to take. However, the Government are refusing to continue the bank bonus tax, and I would like to hear their rationale for not doing so.

[Duncan Hames (Chippenham) (LD)]

In defending the bank bonus tax and the revenue that would have been raised by continuing with it, what allowance has the hon. Gentleman made for increasing levels of legal tax avoidance by those no doubt skilful bankers who would have been keen to avoid paying tax under that regime?

[Chris Leslie]

If the reason the hon. Gentleman refuses to advocate a repeat of the bonus tax is that the bankers might have sophisticated accountants who can avoid it, that is a pretty poor state of affairs for this Parliament. We ought to be introducing fair and just taxation on the obscenely high bonuses that are still being paid. Even though it is supposedly claimed in Project Merlin that the bonus pot has come down by 8%, we can see that the bonuses are absolutely enormous. Today’s debate is clearly about priorities. The Government are not on the side of families, teachers, nurses, working people or pensioners. Clause 72 shows that they are on the side of the highest-earning bankers who receive each year in bonuses sums that ordinary people dream of winning on the lottery once in a lifetime.

[Alison McGovern (Wirral South) (Lab)]

Would my hon. Friend be interested, as I am, to find out exactly what the financial value is to the financial services sector of the now implicit Government guarantee that it enjoys? If anything, that should point us towards greater recompense to the taxpayer for that implicit Government guarantee.

[Chris Leslie]

The ongoing implicit taxpayer guarantee for the banks is very significant. Indeed, I understand that the Bank of England has suggested in its financial stability reports that an implied subsidy of about £100 billion each year offers a safety net for the profitability of the banks. Without that taxpayer guarantee, banks’ borrowing costs would be higher, they would not be able to make such great profits and, therefore, their remuneration and bonuses could not be so high. Many bonuses and excessive profits are being made on the back of the taxpayer, but does that encourage the Treasury to take action? It certainly does not.

[Nic Dakin (Scunthorpe) (Lab)]

At a time when Roger Bootle of Deloitte reports that for the first time for four years in a row the real incomes of real people are falling, does my hon. Friend not think it particularly peculiar that the real incomes of bankers—of all people—are likely to rise?

[Chris Leslie]

My hon. Friend is entirely right, and that is why we have to take a step back and look at the context of today’s debate. The Government are clearly still on the side of the big banks at a time not just when the living standards and wages of ordinary people are being frozen or reduced, but when vital public services are being slashed. Indeed, it is worth reminding ourselves of the consequences of the cuts that the Government are pursuing.

Teaching assistants, youth workers, library staff and lollipop ladies are being made redundant; binmen, street cleaners, environmental health officers and park keepers are disappearing from our neighbourhoods; police detectives, forensic scientists, 999 operatives and police community support officers are no longer affordable in the fight against crime; and hospital cleaners, nurses, paramedics and ward clerks are having their posts eradicated when the NHS needs them more than ever. How dare Ministers say that we are all in this together when they take such a weak and feeble approach to the banks.

[Barry Gardiner]

My hon. Friend seeks to use an argument based on contrast, but there is also an argument based on causality. In his remarks, it has to be made clear that the causal relationship between the misery that some people will suffer over the next few years and the actions of some bankers is very real. There is real disquiet in the House about the Government’s proposal not just because some people are doing well and some are doing less well, but because, given that contrast, there is a causal relationship for those people doing badly.

[Chris Leslie]

Absolutely, and, as we have heard time and again, Government Members clearly do not understand the causes of the deficit, so they are not the right people to solve it. If they understood and acknowledged that the banks played a significant role in causing the deficit, maybe—just maybe—we would take up their suggestions on how we go forward, but they choose to ignore the role that the banks played—[Laughter.] If the hon. Members for Chippenham (Duncan Hames) and for St Austell and Newquay (Stephen Gilbert) think that the banks did not play a role in the deficit, we will all be interested to hear from them, but surely they have to acknowledge that point.

The bonus pools and pots continue to be significant, however, and some bankers receive obscene, life-changing sums of money, so we do not really need to worry too much about poor banking executives; we should worry about those who depend on vital services but will now go without as a result of Ministers’ choices.

[John McDonnell (Hayes and Harlington) (Lab)]

I have only just understood the criticism from Government Members. The criticism of the bankers bonus levy, however, which the previous Government introduced, was that there would be tax avoidance and it would not raise enough. I attacked the former Chancellor on the bonus levy, because I felt that his estimate of £500 million was pathetic and did not go far enough, but may I now admit guilt? It actually raised seven times that amount, £3.5 billion, so it was probably one of most successful tax regimes that the previous Government introduced. I thought I had better get that off my chest.

[Chris Leslie]

My hon. Friend’s arguments become increasingly attractive, and he makes an important point. The bank bonus tax, which the previous Labour Government introduced, appeared at first to be modest, but in fact the yield was very significant indeed. Did the banks collapse as a result of the bonus levy? No. Did they all flee abroad to relocate somewhere else, as threatened? Absolutely not. So, too, with the continuing scale of the bonus pot, which has hardly changed at all, it is absolutely right that we look to reinstitute the levy this year, along with a decent bank levy, as we are discussing today.

Hon. Members will know that the concept of a bank levy was first developed at the G20 summit in Pittsburgh in 2009, and then championed by my right hon. Friend the former Prime Minister and taken forward by the International Monetary Fund in its report, which aimed to encourage less risky funding to enhance financial stability. Two broad conclusions were reached at the Pittsburgh summit. There was a call for a financial activities tax, or financial transactions tax, which we need to debate another time when we consider some of the extra levies that might be put on activities. The Chancellor of the Exchequer himself still professes to be in favour of a financial activities tax, although he has done absolutely nothing to advocate it in ECOFIN or in other financial meetings around the world, so we will see whether anything comes of his repeated promises to pursue it.

The second prong of the IMF’s report was a financial stability contribution, otherwise known as a bank levy, to be charged on equities and liabilities rather than assets or profits because of the need to disincentivise dangerous potential charges such as those that landed on the taxpayer during the credit crunch. The bank levy is a sensible idea in theory, and we broadly support it. However, the yield suggested in the Bill—only £2.6 billion—is not just small but pathetic by international standards when compared with the rate being pursued in other countries. It is perplexing that Ministers settled on that figure, and there has never been any evidential basis published for why they did so. Will the Minister clarify why the Chancellor chose the figure of £2.6 billion, as that seems to be the pole around which all aspects of the bank levy revolve? If there is any sense in which the revenue might go beyond that envelope, the Treasury tweaks and turns down the dials on the other aspects of the levy to squeeze it back into that £2.6 billion of revenue—the predetermined level that it put out to consultation last summer, never explaining why it was set. Compared with the substantial amounts of taxpayers’ money put up in the bail-out of the banks—£76 billion of shares purchased in the Royal Bank of Scotland and Lloyds, £250 billion of guarantees, another £280 billion of other insurances, and a further £100 billion of annual implied subsidy, according to the Bank of England—a £2.6 billion bank levy is very puny.

It is interesting to look at the Treasury document that lists the respondents to the bank levy consultation. There were 44 respondents, all of which are major financial institutions.

[The Financial Secretary to the Treasury (Mr Mark Hoban)]

Did the hon. Gentleman respond?

[Chris Leslie]

I will respond to the Minister when I have heard his comments. If he wants me to respond again, I am more than happy to have Government time dedicated to the general principles of bank taxation.

The responses showed that the Treasury’s original design for the bank levy had a threshold that triggered payment of the levy for any organisations, institutions or banks with more than £20 billion of equity and liabilities. Ministers realised that that would yield £3.9 billion—nearly £1.5 billion more than the Treasury had expected—which, by the way, would be more than enough to reverse all their police funding cuts, for example. What did the Chancellor do when he realised that the Treasury’s own design for the bank levy could yield £3.9 billion? Did Ministers think that this might be something they should go ahead with? Absolutely not—they gave in, capitulated, and converted the threshold into a tax-free allowance of £20 billion. Hon. Members will know that the Liberal Democrats have long made great play of the increase in personal allowances, which is pretty much the only thing they are getting out of the coalition as they cling on to it, and there might be a few hundred pounds in that here and there. How about having a tax free allowance of £20 billion? That is what they have decided to give the banks. The banks now do not need to pay on their liabilities below that amount.

--- Later in debate ---

[Mr Kevan Jones (North Durham) (Lab)]

Would my hon. Friend also contrast that with the £7 billion that banks and financial institutions are paying out this year in bonuses?

[Chris Leslie]

Indeed; the machine rolls on. We will have to look at the detailed papers on Project Merlin when they emerge. The Chancellor supposedly persuaded the banking sector to change its ways. Of course, things have fallen apart at the seams since then. As I will say in a moment, some of the bonuses are still, frankly, obscene.

If we accept the Government’s ludicrous argument that they were worried about the cliff-edge marginal rate of the levy at £20 billion of chargeable liabilities, why did they not keep that trigger but have a smaller allowance, perhaps of £10 billion or smaller? But no; they caved in straight away with the £20 billion allowance and lost a phenomenal opportunity to redress the balance of the tax burden in this country. The Americans, who have not yet triggered their bank levy, have named their version a financial crisis responsibility fee. That says more accurately on the tin what it does. They have done so because it is incumbent on the institutions that caused the crisis and the consequential fiscal deficit to do their duty and pay back what they owe the taxpayer.

[Mr David Anderson (Blaydon) (Lab)]

Is it not amazing that we are talking about a minute bank levy when hundreds of thousands of public sector workers will lose their jobs, and when those who stay in their jobs will see their pay frozen for two years and their pension contributions go up by 50%, all as a result of the failure of the banks? The Government parties think that that is okay.

[Chris Leslie]

It is a crying shame that there will not be more publicity for this debate; perhaps the complexity of bank taxation is difficult to report, for whatever reason. If people knew about the Government’s weakness in trying to claw back the money that is owed to the taxpayer and their enthusiasm for cutting public services and raising taxes on ordinary people, they would see that it is a scandal.

[Nic Dakin]

Is it not a further irony that the Government are cutting so far and so fast, for which they have no mandate, while standing back from sorting out the bankers, for which there is an overwhelming mandate in the country?

[Chris Leslie]

Of course, the Liberal Democrats advocated the opposite of that before the general election. Obviously they had good, sound reasons to change their view rapidly over a weekend.

[Mr John Redwood (Wokingham) (Con)]

Will the shadow Minister say how much tax he thinks should be imposed on the banks, and how he would go about doing it?

[Chris Leslie]

As I said, we would repeat the bank bonus tax that we instituted last year, and we think that the bank levy needs to be more substantial.

The Government’s original design suggested that it would yield £3.9 billion—that was reported in The Observer, I think, back in November. Of course, that was why they panicked and decided that they would have to go back down to the £2.5 billion or £2.6 billion level. They stepped away from that original yield level.

Of course, we are not the Government; we are the Opposition, and we are not even allowed under the rules of order to table our suggested variants of the rate of the levy or the design of the clause. All that we can do for now is advocate a fairly urgent review of the general levels of bank taxation in this country.

[Graham Stringer (Blackley and Broughton) (Lab)]

Is not the irony, when comparing pay cuts in the public sector with bankers’ bonuses, that in effect some bankers are public sector workers because the taxpayer has had to bail them out? Does my hon. Friend agree that if we mainly own a bank, such bonuses should not be paid while the bank is still in deficit?

[Chris Leslie]

It is absolutely mystifying. There is a sense that the shareholder—the taxpayer—somehow has to allow all sorts of activity to take place as though it was nothing to do with them, even though those banks would not exist had we not intervened to save them. That shows the incredibly laissez-faire, hands-off attitude of Ministers, who are the shareholders of the banks making large awards.

[Mr Kevan Jones]

Does my hon. Friend agree that my hon. Friend the Member for Blaydon (Mr Anderson) is being a little unfair? Bankers are taking their share of pain. I understand that Eric Daniels, the outgoing chief executive of Lloyds bank, is getting only £1.4 million in bonus rather than £2.3 million.

