Oral Answers to Questions

Chuka Umunna Excerpts

Tuesday 21st December 2010 Commons Chamber

[Mr Gauke]

As we have heard, Her Majesty’s Revenue and Customs’ assessment of the tax gap was £42 billion, but we are taking measures to address that. It is right that we do so, and we showed our determination this month when we announced a series of measures to reduce tax avoidance.

[Mr Chuka Umunna (Streatham) (