[Chris Leslie]

I wonder whether Hansard is able to record the irony in my hon. Friend’s comments. Sometimes I wonder whether we need a new annotation in our proceedings, because I do not honestly think that he is showing sympathy. I think he is suggesting that even when there is an apparent reduction in bonuses, the sums of money involved are the sort for which our constituents would buy a lottery ticket in the hope of winning. If they won that amount it would change their lives tremendously, yet those life-changing sums of money are not even salaries but bonuses on top of salaries.

I wish to talk about the rate at which the Government have chosen to set the bank levy, because it is a low rate by international standards. It is less than a third of the level that has been set in France, for example. Ministers will know that the rate varies in a number of jurisdictions, but I think that it is 0.25% in France. The levels involved are still quite small, but in Hungary it is 0.53%, in the USA it is 0.15%—although, as I said, it has not been enacted at this point—in Portugal it is 0.1%, and so on. It is to be only 0.078% here in the UK for short-term liabilities, and 0.039% for long-term liabilities, which is very small by international standards.

[John McDonnell]

To emphasise a point that my hon. Friend made earlier, does he agree that the robustness of the statements of the Prime Minister and the Deputy Prime Minister on bankers’ bonuses before and just after the election led the general population to expect a much stronger and more ferocious levy?

[Chris Leslie]

Indeed, and not only can we see the low yield figures in this country; we can also look at international comparisons and see that the rate is clearly very low indeed. Ministers have let it drift—as soon as it looks as though it might be a serious tax, back they come from the rate they have set, saying that it would raise too much and they must reduce it again.

[Stephen Pound (Ealing North) (Lab)]

Many contributions have shown that the shade of the right hon. Member for Twickenham (Vince Cable) is noticeable by its absence.

With the exception of the National Bank of Cuba when it was governed by Ernesto “Che” Guevara, can my hon. Friend think of any example of any country where the bankers have recoiled from the brutal fiscal hammering imposed upon them by a state legislature and taken their toys and left? Is there any such country in the history of the world that he could mention?

[Chris Leslie]

In financial services it is called regulatory arbitrage. People come up with terminology that makes things sound mystical and obscure, but regulatory arbitrage is basically the threat to leave the country that is often peddled when a bank does not like proposals. We have heard such threats time and again, but they are not carried out, because banks locate in this country for reasons other than taxation. We have Greenwich mean time and the civilised rule of law, and any number of decent public services that bankers themselves like to enjoy.

[Stephen Pound]

And royal weddings!

[Chris Leslie]

And royal weddings, as my hon. Friend suggests. This is a great place to do business, and the small changes in taxation that the Opposition advocate are certainly not enough to send banks abroad.

[Lorely Burt (Solihull) (LD)]

In the spirit of helpfulness, the hon. Member for Ealing North (Stephen Pound) might be interested to know that in Sweden the banking sector diminished following the introduction of such measures.

[Chris Leslie]

Even the Swedish advocate a bank levy, and we must acknowledge that the alternative financial changes are being made in a number of jurisdictions across the world. Obviously, the more jurisdictions in which such measures are pursued, the better, because that will remove the argument on regulatory arbitrage.

However, it is worth looking at the pathology and history of the bank levy, and at how the Chancellor has tweaked the rate. The Government pull back from a higher rate when they think it is too much, but sometimes the Chancellor gets into hot water and feels the need to change that approach. On the fateful morning of 8 February, at 7.30, the Chancellor went on the “Today” programme and announced a mini-Budget. It just so happened, by pure coincidence, that that was on the day of Treasury questions, when he was struggling with the banks in the negotiations on the damp squib that was Project Merlin. While we are on Project Merlin, we should not let go the opportunity to note that borrowing is increasingly expensive for small and medium-sized enterprises, and that according to the most recent data, there is less and not more availability.

The Chancellor changed the rate again in the March Budget, when, as I said, the Government were forced into a U-turn in the face of criticism of the reductions in corporation tax. That would have been a massive cash-back bonanza for the banks—it could still turn out that way, but we must wait for the final figures. At no point during the design of the bank levy have the Government said why they are capping revenues at just £2.6 billion. What is their fixation with that yield?

[Mr Love]

Before my hon. Friend moves off the subject of Project Merlin, does he agree that it was more than pathetic that, after telling the banks that they would increase the banking levy unless the banks came up with the goods, the Government made a pipsqueak change which did not rise to the occasion?

[Chris Leslie]

Absolutely. I cannot figure out why the Government refused to go beyond that £2.5 billion or £2.6 billion. That is a strange way to design a tax. Normally, a Government would think about whether the rate set was fair and just, and about the requirement for revenue yield, and they might even analyse the effect of the levy in a regulatory impact assessment or whatever. However, at no point have the Government said why they are reluctant to go beyond that £2.6 billion. Perhaps there has been a deal behind the scenes between the Chancellor and the banks, but if there has been such a deal, it is probably the only one that he has been able to reach.

--- Later in debate ---

[Chris Bryant (Rhondda) (Lab)]

I think that my hon. Friend is referring in particular to part 2 of schedule 19, which hangs off the clauses we are debating, and which contains a seven-step guide that actually has an extra step that does not apply in some cases. Is that not the most complicated way ever in legislation of determining a charge? Why does it need to be so complicated?

[Chris Leslie]

The Minister needs to answer that question. Hon. Members might care to turn to page 297 of the Bill. The steps might at first appear quite straightforward, but then we get to this odd provision in paragraph 7, with its proportions X, Y and Z of various different amounts and so on. I understand that that provision is triggered because the Treasury has to recoup retrospectively some of the money taken, since the Chancellor tweaked the levels of tax on 8 February and again in March. It therefore becomes incredibly complex and difficult to hold to account. The design of the bank levy has not been made easy by the Chancellor’s decisions.

[Mr Love]

On the intervention from my hon. Friend the Member for Rhondda (Chris Bryant), is it not rather strange, given that the Chancellor has set up an Office of Tax Simplification and announced as his first measure in the Budget that he wanted to put the principle of simplification at the forefront of tax consideration, that here we have something that is almost as complex as it gets?

[Chris Leslie]

As I said, the reason for the complexity is that all the variables in the design of the bank levy have to be amended because the Treasury wants to squash it around that figure of £2.5 billion or £2.6 billion of revenue. In other words, the whole of the bank levy is being driven by that particular sum, which is a very odd way of designing a tax.

[Chris Bryant]

In fact, there are not just one or even two different rates being introduced—which one might understand, given the difference between long term and short term—but 10, each of which will undoubtedly pay for thousands of accountants, as they crawl over what counts in each category. Surely that is nonsensical and an example of the kind of legislation that banks which might want to stay in this country will abhor.

[Chris Leslie]

Far be it from me to defend the poor banks in their compliance with the provisions, but obviously the more the compliance costs go up, the higher the likelihood that customers will end up footing the bill of taking on accountants to address the complexity of what should be a simple banking levy. Whether there are two rates or 10, however, all the rates in the bank levy are far too generous and far too low.

[Helen Goodman (Bishop Auckland) (Lab)]

I do not know whether Ministers have published the change to HMRC staffing needed to deal with these complex provisions. One would think that more staff will be needed, but my understanding is that staffing at the Revenue is being reduced.

[Chris Leslie]

Staffing at HM Revenue and Customs is under incredible pressures. Indeed, there have been a number of redundancies and posts lost. It has not been explained where the extra resources will come from to ensure that the bank levy, in all its complexity, can be enforced adequately. Again, the Minister needs to say what extra capacity HMRC will have to implement this increasingly complex bank levy.

[Mr Love]

Will my hon. Friend give way?

[Chris Leslie]

In a moment, but I need to make some progress.

I understand that there is a difference between short-term and long-term liabilities. However, what will be the impact on businesses in the real economy if short-term liabilities are less attractive to major banks? For example, if a small firm has a bank deposit of over £100,000—to protect its cash flow or whatever—that happens to be above the level of the deposit guarantee scheme, what is to stop the banks raising their bank charges on SME deposit accounts to try to divest themselves of such short-term liabilities? That is an important point, because there will be consequences from the design of the bank levy. I would like the Minister to explain to the Committee why short-term liabilities and long-term liabilities have been divided in that way.

Can the Minister explain the position on the reported legal challenge under European Union law, which I understand many in the banking community are watching carefully? The Hungarian Government have introduced a levy on their energy and telecoms sectors. I understand that a case has been taken—or is due to be taken—to the European Court to claim that a levy on a specific sector of the economy is somehow unfair or not possible. To what extent is the Minister confident that the case will not have a bearing on the implementation of a banking levy here in the UK?

I would also be grateful if the Minister could answer the question about complexity and opacity in the bank levy accounting systems. As I understand it, overseas banks can sometimes not use IFRS—international financial reporting standards. If those banks do not use them, they will need to re-compute their chargeable equity and liabilities with reference to the UK’s GAAP—generally accepted accounting principles—or IFRS, in other words, by preparing a notional consolidation under those systems, including for branches. Is that anticipated to create a problem? What do the Government foresee as a solution to that level? Obviously we have banks that cross jurisdictions and use a series of different accounting platforms, so I would be grateful if the Minister could clarify some of the comments that have been made about that.

However, it is the Government’s general approach to banks and banking taxation that concerns many hon. Members—a general approach that, as we know, is quite woeful. Hon. Members have already raised their concerns about some of the bonuses that we have seen and the breathtaking behaviour that the banks have engaged in, even though they were the root cause of the credit crunch.

That makes the Government’s tax giveaway to the banks even more staggering. The post-Budget reaction last June, when the bank levy was announced, was indeed positive from the bankers themselves. They enjoyed the Government’s decisions on the bank levy. One commentator said:

“We’d expect most domestically-orientated banks…to be better off after four years than they were pre-Budget”,

and a City insider said that

“some banks will have a feeling of glee at the way this has worked out”.

Clearly, we need to advocate a bank bonus tax to raise £3.5 billion, as it did before. That deserves to be repeated this year. Even if it were to raise just £2 billion, that would make a massive difference to our society and our economy. For example, we have calculated that such an amount could be used to establish a youth jobs fund—using a similar model to the future jobs fund, which this Government have abolished—creating 90,000 new youth jobs at a time when youth unemployment is close to 1 million, with one in five young people on the dole.

That money could also help to construct 25,000 new homes for low-cost home ownership and affordable social renting. That would create tens of thousands of jobs in the construction industry and new apprenticeships alongside them. The money could also provide £200 million of funding for the regional growth fund, the Government’s rather lamentable replacement for the regional development agency funding. That could help to provide for regional projects and promote growth. The Government’s changes represent a two-thirds cut on the previous funding, and the first wave of £450 million in grants was several times oversubscribed with bids. We therefore need to revisit the regional growth fund, and a repeat of the bank bonus tax could support that.

The bonuses being paid are still vast; they remain at eye-watering levels. Despite the smoke and mirrors of Project Merlin, in which Ministers broke their promises to take action despite the warm words in the coalition agreement, the bonuses remain high. Let us just remind ourselves of what the coalition agreement promised. The Conservatives and the Liberal Democrats said:

“We will bring forward detailed proposals for robust action to tackle unacceptable bonuses in the financial services sector; in developing these proposals, we will ensure they are effective in reducing risk.”

That is on page 9 of the agreement, right up front among the promises that the coalition made.

The Government could not even bring themselves to promote the basic transparency that we expect when it comes to bonuses and remuneration. The most that they could extract voluntarily from the banks in Project Merlin was an agreement to report anonymously on the total remuneration of the five highest paid senior executives of the bank, excluding board members. That is a weak and shameful compromise. The Government are not even forcing the banks to disclose all bonuses above £1 million, even though Labour’s legislation allows them to do so. That provision is already on the statute book.

[Mr Geoffrey Robinson (Coventry North West) (Lab)]

Will my hon. Friend return briefly to the alternative uses to which that £2 billion could be put—the very low figure that the re-imposition of our levy would yield? As a result of the abolition of the Advantage West Midlands regional development agency, the funding for the west midlands has been cut by nearly 70%, and the outlook for my constituents in Coventry is very poor indeed. The additional funds could be used for investment in the proposed NUCKLE—the Nuneaton, Coventry, Kenilworth, and Leamington—railway line, and a host of other important development projects that have been put on hold or simply thrown out as a result of that 70% cut. In the west midlands, and in Coventry in particular, unemployment levels are rising disproportionately compared with the rest of the country, and the level of output is dropping disproportionately in a key area that is vital to the eventual resurgence of manufacturing that we want to see. That money could be put to great use in the regional development fund.

[Chris Leslie]

My hon. Friend is entirely correct. As I have said before, this shows the failure of the Government to understand the paradox of austerity. When they take away some of that vital investment that would support jobs and growth, they are fuelling unemployment and raising welfare bills, which will cost the country more in the long run. That is why we are seeing borrowing levels rising rather than falling, and why, in the last six months of the economic experience in this country, we have seen economic growth flatlining. The House of Commons Library tells me that that will cost the Exchequer an extra £6 billion that will need to be added to borrowing. So this is the fallacy that the Government pursue—that simply cutting all elements of public investment is the way out of the deficit. They just do not understand how the economy works.

[Hugh Bayley (York Central) (Lab)]

Following up that point, this applies to investment not just in manufacturing, but in services, too. Yorkshire Forward had decided to make two investments: one of £5 million to help enable the National Railway museum to redisplay its collection; and a £1 million grant towards the cost of restoring York Minster’s great east window. Why did it do this? Because it realised that the additional tourism generated would create many jobs, particularly for people without high skill levels, in the York economy. When I raised this matter with the Minister, I was encouraged to get the National Railway museum to apply for the regional growth fund, which, with help from his Department, it did—yet it has received not a penny.

[Chris Leslie]

rose—

[The Second Deputy Chairman of Ways and Means (Dawn Primarolo)]

Order. Before the hon. Gentleman responds, may I remind Members that interventions are supposed to be brief—not mini-speeches in their own right? There will be plenty of opportunity to join in the debate later.

[Chris Leslie]

Thank you, Ms Primarolo. Notwithstanding your strictures, that was an incredibly important intervention from my hon. Friend, who is correct, particularly in his assessment of the attractions of York as a destination for tourism, which was of course helped by the investment that the previous Administration put into some of those key elements within his constituency. I do not want to be diverted, however, as time is short and we need to focus on the amendment.

The amendment relates to the level of the bank levy in the context of bank taxation and the bonus culture. As I said, the Government could not even bring themselves to have transparency on what the bonuses were, let alone take action against them. However, we know some things about the realities of bank bonuses today, and the figures are truly astonishing. From the limited disclosure that we have seen, we know that in 2010, John Varley, the former chief executive of Barclays, received a £2.2 million bonus; Stuart Gulliver, the chief executive of HSBC, received only £5.2 million in bonuses; Stephen Hester, the chief executive of RBS—wholly owned by the taxpayer, by the way—got £2 million in bonuses; and Eric Daniels, the chief executive of Lloyds, largely owned by the taxpayer, got £1.45 million in bonuses. Let us not forget Bob Diamond, the chief executive of Barclays since January this year, who received £6.5 million in bonuses in 2010. He was head of Barclays investment banking before that and perhaps his bonus relates to that. Poor old Bob Diamond, however, loses out in the bonus bonanza when compared with the top two managers at Barclays: Tom Kalaris received a cool £10.9 million in salary and bonuses in 2010 and its other top manager received a tidy £10.6 million.

Ms Primarolo, can you guess the name of that other top manager at Barclays? His name is Rich Ricci—and I kid you not! It would be the stuff of a Dickensian novel if it did not sound so far fetched, but it is indeed true. Between them, the top five earners at Barclays—including Mr Rich Ricci, but excluding executive directors—received more than £38 million in salary and bonuses in 2010 alone.

[Mr Kevan Jones]

I agree with my hon. Friend how mind-boggling the amounts are that these individuals receive. It makes one wonder what they do with the money. Was he shocked, as I was, to learn that more than 50% of donations to the Conservative party last year came from the City, including large donations from individuals such as Jeremy Isaacs, the former head of Lehman Brothers Europe, who donated £190,000?

[Chris Leslie]

“But surely that is a complete coincidence”, he said ironically! I do not know whether my hon. Friend was making the point that this is payback time, but the level of these bonuses is incredible.

Let me finish my point about Barclays. I was saying that £38 million in bonuses and salaries went to just the top five earners. That is enough money to pay the wages of more than 1,000 qualified nurses in our NHS. That gives some meaning to the scale—enough money to pay for 1,000 qualified nurses.

[Mr Love]

Does not the refusal to be transparent about bonuses lead to the conclusion that hidden behind the chief executives on whom we have the facts are a series of individuals whose bonuses dwarf those that my hon. Friend has listed?

[Chris Leslie]

Absolutely; but, quite apart from the obscenity of the scale of some of those bonuses, there is a hard-headed economic rationale for more transparency. If shareholders cannot see what senior executives in the banking sector are being paid, that indicates a dysfunction in the corporate governance of the banks, and if the bonus pots of certain executives are being swelled by their behaviour—by the choices that they make and the risks that they are taking—perhaps those were some of the antecedents of the credit crunch. We need transparency to prevent us from repeating the problems that occurred in 2008.

[Helen Goodman]

Surely, in the case of banks in which the Government were a major shareholder, they had an opportunity to deal with the situation as shareholders.

[Chris Leslie]

It is the inactivity of the Government, as the shareholder, that perplexes me. Ministers laugh with scorn at the idea that they, with the stewardship of the taxpayer’s share, should take any action in regard to the current activity of the banks. If the Minister wishes to intervene on the specific issue of his inactivity as a shareholder I shall be more than happy to give way to him, but he clearly does not wish to say anything at this stage.

[Nic Dakin]

Would my hon. Friend care to speculate on what would be the impact on the British economy if, rather than being spent on bankers’ bonuses, this money were used for lending to small and medium-sized enterprises?

--- Later in debate ---

[Chris Leslie]

That is one of the issues to which we shall have to return, perhaps in the Public Bill Committee. The banks are a social necessity—a utility, as it were—in our society, and whatever we think of their behaviour, it is necessary for them to exist to provide the credit that is required to keep the engine of the economy moving. We do not need a dysfunctional banking system; we need a functioning banking system that faces much more towards its customers. We need to stand up for the taxpayer interest, but also for the consumer interest, which must include businesses.

The bonus and remuneration projections are not diminishing, as the Government like to suggest. The Centre for Economics and Business Research recently released an estimate that, whereas bonus payouts in the City for 2010-11 were 8% lower than those for 2009-10—down from “only” £7.3 billion to £6.7 billion—they are forecast to rise from that level to £7.2 billion in 2011-12. The apparent fall in bonuses is largely offset by a 7% increase in the salaries of senior bank executives. So bonuses fall by 8%, and salaries rise by 7%. Obviously that pay rise outstrips pay rises in virtually every other sector of the economy.

[Alison McGovern]

Does my hon. Friend agree that for the financial services sector it is apparently business as usual, whereas for my constituents, who have seen pay held down and prices high, it is far from business as usual and incredibly tough?

[Chris Leslie]

Indeed, and I think it important for us to convince the Government of the need to act. I look forward to hearing the Minister demonstrate that he will stand up to the Chancellor of the Exchequer. We know that he is not a patsy in the Treasury. He is a senior figure there, and he is able to show the Chancellor that the House of Commons was determined to send the Treasury the message that we do not accept its policies on bonuses and bank taxation.

[Mr Anderson]

I thank my hon. Friend for giving way. He is being very generous.

UK Financial Investments, the Treasury body that manages the state’s role in the Royal Bank of Scotland, gave its approval for Stephen Hester’s package, which included £1.2 million in basic pay, a £2 million bonus, and share options that could amount to £4.5 million. It has already given in.

[Chris Leslie]

Again, I think that we need to engage in a proper debate about corporate governance of the state-owned banks. It is important for us to understand the potential powers that Ministers have, and the consequences of their choosing not to exercise those powers. If they choose to approve a certain level of remuneration, that constitutes intervention just as much as disapproval does.

[Mr Kevan Jones]

Will my hon. Friend give way?

[Chris Leslie]

May I make a little progress? Time is short.

As a result of European Union reforms championed by Labour Members of the European Parliament who tried their best to restrain some of the excess, some bank bonuses must now be deferred and given in the form of shares. Bankers cannot take them in cash immediately. However, the Minister needs to explain why he is counteracting those bonus deferral arrangements by introducing a loophole in new section 554H, in schedule 2, allowing a concession to bankers whose bonuses are paid largely in the form of shares rather than cash. Rather than having to pay the tax at the point at which the bonus is awarded, they will need only to pay it on a date down the line when the shares are sold, possibly avoiding the current 50p rate of tax. The Sunday Times wrote about that last weekend. There is speculation that the Chancellor will cut the 50p rate at some point, and that, as a result of the Minister’s reforms, bankers will be allowed to wait and to avoid it. Can the Minister explain why he has made that valuable concession?

[Barry Gardiner]

Will my hon. Friend clarify the chronology? Subsection (1)(d) of new section 554H states that the section applies if

“the vesting date is not more than five years after the award date”.

Does he believe that the Government are certain to reduce the 50p rate within the lifetime of this Parliament?

[Chris Leslie]

I do not know whether we have to hope that the Liberal Democrats will take strong action before that moment comes—I do not know whether that is an oxymoron—but the Government have dangled the prospect of a tax cut for only the very richest people. It is interesting that they are designing the Bill’s provisions to allow the potential avoidance of the 50p rate following what I considered to be a fairly positive change at European level to defer bonuses in an attempt to discourage short-term high-risk activities.

[Chris Bryant]

I understand my hon. Friend’s point and I disagree with what the Government are doing, but I suspect that he is wrong. I suspect that the Government will not obtain the tax take that they will need over the next few years. Because of the way in which they are managing the economy—because of the profound risks that they are taking with the economy—there is no chance that they will introduce tax cuts of any kind before the next general election unless they also engage in another massive round of cuts in public services.

[Chris Leslie]

However, the alacrity and, almost, relish with which the Government have introduced some of their spending cuts make me wonder whether their rewards for the bankers constitute a payback for the cover to get stuck into public investment in the way that they always wanted to do, and for which purpose many of them came into politics.

The bank levy is a weak response to the debts that banks owe the taxpayer. The Government say that they want a big society, but they are happy to see public investment shrink and rewards for banks grow, built on the backs of taxpayers. It is a big society if you are a banker, but a very small society if you are not. Our amendment would at least make the Government pause and reflect on their increasingly untenable position—we hear that they are good at pausing and reflecting—and I urge Members to support it.

--- Later in debate ---

[Mr Hoban]

Amendment 9 seeks to require a report into the effectiveness of the new bank levy, which is introduced in clause 72. I will come to the components of the amendment shortly, but I think it would help hon. Members if I first explained the role and features of the levy.

The levy is a new tax that will ensure that the banks fairly contribute to the Exchequer, while encouraging them to move to less risky forms of funding. This levy forms part of the Government’s far-reaching plans for banking reform. We have already announced an overhaul of financial regulation, marking a break from the light-touch regime championed by the shadow Chancellor when he was the City Minister. We have created an Independent Commission on Banking, which published its interim report last month and is due to publish its final report in September.

When Labour Members were in government, they refused to debate the structure of the banking sector. They were afraid of banking reform and they were afraid to understand and tackle the lessons from the financial crisis. This debate would have been better if one of them had had the courage to accept the failures of the previous Government on the regulation of the banking sector. Not one of them did so. I think this whole debate is a cover for their bluster. When we proposed in March last year to introduce a bank levy, on a unilateral basis if necessary, Labour Members were against it. The then Chancellor was against it and the present leader of the Labour party, who wrote the Labour manifesto, was against it, too. What we have heard today is a whole load of bluster, rhetoric and empty words about how we must tax the banking sector properly when Labour Members lacked the courage to champion these moves when they were in government. We have taken the lead on the issue, when they would have hung back and waited for international consensus and agreement. We have taken the lead, as I say, and France and Germany have joined us in announcing levies. Others have since followed, including Hungary, Austria and Portugal.

The hon. Member for Nottingham East (Chris Leslie) made great play of the various rates that other countries were introducing. Let me point out to him, then, that in France the levy is expected to raise only €500 million. In Germany, the levy is expected to raise €1 billion annually. The hon. Gentleman prayed in aid the US on two occasions, but the US has not yet introduced legislation, so his comments are empty—

[Chris Leslie]

Will the hon. Gentleman give way?

[Mr Hoban]

No, I am not going to give way. We have had quite a long debate already, and it is time we made some progress.

[Chris Leslie]

On a point of order, Mr Hoyle. I understood that this was a Committee stage, and that we were considering the Bill in detail. Is it usual practice for a Minister responding to a debate not at least to give way and allow a dialogue on the clause in question?

[The Chairman of Ways and Means (Mr Lindsay Hoyle)]

That is not a point of order. It is up to the Minister to decide whether to give way, and I am sure that he heard the cries for him to do so.

[Mr Hoban]

Subsection (2)(a) of the amendment requires a report on

“the Government’s analysis behind the rate and threshold chosen for the bank levy”.

It might help Opposition Members if I explained how we designed the levy, and why we set the rate and threshold as we did. The levy is intended to ensure that the banking sector makes a fair and substantial contribution, reflecting the risks that it poses to the financial system and the wider economy. It is intended to encourage banks to move away from risky funding models, and complements the wider regulatory agenda to improve standards and enhance financial stability. During the crisis, it became clear that some banks had become over-reliant on short-term funding for long-term lending. When financial markets seized up, those banks were exposed.

I must emphasise that the levy is based on the liabilities of a bank, not on its assets. It is based on the bank’s deposits, its share capital and loans made to it, not on loans made by it. It applies to the global balance sheets of UK banks, building societies and banking and building society groups, and to the UK operations of banks from other countries.

In determining the scope of the levy, we concluded that foreign banks operating in the UK also posed potential risks to the UK financial system and the wider economy, whether they operated as branches or as subsidiaries. It therefore follows that they should contribute on the same basis, and branches and subsidiaries of foreign banking groups are included to ensure that they cannot avoid the levy by group restructuring. That will ensure the provision of a level playing field for all banks operating in the UK.

The levy will be paid by between 30 and 40 building societies and banking groups, and we have made it clear that we expect it to yield about £2.5 billion of revenues each year in its steady state. That appropriate contribution balances fairness with competitiveness, and the rates of the levy were chosen to allow it. We initially announced that a reduced rate would apply for 2011, recognising the uncertain market conditions prevailing at the time, but we no longer consider that to be necessary.

In December the Bank of England noted that the near-term outlook and resilience of the UK banking sector had improved. Markets also now have greater certainty about the timing and direction of regulatory change, with the Basel III regulatory reforms being introduced in 2013 and transition periods being extended to 2015. We therefore decided that from 1 March this year, the full rate of the levy should be introduced for 2011. The levy will now yield £2.5 billion in that year. The steady state target yield was set out last year, when we also announced our intention to make significant cuts in the main rate of corporation tax.

[Chris Leslie]

rose—

[Mr Hoban]

I am going to continue my speech.

We were clear at that time, as we are now, that the bank levy yield far outweighs the benefits that banks receive from the corporation tax change. Other sectors will benefit from the reduction in corporation tax, but the banks will not benefit because of the levy. In the March Budget, the Chancellor went further in helping our economy to grow, and announced an additional 1p reduction in the main rate of corporation tax. At the same time, to offset the benefits to banks from that further cut and maintain the same incentives for them to move to less risky funding, we announced that the rate of the levy would increase from 1 January 2012, to 0.078%.

The threshold has prompted some discussion. The initial announcement on the bank levy last year proposed that it would include a threshold of £20 billion. However, as part of the subsequent consultation exercise, we explicitly sought views on whether it would be preferable to make it an allowance rather than an all-or-nothing threshold. A threshold would provide a cliff edge that banks would avoid by restructuring. Respondents to the consultation made that clear to us, and even suggested that banks, or indeed building societies, might avoid growing their UK operations to avoid the threshold and to avoid paying the levy. We accepted that argument, and have therefore decided that there should be an allowance on the first £20 billion of liabilities liable for the levy. That means that smaller banks, building societies and foreign banks with a small UK presence—that is, those whose liabilities are less than the £20 billion allowance—will not pay the levy.

The allowance will ensure that the levy is proportionate to the risks inherent in banking businesses of different sizes. It balances the probability that the failure of a bank could pose a systemic risk against the relative burden imposed in order to gather additional revenue at the margin. While size is not the sole factor in determining risk to the system, it is an important one. Increasing the allowance would risk excluding banks or building societies that are highly likely to pose a systemic risk if they fail. Similarly, setting the allowance at a lower level—which Opposition Members seem very keen on doing—would risk imposing an unnecessarily high burden on institutions that do not pose a systemic risk to the UK economy in the way that larger banking institutions do. These details, along with many others, have already been made public, and I am sure that the Opposition Members who tabled the amendment are aware of the steps the Government have taken to explain the basis of the decisions. All tax measures now have a tax information and impact note, which sets out clear information relating to the measure and its impact, and which has provided a significant amount of analysis on the levy so far. It is clear that there is no need for a report to provide an analysis of the rates and threshold of the bank levy.

Let me turn to the second element of the amendment.

--- Later in debate ---

[Chris Leslie]

rose—

[The Parliamentary Secretary to the Treasury (Mr Patrick McLoughlin)]

claimed to move the closure (Standing Order No. 36).

[The Chairman]

Order. I think it would be of interest to the House to hear from the hon. Member for Nottingham East (Chris Leslie), and I am sure that he will not take too long.

[Chris Leslie]

Thank you, Mr Hoyle. The Chief Whip really needs to take a breath and perhaps calm down for a moment. [Interruption.] I did not quite put it in the way that the Prime Minister might.

The Financial Secretary to the Treasury usually does act honourably by trying to respond to the debate, and probably he secretly would have done so today. Our debate was wide ranging and we covered a number of specific points on the detailed design of the bank levy, with which he entirely refused to engage. He refused to give way in this Committee stage of the Finance Bill, which shows the Government’s thinly veiled contempt for the parliamentary process. No debate, no scrutiny and no contributions came from those on the Government Benches, other than the speech by the right hon. Member for Wokingham (Mr Redwood). They have accepted absolutely no challenge and no scrutiny. They have put their heads down and ploughed on—the Lansley strategy of policy making in action.

The Financial Secretary gave no explanation of why the Government set the banking levy at this puny £2.6 billion or why they have given a very generous tax-free allowance of £20 billion to the banks. Their original design, as set out in June, could have netted £3.9 billion, but when the banks complained the figure went back down to £2.6 billion. He says that we should not criticise the levy for being set at such a low rate because the French levy will raise less, but of course it will because the French banking sector is smaller. The fact is that our banking levy is being set at a third of the rate that the French are pursuing. He did not answer any questions on the netting of derivatives, the double taxation treaties or what would happen in terms of accounting practice. He certainly did not address the outrage in the country, never mind in the House, about the continuing appalling abuse of bonuses in the banking system. That is an obscene ongoing process and although bonuses might reduce slightly in one year, that is offset by the increase in the salaries that those bankers are enjoying. He did not even address the new loophole he is introducing in the Bill so that those enjoying deferred bonuses will now be able to pay the tax rates in future years, thus perhaps avoiding the 50% income tax rate when eventually the Government scale back from that.

[Mr Kevan Jones]

Does my hon. Friend agree that we had a wide-ranging debate, including on bankers’ bonuses, and that the Financial Secretary did not even address that issue in his wind-up?

[Chris Leslie]

Astonishingly, the Financial Secretary, having had his coat tugged by the Government Chief Whip, did not even address many of these points at all. As I say, the right hon. Member for Wokingham made his points about the role of the state-owned banks, how they ought to behave and how perhaps they would change their behaviour in a different market position.

My hon. Friend the Member for Wansbeck (Ian Lavery) made an important point about the comparison between those who enjoy exceptionally high bonuses and ordinary working people who, I think he said, might take 125,000 years on average to earn the bonuses that some bankers earn in one year.

My hon. Friend the Member for Scunthorpe (Nic Dakin) said that the Government have no mandate for their approach, and that is absolutely true.

My hon. Friends the Members for Walthamstow (Stella Creasy), for Brent North (Barry Gardiner) and for Hayes and Harlington (John McDonnell) also made important points about the feeble nature of the design of this element of bank taxation.

My hon. Friend the Member for North Durham (Mr Jones), in his rapid canter across the landscape of banking taxation, made a point about the obscenity of bonuses, which the Government have singularly failed to address through their failures on Project Merlin. My right hon. Friend the Member for Tottenham (Mr Lammy) talked about the impact on his constituency of the public services that will be cut because the Government will not pursue the sources of revenue that could be necessary to help ameliorate some of those reductions.

My hon. Friend the Member for Edmonton (Mr Love) made, I think, the most important point of all: our amendment is no threat to the Government. We are simply asking for a review and a report on the levels of bank taxation and the banking levy. The Government are introducing a tax cut for the banks and the bank levy proposal is weak and fails to ensure that banks pay their fair share. This is a simple amendment that is surely unobjectionable and I think we should seek the Committee’s view.

Question put, That the amendment be made.

Section 5 of the European Communities (Amendment) Act 1993

Chris Leslie Excerpts

Wednesday 27th April 2011 Commons Chamber

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

Can the Minister remind the House what the OBR predicted the growth rate would be for the first quarter of 2011? I think it is on page 54 of the convergence programme.

[Mr Hoban]

I am rather surprised that the hon. Gentleman has not congratulated the Government on taking the tough action that put the recovery on track and made sure that we have lower interest rates than Greece, Ireland and Portugal. That is a consequence of the actions that we have taken—actions that the Opposition would not take. We are tackling the legacy that they left. The problem is that the scale of the legacy is huge. That makes the recovery challenging. Today’s figures demonstrate that we are making good progress on that.

To support the economy and to continue the growth in the private sector, my right hon. Friend the Chancellor set out a new economic strategy as part of this year’s Budget. The strategy has four ambitions at its heart—that Britain will have the most competitive tax system in the G20; that it will be the best place in Europe to start, finance and grow a business; that it will be a more balanced economy, by encouraging exports and investment; and that it will have a more educated work force that is the most flexible in Europe. In pursuit of these objectives, we have announced further cuts to corporation tax, taking it down to 26% this year and 23% by the end of this Parliament.

This is alongside our decision to introduce a highly competitive tax rate on profits derived from patents and our fundamental reform of the complex rules for controlled foreign companies, making them much more territorial and making the UK a much more attractive place for businesses to locate, ensuring that we have a far more attractive tax system than either Germany or France.

This year’s Budget also deals directly with the challenge of education and youth unemployment, which has been rising steadily for the past seven years. Instead of 20,000 young people benefiting from our new work experience scheme, as we originally planned, we will increase that number fivefold to 100,000 places over the next two years. Although in Austria and Germany one in four employers offers apprenticeships, in England fewer than one in 10 does so. That must change.

That is why last year my hon. Friend the Minister for Further Education, Skills and Lifelong Learning published a skills strategy and confirmed the largest ever expansion in adult apprenticeships. At the Budget we committed to funding another 40,000 apprenticeships for young unemployed people. That brings a total of 250,000 more apprenticeships over the next four years, as a result of this Government’s policies. This will help to ensure that all parts of the country have access to a better educated work force.

This year’s Budget will help to create a more balanced economy, tackling the imbalances of the past that undermined the economy and led to the longest and deepest recession since the war. This year’s Budget gives support to the private sector and hope to those looking for work, and will stimulate job creation across Britain.

--- Later in debate ---

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

Many hon. Members might wonder why we are having this debate tonight. It is an incredibly important debate, but they might be forgiven for not having spotted the small print on, I think, page minus 2 under the ISBN number of the Red Book in probably seven or eight-point font, where it points out that the UK is required to submit to Brussels an annual convergence programme so that it can monitor our economic policy.

I am, however, grateful to the Financial Secretary for having written to me to draw attention to the debate this evening, the papers for which were published only at lunchtime yesterday. In fact, the motion appeared on the Order Paper only yesterday, too, and I am surprised about that, because in the parallel debate a year ago following the 2010 pre-Budget report, the hon. Member for South West Hertfordshire (Mr Gauke), now the Exchequer Secretary, then speaking from the Opposition Benches said:

“It was also very difficult to locate the report. I obtained a copy last week, but it was not available in the Vote Office yesterday. This is a point that has been made many times before”. —[Official Report, 10 February 2010; Vol. 505, c. 947.]

I am surprised that the Government have not really listened to their own Members when it comes to flagging up the importance of this particular debate, but, given that we have a motion asking the House to note “with approval” the Government’s assessment of the economy, and to conform with the requirements laid down in the various European Union treaties, I am sure that it is pure coincidence that Ministers did not flag it up or put bells and whistles around it to draw its attention to many hon. Members.

[Mr Cash]

rose—

--- Later in debate ---

[Chris Leslie]

But I am quite pleased that the hon. Gentleman keeps his eye on these developments.

[Mr Cash]

We certainly do our best on the European Scrutiny Committee, which included our making sure, by the way, that this debate took place on the Floor of the House by objecting to the motion to refer it to a Committee. I thought that we might just as well get it on the Order Paper.

[Chris Leslie]

I am very grateful for the hon. Gentleman’s work on the European Scrutiny Committee. This is, as I say, an incredibly important debate, and more hon. Members ought to be aware of it.

[Martin Horwood]

I am not sure what greater publicity the hon. Gentleman wants other than a debate on the Floor of the House in the middle of a parliamentary week, but, if the implication behind his references to the obligation to report to the European Union is that we should not do so, is he suggesting that that shared obligation among all European economies should not apply to places such as Greece, Italy, Spain or Ireland? Would he be happy for those countries not to report the state of their economies?

[Chris Leslie]

I simply note at the outset that we are now engaging in a particular debate. Yes, I am glad that it is taking place on the Floor of the House, but we did not really know that it was going to be on the Floor of the House, in this particular form, with this set of papers and this particular motion, until 24 hours ago. It is curious that the Government, in their relationship with many hon. Members throughout the Chamber, have not made it clear that this is quite an important component of our obligations under European Union treaties. I know that Ministers are keen to abide by their obligations under such treaties, but I just point out that some Members might be less keen.

[Mr Davidson]

Given that this debate is so important, will my hon. Friend clarify whether the programme has already been sent to the European Union or if we will have to wait for the result of this debate before it is posted off second class?

[Chris Leslie]

I presume that the House has to agree the contents of the convergence programme before it can be posted to the European Commission. The hon. Member for Bury North (Mr Nuttall) implied that the Commission could probably glean all the information online, and there is a perfectly reasonable argument that the Commission should follow events in member state countries rather than expect these matters to be handed to it on a platter. I do not think that presenting the information is necessarily genuflecting in front of Brussels, but the obligation to do so is certainly a core component of the treaties. I simply point out that fact.

The point of the motion about which we need to be most wary is the noting “with approval” the Government’s assessment of the economy, particularly given the Chancellor’s and Treasury Ministers’ lamentable failure to understand the need for economic growth. Page 13 of the convergence programme, which was published just 24 hours ago, says that the recovery is in line with previous recoveries. That, of course, is not the case.

In the recessions of the early ’80s and ’90s the economy had clawed back economic strength by this stage in the economic cycle. However, since this Government took office, the trajectory of recovery has stalled. We are already seeing that the information in the document, published just 24 hours ago, is becoming out of date.

[Kelvin Hopkins]

Is it not rather regrettable that we should have chosen to acquiesce in the Government’s decision rather than call for a Division? I would be happy to vote against the document if we had the chance.

[Chris Leslie]

We have the opportunity to divide the House on this matter, although I think that it would be a deferred Division; obviously, that is a matter for Mr Speaker.

As we go through the details of the document, we see that there are problems in it. Page 17 says that the economy is forecast to grow by 1.7% in 2011—lower than the forecast in the June Budget. Is that forecast sustainable? The Government and the Office for Budget Responsibility revised down their forecasts for growth in June and revised down expectations in November. The OBR then revised down expectations for a third time after the March Budget.

The answer to the question that I asked the Minister earlier—what was the OBR’s prediction for the first quarter of this calendar year—is 0.8%. Yet today the Office for National Statistics gave a rather comatose and limp growth rate of 0.5%. That comes on the heels of a growth rate in the fourth quarter of 2010 of minus 0.5%. Essentially, there has been a zero rate of growth—flat-lining—over the past six months.

As Stephanie Flanders, the BBC’s economics editor, said, it is

“depressing to think that the economy is treading water…in a normal recovery we would expect to see a lot of momentum at this point”.

Chris Giles, economics editor at the Financial Times, said that for there to have been any credible claim to a return of underlying growth, this quarter’s figure should have been 0.7%. He went on:

“Add in one quarter of the growth expected in 2011—about another 0.5 per cent—and the figure necessary to show the economy growing at an average pace in the first quarter is at least 1.2 per cent.

Arguably, it should be even higher, at somewhere about 1.7 per cent, if the underlying stagnation in the fourth quarter of 2010 has been recovered in the first quarter of this year.”

We are a long way from that, and that is a serious problem. Yet the Chancellor seems to think that we are on the right track; as somebody said today, if he thinks that, he needs to chuck away his satnav and get a new one.

The GDP growth figure of 0.5% for the first three months of this year merely replaces the loss of output in the snowbound fourth quarter of 2010 and suggests that the economy has no underlying momentum at all. The chief statistician at the ONS said today that we had been “on a plateau” for the past six months. Tony Dolphin, the chief economist at the Institute for Public Policy Research, says that a 0.5% fall followed by a 0.5% bounce-back is equivalent to two successive quarters of zero growth—

“as close as it is possible to come to a recession without actually being in one”.

Yet the Prime Minister says that this is “good news”—those were his words as he trumpeted this resounding success at Prime Minister’s Questions today. Even the Minister said, a matter of minutes ago, that it is good progress. I am afraid to say, however, that the document we are being asked to approve is already out of date, even though it was published only 24 hours ago. It is a bit of dead parrot. It is no more, it has ceased to be, it has expired; it is an ex-convergence programme.

It is not good enough if the Minister cannot even produce a document when he gets advance notice of ONS growth statistics that matches the realities of the economy rather than the forecasting ideas that are dreamed up in the Treasury. That is a sign that the Government do not understand the importance of growth in our economy, especially when today’s statistics showed that construction has fallen back by 7% over the past six months, with total production already falling back even from the last quarter before Christmas. Government cuts have not yet started in earnest, and the VAT increase is already biting hard.

What are the prospects for business growth? On page 14 of the document, the Treasury says:

“Credit conditions have shown signs of stabilisation”.

That is certainly not the experience of small and medium-sized enterprises: lending to businesses is in an atrocious state. It goes on to say in paragraph 2.43:

“however, credit conditions for smaller firms remain tight”.

That is an exceptional understatement. The Bank of England’s lending report shows that lending to SMEs fell by a further 3% in February. That is echoed by the British Bankers Association’s growth rate statistics on lending to small businesses, which cited a figure of minus 6% in December. So much for the much-vaunted Project Merlin. Yet the mark-ups that small businesses have to pay for loans are widening, and the banks are charging small businesses even more even though less and less lending is available. We have a serious systemic problem with our economy. Underpinning the difficulties with growth are the factors that businesses need in order to fire up the economy, and they are going wrong.

We also have to look at the Government’s failure on employment. Page 84 of the convergence programme document says:

“In line with a weaker outlook for output growth, we expect employment to be lower than forecast in November.”

The OBR predicts that unemployment will go up by 200,000 as a result of the Government’s policies. If each unemployed person costs the Exchequer about £7,800 in welfare costs and lost taxes, that could represent a loss to the Exchequer of more than £1 billion—money that the Exchequer should have coming in that is going the wrong way. In addition, inflation is undermining Government spending plans, as the document admits in terms of VAT fuelling inflation, and it is forecast that borrowing and debt will be higher than predicted in June. As a consequence, the interest that we will need to pay on our borrowing will be higher because of the inflationary costs of social security expenditure.

[Mr Cash]

I have no doubt that the hon. Gentleman has looked at the comparison of unit labour costs throughout the whole of Europe. It shows that in the past 10 years Germany’s costs have increased by only 2% whereas almost every other country’s have increased by massive multiples of up to 35%. Does he accept that one of the real reasons Germany is predominating in the European economy includes, in particular, the fact that its labour costs are so low, which means that it can compete in the BRIC countries, including India, China and the rest?

[Chris Leslie]

There are several factors underpinning the German economy. The Germans do not pursue the same degree of hard and fast austerity that we are pursuing, they have a different approach to productivity, and they are achieving higher levels of growth. Our economy needs a pro-growth strategy. I do not say that as a whim—it is a hard-headed credible necessity for reducing the deficit and getting the economy moving again. Without growth, the Treasury will be losing revenue.

[Jacob Rees-Mogg (North East Somerset) (Con)]

When the hon. Gentleman talks about a pro-growth strategy, does he mean spending? If so, where on earth is the money coming from?

[Chris Leslie]

As the hon. Gentleman knows, the paradox of austerity and of an anti-growth strategy is that it costs more in the long run. I quite understand that many Government Members do not understand the causes of the deficit. It is therefore improbable that they are the right people to solve the deficit. If they understood its causes, perhaps I would accept their rationale on how to solve it, but they do not.

[Kelvin Hopkins]

I hope to help my hon. Friend a little. If one makes unemployment go up, fewer people pay taxes, more people depend on benefits and the deficit gets worse, not better. That is precisely what will happen.

[Chris Leslie]

That is precisely the point that we need to make this evening: an austerity approach that cuts too far and too fast will cost more in the long run. That is not just in terms of the lost generation of young people who are now on the dole—one in five young people are now unemployed—and not just in terms of the higher welfare costs, which will mean higher borrowing. The House of Commons Library told me today that if the past six months of the economy had emulated the first six months since the general election, the Exchequer would have received an additional £6 billion in revenues. However, because growth is flat-lining, the Treasury is recouping less revenue. The Chancellor will therefore have to add £6 billion to borrowing and the deficit will be higher as a consequence of low growth in the years ahead.

[Martin Horwood]

The hon. Gentleman has expanded at length on the fragility of the economy and the recovery, which I do not think is in dispute, but we are still a little thin on the alternative from Labour. In recent months, it has talked rather admiringly of the American economy and its expansionist approach. However, that has earned America a credit warning from the rating agencies. If that had happened to us, it would undoubtedly have led to higher interest rates, which would have hit everyone with a mortgage, everyone with an overdraft, and all the people who are vulnerable to debt—people about whom the hon. Gentleman is supposed to be concerned. That, in turn, would have hit economic growth. What is Labour’s alternative?

--- Later in debate ---

[Chris Leslie]

I would regard the hon. Gentleman’s approach as credible, if it was not for the fact that in precisely the same debate a year ago, he would have argued precisely the opposite points. The Liberal Democrat party has made a volte-face away from supporting the economy and pursuing a pro-growth strategy, and has absolutely no credibility when talking about strategies for growth. They used to be a pro-growth party; they are now an anti-growth party that has joined and been assimilated into the Conservative party.

[Alec Shelbrooke (Elmet and Rothwell) (Con)]

I wonder whether I can help the hon. Gentleman. Will he outline for the House whether his speech is based on Keynesian or Brownite economics?

[Chris Leslie]

It is actually based on common-sense economics. I regret that the Government cannot see that. Unfortunately, I think that they will rue the day that they neglected growth in the economy. As we know, there is anxiety in the Treasury at the flat-lining, almost comatose nature of the economy. We hope sincerely that it picks up through the next quarter, but many people predict choppy times in the second quarter of this calendar year. I refer the hon. Gentleman to the paradox that I spoke about: pursuing the austerity approach too hard and too fast undermines growth and pulls from under the economy some of the key drivers for future prosperity that support it. Cutting too far and too fast is bad not just for the economy, but for deficit reduction strategies.

The Government’s spending plans are already coming unstuck. I will wind up with this point because I know that a lot of hon. Members want to speak. On tuition fees, which we debated earlier, we know that the cuts to higher education budgets will mean that universities will charge the highest fees, which will result in the ballooning of student loan pressures and the creation of a funding shortfall. Where will that money come from? We know that the Government have U-turned on school sports and that, when it came to the crunch, even the Financial Secretary had to U-turn on the financial inclusion fund. We are glad that he did so, but it changed the spending trajectory. On forests and on any number of other spending plans, when the rubber has hit the road, the Government have been unable to fulfil many of the so-called spending cuts that they promised in their much-vaunted June Budget.

[Mr Cash]

Does the hon. Gentleman concede that, leaving aside the question of cuts for a moment, the motor for an economic revival comes from growth, which in turn can come only from private business and private enterprise generating the taxation to pay for public expenditure? Without that, there is no public sector.

[Chris Leslie]

I agree with the first part of the hon. Gentleman’s point. Of course we need a pro-growth policy, and of course the private sector has to be the engine of that. However, he suggests that the Government somehow have no role to play in encouraging and fostering growth, and that is where we differ. The Opposition believe in supporting firms in moving forward into prosperity. The laissez-faire attitude of the Conservative-Liberal alliance has moved us into wholly different terrain and proves that it does not have a credible fiscal stance.

Unfortunately, the convergence programme is a hollow document that is already out of date. Its predictions are not probable or plausible, and for those reasons I urge Members to reject the motion.

Finance (No. 3) Bill

Chris Leslie Excerpts

Tuesday 26th April 2011 Commons Chamber

[Alec Shelbrooke]

Again, that illustrates my earlier point: when the figures are brought down to a smaller level, people can understand their full impact and the state of the nation’s finances. When I compare that to our personal finances, I say to people, “For every £1 we’ve spent, we’ve borrowed 25p. How long would your household finances survive with that sort of economics?” They simply would not. Indeed, the increase in private debt and in people’s credit card debts, with some even committing suicide because they used credit cards to pay off credit cards, is a lesson that Governments should learn.

Let us look at the growth and debt figures. Our debt is 10.4% of GDP, Spain’s is 9.2% and Portugal’s is 9.1%, but I do not see our interest rates on the gilt markets being as high as Portugal’s. My hon. Friend the Member for North East Somerset made an excellent point when he described the percentage rates being below RPI by 300 unit points, or 500 unit points below normal. That shows that a credible plan had to be put in place.

I find it distressing when we get into this argument with the Opposition, who say, “You don’t need to do all this.” I will give the House an analogy. For 13 years, the previous Government fed everybody chocolate and burgers, and every person in this country now weighs 35 stone. Along comes the doctor, in the form of this Government, who says, “I’m afraid if you don’t lose at least 20 stone you are going to die very young and it is going to be disastrous for you.”

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

Your doctor said that?

[Alec Shelbrooke]

Yes, probably! I am in a rotund position to say this, and I certainly speak with a certain authority on these matters, but it is never easy to lose weight, as indeed I can testify. I am getting married in a month’s time—[Hon. Members: “Hear, hear!”] Thank you. I am desperately trying to lose weight, and it is not easy, but it is never easy for someone if the previous lot who fed them when they were trying to lose weight say, “Go on, have another bacon sandwich, it won’t do you any harm. Have another chocolate. We’ll pay for that on the credit card by the way, which we’ve nicked off you.” But seriously, if we do not get the economy under control, we will find that it leads to the situation that we see in Portugal.

What does that mean to the public? The Opposition have attacked the Government and said that they have not done anything to protect people, but what would higher interest rates do to people? We have had an interest rate of 0.5% for well over a year. We used to think that 3% or 4% was a low interest rate when the Bank of England maintained it at that level for a good period of the last decade. If the interest rate went back to 4% in the next six months, what effect would that have on the people of this country? Having spent a great deal of time with interest rates at an historically low rate, they have learned to live within those means. We do not have the option to go back to 4% interest rates—that would be a disaster for hard-working families. Ironically, it could increase the pound’s value against the dollar, reduce the oil price and reduce petrol prices—I suppose there is a quid pro quo to everything—but let us not get away from the fact that going back to what we then thought were historically low interest rates would be seen as an absolute disaster.

I get annoyed with the twisting of the Keynesian argument when people say that in times of recession Governments should pour money into an economy. That was only half the truth: the other half was to invest it in capital investment.

Financial Services (Rural Communities)

Chris Leslie Excerpts

Tuesday 29th March 2011 Westminster Hall

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

I congratulate the hon. Member for Brecon and Radnorshire (Roger Williams) on succeeding in securing the debate. This is an incredibly important topic for a number of hon. Members. As he has said, I am surprised that more hon. Members were not aware that the debate was being held this morning. The issue that we are discussing comes up in rural communities particularly, precisely for the reasons the hon. Member for Ceredigion (Mr Williams) gave when talking about the crucial ingredients that help to create a vibrant town, village or community. A critical, tipping-point questions is: how many of those vital services can be removed before a village or town becomes less attractive, viable and functional?

I shall start by stepping back and looking at the current range of financial service providers in the UK. What should banks—financial service institutions—have as their core purpose? Ultimately, banks are utilities; they are a necessity in modern life. We are not talking about a discretionary activity; people do not choose to have a bank account, or, necessarily, to borrow or save. Credit and its availability is part of the warp and weft of modern live, so we need to treat banking and financial services in a similar way to water, electricity, gas and so on.

I sincerely hope that the Independent Commission on Banking, chaired by John Vickers, which is due to report in the summer, will take as its starting point the social purpose of financial services, and the issue of what banks are for. I hope that it will move from that basic philosophical concept to the question of what consumers need as a basic level of service across the country. Ideally, consumers should have choice and diversity in the services that they consume. We need to look at the current provision of financial services, particularly in rural communities, and ask whether we are really providing that choice and diversity to local people. I am not convinced that the current arrangements are ideal. The credit crunch and the banking crisis have hindered rather than helped a move in that direction. As hon. Members have said, we need new entrants in the financial services market.

[Hywel Williams]

There is a specific issue surrounding the rural poor. The hon. Member for Brecon and Radnorshire (Roger Williams), who secured the debate, represents Powys. That is one of the most rural counties and it has, I think, nearly the lowest wages in Wales. Incidentally, it also has the highest level of car ownership, which is a further burden on people. The rural poor are particularly excluded in the situation that we are talking about—I am sorry that my intervention is so long, Mr Caton—and last night I saw an advertisement on television for a company that provides loans based on a week’s wages. The interest rate is around 2,000% per annum. People are going to fall prey to those sorts of temptations.

[Chris Leslie]

Absolutely; the hon. Gentleman makes an incredibly important point. The pay-day lending industry has tried to fill the gap where the mainstream financial services sector has pulled back. In rural communities—this certainly happens in urban communities, such as my constituency of Nottingham East—people have had difficulty accessing mainstream financial services, so those less desirable players have moved in to fill the void. The gap available is being filled not only by high-interest legal players, but the illegal loan-sharking sector. That is a real and growing problem. In recent years, surveys have demonstrated that financial service deserts have grown up across different parts of the country. It is therefore incredibly important that when the Independent Commission on Banking reports this summer, we take the opportunity to step back, take stock and say, “What should good, responsible, social banking involve?” That is not a party political point; we are talking about something that communities need and deserve.

I am concerned about the points made about branch closures in some of the mainstream banks, as they start to retreat from rural communities. Hon. Members have already referred to the Campaign for Community Banking Services and its survey about the number of bank branches that are closing, particularly where a bank is the last one in a town. That leaves those towns or villages without any banking cover at all. I shall mention briefly some of the places affected. Barclays is closing the last bank in town in Kelvedon and Southminster in Essex, and Bedfont in Middlesex. Lloyds is closing the last bank in town in Potton in Bedfordshire, Wainfleet in Lincolnshire, Bilton in Rugby, Barton-under-Needwood in Staffordshire, Netley Abbey and Stockbridge in Hampshire, and Yarmouth. HSBC is closing the last bank in town in Whitburn in Tyne and Wear, Stamford Bridge in Yorkshire and Hoylake in Cheshire.

In addition, although it is not exactly a rural area, we had a debate the other night about the Nationwide closing a number of branches in south-east London. A number of big financial players could be criticised for diminishing the services to long-standing and loyal customers who really appreciate access to a branch.

The hon. Member for Brecon and Radnorshire made a point about access to online banking and the requirement for broadband. High-speed internet is very important, particularly in rural areas, but it is not always available. The hon. Member for Ceredigion talked about the broader concept of financial services, and financial advice. I would add to that the controversy about access to independent financial advice and independent financial advisers, or IFAs. Sometimes, IFAs are one of the only providers of independent financial advice in small communities. Hon. Members may be familiar with the retail distribution review being conducted by the Financial Services Authority, and the impact that that might have on the ability of communities in rural areas to access independent financial advice.

The IFAs are under pressure, not only as a result of the FSA review, in terms of the extra qualifications that they need to gain, but as a result of changes to commission structures, which need to be handled far more carefully. There are also increasing pressures as a result of the levy placed on them by the Financial Services Compensation Scheme. There a number of factors, some of which have reasonable arguments behind them, that together could place in jeopardy the ability of individuals to get free or low-cost financial advice. Will the Minister confirm that he is conscious of that strategic risk to the IFA community? What steps will be taken to ensure that that advice will still be available, despite so many proposed changes?

The hon. Member for Ceredigion congratulated the Government on maintaining the financial inclusion fund for another year. That is one of those strange things that happens in politics when something that is valued is initially scrapped. There were howls of protest in the previous Budget when the Conservative-led Administration decided to scrap the £27-million financial inclusion fund. The fund pays for at least 500 debt advisers—largely face-to-face citizens advice bureaux advisers and so on—and I think it helps to support approximately 100,000 appointments each year. Those howls of protest helped to bring about a partial U-turn from the Government, and a few weeks ago they announced that they will keep the fund going for another financial year. Are we supposed to show gratitude for that? Well, perhaps, but it is not enough to say “Thank you for continuing the fund for another year.”

I want to know what the Government’s plans are for the end of the 2011-12 financial year. What will happen, in April 2012, to the financial inclusion fund? We are in the spending review period, so there is no excuse for not knowing the available finances. The Minister needs to say now what his plans are for the financial inclusion fund from that point; at the very least, it is surely necessary to give charities and organisations that provide debt advice certainty about what will happen over the spending review period, so the Minister needs to answer that point.

[Mr Mark Williams]

I appreciate the point that the hon. Gentleman is making. I share the general direction of his comments. None the less, it would be churlish not to congratulate the Government, because they listened to the strong concerns that were expressed on the issue. I was certainly relieved that two debt advisers in my constituency would carry on their excellent work in helping 500 families.

[Chris Leslie]

Absolutely. It would be churlish not to be glad that there is a continuation of that, but it is such a pity that it is on a piecemeal, ad hoc, year-by-year basis, when the fund should be a strategic plank of the Government’s approach to providing financial services and advice, especially in rural communities.

[Hywel Williams]

It is tragic that the areas where banks and post offices are closing are the areas where it is also so difficult to access financial advice, and more general advice from the citizens advice bureaux and from lawyers in public service. Banks and post offices are closing and creating deserts, as far as advice is concerned, throughout large parts of rural Wales.

--- Later in debate ---

[Chris Leslie]

The hon. Gentleman is completely correct. Of course, it is not just the financial inclusion fund that gets thrown into the mix, in terms of supporting CAB and others. Local government grant services are as critical, and the spending reductions are also having an impact on that area.

It is important to remember that some banks and other financial services institutions are subsidised heavily by the taxpayer, so they have a wider community duty that we MPs have a right to call into question. They serve a customer base, too, and the degree to which they serve their customers is intriguing. In recent years, bank mark-ups on the cost of borrowing have become considerable. The availability of decent interest rates for savers has gone down and down—that is the so-called interest rate spread issue—so consumers are paying a heavier price. That affects people in rural communities, as elsewhere.

The bank base rate has fallen from 5% to 0.5%—a change of 4.5%—yet the charges on overdrafts have fallen by only 1.8%. Charges on credit cards have fallen by only 0.8%. The charge on fixed-rate loans has fallen by 0.4%, and on mortgages, according to the New Economics Foundation, there is a spread of approximately 3% in post-credit crunch extra profit that the banks are making from ordinary borrowers and households in rural and urban areas. The foundation estimates that there was something like £1.6 billion in extra profit in 2009, and a further £1.5 billion per year from 2010. Consumers are taking a considerable hit, but do they feel that they are getting services back in return? That question should not be neglected. It is not just taxpayers’ interests but consumer interest that we need to protect when we think about banking and financial services reform.

I am very sorry that the Government have decided to renege on the promise that they made in the coalition agreement, in respect of the Post Office bank plans. That idea was floated by the previous Government, and we thought it had been taken up by the new Administration when they mentioned it in the coalition agreement. In November, however, the idea for a Post Office bank, in which post office facilities were used for some sorts of basic financial services, especially in rural areas, was ditched. At the time, the Department for Business, Innovation and Skills said that the idea was too time-consuming and expensive to pursue, probably because of the privatisation process. That is a pity, and a huge missed opportunity. I note that the National Pensioners Convention said that that was an extremely short-sighted decision on the part of the Government.

I hope that the Minister will say that whatever happens to the Post Office, one requirement for future owners and operators of post office services will be, at some level, to have some sort of basic financial service transaction capability in those areas where post offices still exist. I would also like to explore the issue of local authorities, and encourage them to think about their role in community banking facilities. I know that many local authorities help supporting credit unions. That is a crucial dimension that needs to be encouraged, although local authorities, naturally, are retreating to their core activities.

[Miss Anne McIntosh in the Chair]

I am really glad that hon. Members raised the issue of the risk to the cheque, that paper-based payment system. Over the years, my aunts, uncles and grandparents have sent various little payments and presents in birthday cards. Many of us enjoy writing cheques and using that basic facility that we take for granted. The cheque is valued not just in rural areas or by older people, but in all walks of life. It is a simple and comprehensive system, and very popular as well. It would be an incredible pity to lose the cheque capability simply because the banks do not wish to provide it anymore. We know that free banking services are already at risk, so the Minister needs to take a more proactive stance and step in. Rather than leave the issue completely to the Payments Council, he needs to think about what powers the Treasury may need to consider in order to preserve that basic social function, should no alternative easy and simple method of payment be devised in the meantime. That is a crucial point.

The Treasury needs to stop its usual habit of giving the banks carte blanche on many of these issues, and it needs to start speaking up for communities, especially in rural areas, when it comes to the financial services that customers and taxpayers need. It would be a tragedy to forget the social necessity of banking and financial services. We need to ensure that the consumer perspective is at the heart of public policy.

[The Financial Secretary to the Treasury (Mr Mark Hoban)]

I congratulate my hon. Friend the Member for Brecon and Radnorshire (Roger Williams) on securing this debate. There may have been relatively few participants in it, but the quality of contributions has been high, and Members have recognised the importance of the issue.

Access to financial services is not just a rural issue. On a Friday afternoon a couple of weeks ago, I responded to a debate secured by the right hon. Member for Greenwich and Woolwich (Mr Raynsford) on access to financial services in south-east London. There are some common strands, but the particular nature of rural communities creates an additional challenge that we need to reflect.

I shall respond to several points that were made before I cover most of the rest of the issues in a few brief remarks. On automated teller machines, it seems that hon. Members should be in Rhayader on a Friday night if the hon. Member for Brecon and Radnorshire is in town, since he is keen to ensure that he is able to get that tenner out of the cash point to buy us all a drink. He is right to highlight the fact that there is only one cash point in the town. He may be aware that since the report in December 2006 by a parliamentary working group on cash machines, LINK has received nominations for sites, particularly in low-income areas, for about 600 free cash machines. I encourage him to contact LINK directly to suggest that there is a need for one in his community.

My hon. Friend and several other hon. Members spoke about the future of the cheque, a matter which I take seriously. The previous Government turned a blind eye to the threat to the cheque. I have met the UK Payments Council and discussed with it the need to ensure that there is a viable alternative to the cheque before its operation ceases. I made it clear that that is a priority for this Government. It is not clear to me what the alternative would be, given the many qualities of cheques: they are easy to use, people are familiar with them and it is easy to post them. We wait to see what the council says, but I made it clear that it should proceed only if there is a viable alternative that is accepted by many of the groups that currently use cheques.

However, I add a note of caution. The diminishing use of cheques means that the cost per cheque is rising. Clearly, that cost has to be covered in some way, so no one should see cheques as an entirely free option.

The hon. Member for Arfon (Hywel Williams) spoke about Lloyds Banking Group’s plans by to divest itself of 600 branches. He may recollect that the European Commission made that a condition of state aid before signing off the significant investment that the previous Government made in bailing out Lloyds after its merger with HBOS. The Commission required Lloyds to make a significant divestment, and it is making progress on that. There is a great opportunity for that divestment to be used to create a new challenger to UK banks. None of the existing banks in the UK that have a share of the personal account market of more than 14% can buy those branches, so there is an opportunity for someone to become a challenger—to enter the market, buy the branches and provide competition. There is not enough competition in banking at present. A new challenger in the market would help ensure a better deal for consumers, and that banks focus much more on their customers.

My hon. Friend the Member for Ceredigion (Mr Williams) spoke about broadband services in rural areas, and how important it is to ensure that people in such areas have access to online banking. He will know that broadband is not a reserved policy, but work is being done through the UK Government and the Welsh Assembly on improving access to broadband.

In the spending review, we provided more than £500 million of funding for superfast broadband over the next four years, and some of that money can be used to pay for superfast broadband roll-out in areas that the market alone does not reach, including rural areas. The Welsh Assembly are now in discussions with Broadband Delivery UK on how its work will be supported in future.

I agree with my hon. Friend that there are huge opportunities if we can roll out superfast broadband to rural communities. It will help tackle the digital divide and not just enable banking services to be more easily accessed by people in rural areas but create new wealth opportunities, and encourage economic growth and development in those areas.

My hon. Friend also spoke about the future of the Financial Inclusion Fund. I am pleased that the Government will make funding available to continue the face-to-face advice project until April 2012. However, we have been clear that the debt advice sector needs to be put on a more sustainable footing in the long term. There is considerable investment already through the Consumer Finance Education Body, which is looking at financial advice more broadly. We have asked it to take forward debt advice as part of its work of running the money advice service. That work will be funded not by the taxpayer but the financial services industry, which benefits most directly from good quality debt advice being available. He made an important point about access to advice.

[Chris Leslie]

Will the Minister give way?

[Mr Hoban]

I will, if the hon. Gentleman will be patient for a moment.

My hon. Friend the Member for Ceredigion made points about face-to-face advice and issues in rural areas around accessing advice. Part of the challenge is to ensure that advice is available when people need it. Sometimes that is difficult, given that citizens advice bureaux and other providers operate at fixed opening times, but there are other ways. The Money Advice Trust runs an effective telephone helpline service, as does the Consumer Credit Counselling Service, and we need to look at online tools. It is important that we have a holistic approach to financial advice, and that is why I am keen that the CFEB takes this forward and provides a coherent view about how we provide advice to people, not just in urban areas but across the country.

[Chris Leslie]

I accept what the Minister says about online and telephone advice, but, on face-to-face advice, can he confirm that, as far as the Government are concerned, the £27 million fund will not be available from April 2012 onwards? It is his decision that it will end next April.

[Mr Hoban]

The reality is that the previous Government expected the project to end at the end of this month—that was in their spending plan—but we have extended it for a further year. However, it is important that the financial services sector picks up the bill for it. It is important to integrate it as part of the CFEB—it is its responsibility to take it forward. Of course, we will work closely with that organisation and monitor it to ensure that it delivers that advice. It accepts that it is its responsibility to develop a model of debt advice that meets the needs of people across this country. That is an important goal for that body. The hon. Member for Nottingham East (Chris Leslie) was not around in the last Parliament, but the CFEB had support from his party as well as mine. His colleagues in the then Government saw it as an important way of improving financial capability and advice, so there is shared interest in ensuring that it is successful.

I have two brief points to make about the hon. Gentleman’s remarks. He should be very clear that the Independent Commission on Banking is a focused piece of work—perhaps he ought to read its terms of reference. It is about stability and competition in the banking sector, not the greater issue of banking’s social role. The ICB’s mandate is narrowly focused. The hon. Gentleman is looking perplexed.

[Chris Leslie]

With respect to the Minister, surely competition is integral to the wider social and consumer interest. If his Administration have so narrowly defined the ICB’s activities, is there not at risk that some more important questions might be neglected by Ministers in their future decisions?

[Mr Hoban]

We were keen to ensure that the ICB has a focused remit to enable it to deliver its work on time, so that we could take forward some of the lessons that should be learned from the financial crisis, when large banks posed a greater risk to the economy. UK banking was consolidated, partly as a consequence of the Lloyds and HBOS merger, and the building society sector became more concentrated. That is different from imposing additional social obligations on banks, which the hon. Gentleman seems to favour.

The hon. Gentleman also touched on independent financial advisers. He should be aware that their advice is not free; it is paid for through commission, and it is not always entirely transparent how much is being paid. A move to a fee-based system will help improve transparency. It is important that consumers receive good quality advice. We live in a complex world of financial services, and as a Minister I deal with too many cases of consumers being given bad advice and paying a high price for that. There is a strong consumer-friendly element in the reforms.

The hon. Gentleman also talked about the financial services compensation scheme levy. It pays for the cost of failure among IFAs. It is an important part of the mechanism to give consumers confidence that if something goes wrong, the bill is picked up so that they are not left out of pocket. If the hon. Gentleman believes that the Financial Services Compensation Scheme should be reformed, and that someone else should pick up the levy, he should be clear which sectors should do so. My experience is that people are keen to offload the responsibility to someone else, but never clear who that should be. The scheme ensures that the sector swallows its own smoke.

Turning to the main issues raised by my hon. Friend the. Member for Brecon and Radnorshire, I recognise his concerns about the significant impact of branch closures in his constituency, and the fact that the HSBC branch in Rhayader has only limited opening hours. I also recognise that although people in rural areas experience the same financial challenges as people in towns and cities, living in a rural area may bring additional challenges. Exclusion from financial services may be less visible in many ways in rural areas compared with urban areas.

My hon. Friend referred to micro-managing banks’ activities. I am not interested micro-managing them, and that is as true for the banks in which the state has a significant stake as for those in which we have no shareholding. However, banks and building societies should serve the economy, and we are committed to improving access to banking, and transparency of financial products for consumers. Decisions on opening and closing branches are taken by the management team of each bank and building society on a commercial basis, and the Government do not intervene in such decisions.

My hon. Friend should recognise that the role of banks is not just about branches. They play a much a wider role in helping the UK economy, and we reached agreement with them earlier this year to encourage them to work in partnership to support the recovery, to increase the amount of money they lend to small and medium-sized enterprises, and to pay out lower bonuses than last year. They are more transparent about their pay, and are making an additional contribution to support business growth and the big society bank of £1.2 billion. However, there is more work to do to improve access to financial services, certainly among the most vulnerable groups, by supporting financial mutuals, and improving competition in the banking sector.

We are committed to improving access to basic financial services, especially for those who are vulnerable to exclusion, and we are working actively to ensure that all consumers can access an appropriate mix of financial services. Bank and building society branches are not the only channels for accessing financial services, nor are they necessarily favoured by consumers on low incomes. For many people, the barriers are significantly greater than simply having no local bank or building society branch to visit.

It is important that financial services adapt so that they fit the grain of how people run their lives. For example, many consumers without bank accounts express a preference for managing their finances in cash. They want direct control over their spending, and often believe that a bank account takes that away from them. For many, the financial services with which they engage most often are not in bank branches.

That brings me to the post office network, which has more branches than all the retail banks put together. An important part of the Post Office’s future sustainability will be the continued growth of revenue from financial services. The Government have promised that there will be no programme of post office closures, and in last year’s spending review we promised to provide £1.34 billion for the Post Office to modernise the network and to safeguard its future, making it a stronger partner for the Royal Mail. We have also said that expansion of accessible and affordable personal financial services available through the Post Office should be a priority. Our ambition is that all UK current accounts should be accessible through the post office network, making post offices the convenient place for people to access their cash.

Amendment of the Law

Chris Leslie Excerpts

Monday 28th March 2011 Commons Chamber

[Mr Pickles]

Well, I suppose there comes an occasion, you turn up, there’s a lot of people there—and you just start to talk. These things happen, and we should be in a forgiving mood. I mean, anybody can compare themselves to Martin Luther King.

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

Who would you compare yourself to?

[Mr Pickles]

Certainly not to Martin Luther King.

Let us be clear: Communities and Local Government was the unprotected Department under Labour’s plans. Unprotected Departments would have received a larger average real-terms cut over four years under Labour than they are under the coalition’s deficit reduction plans over the spending period.

Thanks to the £18 billion of savings from our welfare reform programme and the £3 billion of savings from lower debt interest, the coalition is cutting £2 billion less from departmental budgets than the Labour party would have. Labour would have cut local government more, and, without the support for a council tax freeze, the end result would have been soaring council tax.

--- Later in debate ---

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

My hon. Friend the Member for Edinburgh East (Sheila Gilmore) was making her point so well, and I commend her analysis of this Budget, as well as those of my hon. Friend the Member for Coventry South (Mr Cunningham), my right hon. Friend the Member for Wythenshawe and Sale East (Paul Goggins) and my hon. Friends the Members for Liverpool, Wavertree (Luciana Berger), for Newcastle upon Tyne Central (Chi Onwurah) and for Telford (David Wright), among others. They all made the point that it is a no-growth Budget that is hurting many people and that certainly will not help our economy in the years ahead.

We do not have to look far to see the cracks emerging. Setting aside the scepticism that some might have had about the Office for Budget Responsibility, a cursory flick through its detailed analysis shows that the Budget has had a dilatory effect on our economy. The first line of chapter 3 on page 31 of its report cites a squeeze on household disposable incomes in the coming months weakening consumer spending growth. The OBR states on the same page that

“we have revised down our central forecast for economic growth in 2011 from 2.1 per cent to 1.7 per cent.”,

as my hon. Friend the Member for Southampton, Test (Dr Whitehead) has pointed out. Page 53 of the report says that real household incomes will “fall further in 2011”, and page 54 states:

“We have revised down our forecast for consumption growth…from 1.3 per cent to 0.6 per cent”.

Page 62 tells us that the medium-term forecast for exports needs to be revised downwards and page 72 states:

“We expect unemployment to rise over the next few quarters,”

with unemployment 80,000 higher in 2012. On page 75, the OBR downgrades forecasts for average earnings and output growth and on page 76 it tells us that aggregate wages and salaries will be

“around 1 per cent lower by 2015-16 than expected”—

and on and on it goes.

Economic growth matters, but that simple fact is lost on the Chancellor. I asked the Library about the cost to the Exchequer of that infamous quarter 4 reduction in economic growth in the last few months of 2010 when the economy shrank by 0.6%. It estimated that that reduction has caused a £3 billion reduction in Treasury revenues—£3 billion that might have been anticipated in revenue if performance in quarter 4 had been anything like that in quarter 3. That significant sum would have been enough to offset the need for the freeze in child benefit or the cuts in capital allowances for business investment that the Chancellor announced.

There is a symmetrical irony in that the OBR says, on page 125 of the report, that an

“increase in the claimant count”

will lead to “higher benefit payments” in 2012-13. As my hon. Friends the Members for Bishop Auckland (Helen Goodman) and for Glasgow North East (Mr Bain) have pointed out, the OBR has forecast an increase in social security costs of

“approximately £3 billion per year from 2012-13 onwards”.

When economic growth is driven down and unemployment is increased, those costs and the deficit are both going to be increased, as the eminent economist Paul Krugman has pointed out this week. This obsession with deficit reduction to the exclusion of all else—this fetishism—is a very narrow view of the world and ignores the impact that the Government’s belligerent strategy is having on the real economy.

The other document that was published with the Budget, “The Plan for Growth”, has also failed to convince anyone that the Government understand the importance of the real economy. The OBR’s reaction to the policy measures, when it had totted up all the Chancellor’s announcements, was that

“we do not believe there is strong enough evidence to raise our trend growth assumption”.

That is its response to the measures in the growth plan. As my hon. Friend the Member for Scunthorpe (Nic Dakin) so eloquently put it, the Government have taken a machete to growth—that is exactly what has happened. Their growth plan is riddled with confusion, fudge and contradictions.

Enterprise zones sound interesting at face value, but when they were tried in the 1980s they took jobs from surrounding areas. My hon. Friends the Members for Blyth Valley (Mr Campbell) and for Oldham East and Saddleworth (Debbie Abrahams) tried to be as optimistic as they could when looking at those enterprise zones, but we have seen that the Government give with one hand and take away so much more with the other. Any improvements to capital allowances on the margins are taken away by a factor of 10, with the cuts in capital allowances of £5 billion announced for the next five years.

There are in the growth plan allusions to weakening employee rights, as though that is the avenue we have to go down to boost growth. There is an allusion to clarity on the national minimum wage. We will have to see where that goes. There is opposition to improvements in maternity and paternity rights—typical Tory fare. There are some interesting vignettes on legal reforms that the Government want to make. For example, injured parties will have to deduct their legal costs from their compensation, instead of those costs falling on the negligent party. The Government want fewer food safety inspections at takeaways, as some hon. Members mentioned this evening.

There are references to abolishing money-laundering regulations and reducing corporate accounting, but hold the front page! Many people may not have got as far as page 121, where the Government say—this is absolutely serious—that they will review the Outer Space Act 1986. Presumably they will give us a clue what planet they are living on. One assumes it is planet Redwood, but who knows?

As we can see from the discussion that we have had today, the cuts have been significant and they are having an effect on the real economy. We can see that the unprecedented reductions in local government expenditure will harm local economies. My hon. Friend the Member for Sheffield South East (Mr Betts) mentioned that 737 jobs are being lost in Sheffield alone. The Government are facing both ways when it comes to local government reform. The set of proposals in the Localism Bill is hardly deregulatory, with 142 order-making powers. The Government are facing both ways on business rates. They promise local freedoms to councillors, but when businesses object, they say, “We will have national certainty when it comes to business rates.”

There is a looming crisis in residential housing and property finance. On planning policy, as my hon. Friend the Member for Sheffield South East said, so much for localism, when the Government’s clear expectation is

“that the default answer to development is ‘yes’”.

We will see how far localism goes in each of the constituencies of those on the Government Benches.

My hon. Friend the Member for Bristol East (Kerry McCarthy) pointed out that although the planning process needs to be speeded up, the supposed guarantee of a 12-month closure, including the appeal, is incongruent with the 35% cut in the planning inspectorate’s budget—35%. We will see whether the Government can live up to that guarantee. They are abolishing the Infrastructure Planning Commission, but they will have to recreate a major infrastructure planning unit within the planning inspectorate. They say they will get rid of top-down guidance, but the growth plan refers to five new national guidelines.

It must be recognised that there are significant problems with the Budget, one of which is the risk of a lost generation of young people. Youth unemployment is up 30,000 in the first quarter of this year to just under 1 million claimants between the ages of 16 and 24, the highest since comparable records began in 1992. We know that in the 1980s—the Secretary of State for Communities and Local Government has joined us as a shibboleth for that era—the Government neglected the risk of unemployment. We know the story.

Now, again, a younger generation is forgotten by the Government. Young people are losing their education maintenance allowances, their tuition fees are being trebled to £9,000 per year if they go to university, and opportunities to get into work or on to the career ladder will be rare. There is insufficient emphasis in the Budget on work experience and apprenticeships. The Government should have repeated the bank bonus levy that we implemented last year to raise resources to target job creation, but no; instead, they have scrapped the guarantee of apprenticeship places for 16 to 18-year-olds—a massive backward step.

What hope do young people have of getting on the housing ladder with the rather puny Firstbuy scheme, which Shelter says will help less than 1% of first-time buyers? As my hon. Friend the Member for Sheffield South East mentioned, there is a 50% cut in the new social homes construction budget. On top of that there are cuts to housing benefit. Even on pensions, young people are penalised should they dare to want to save for the long term. The Government assume that they can get away with pulling the rug from under young people, perhaps because they do not vote, but the mood is changing across the country. There is a profound sense of unfairness in cutting young people adrift. It is foolish economics to consign a generation to poorer prospects and less prosperity than their parents enjoyed. The Budget’s adverse impact on young people will penalise and alienate those in their teens and 20s. It is a catastrophe in the making, and the Chancellor will rue the day he neglected the younger generation.

European Summit

Chris Leslie Excerpts

Thursday 24th March 2011 Commons Chamber

[Mr Hoban]

My hon. Friend and I have debated this subject before, and my right hon. Friend the Minister for Europe opened a lengthy debate on it on 16 March. The Government are clear that the European stability mechanism is an important tool, but it is for the euro area to fund it. The ESM will lead to the extinction, as it were, of the EFSM. I do not feel it appropriate to engage in further speculation on events elsewhere.

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

Clearly, it would be troubling if the situation in Portugal reignited a round of eurozone bond market anxieties. The Opposition agree that it would be inappropriate either for us or the Government to engage in a running commentary on the likely impact of events in Portuguese politics or Portugal’s debt-financing capabilities. That is for the eurozone countries to resolve, and I would not expect the UK taxpayer to be drawn into the situation.

However, I have a number of specific questions for the Minister. For general information and the interest of the House, will he say a little more about the UK’s relationship with the Portuguese economy, including our trade relationships and UK banks’ interests in Portuguese bonds and so forth? Will the Minister update us on the Finance Ministers meeting that took place—I think—on Monday as a prelude to today’s EU summit? Originally, there were reports of an expectation that today’s summit would find its way towards resolving the permanent bail-out mechanism, yet we now hear that because of various disagreements, that will be kicked into the long grass again, until June. Does the Minister agree that it would be quite bad not to resolve that ongoing problem until the summer?

What are the Prime Minister and Chancellor doing to expedite negotiations and agreement on the permanent mechanism? Is it acceptable that the Prime Minister did not actually attend the meeting of 17 countries at the last summit at the beginning of the month, when we clearly have an interest in resolving those questions? Is it correct that the eurozone countries have invited the UK and other non-eurozone countries to have a say in debates on the new permanent mechanism? Quite honestly, we have an indirect interest in what happens, so it is surely in our interests to ensure that the eurozone countries resolve those questions quickly. It is not acceptable for the UK to absent itself at the critical moment, when it should be putting pressure on them to resolve those questions. Ultimately, we need stronger leadership from the Government to ensure that those matters are resolved in Europe and the eurozone. The longer they remain unresolved, the more likely it is that our interests will be affected.

[Mr Hoban]

The hon. Gentleman makes an important point. It is vital that there is stability in the eurozone and that agreement is reached on the ESM. My understanding is that the issues raised by the German Government and German Chancellor are not about the fundamental design of the mechanism, but about its detailed terms. We will discuss that at this weekend’s European Council, on which the Prime Minister will report to the House on Monday, as is customary.

The hon. Gentleman asked about the UK economy’s exposure to Portugal. Our exposure is relatively small—smaller than that of a number of other European countries. Our bilateral trade in 2010 was about £4 billion, so we do not have a significant exposure, although Portugal is of course an important trading partner.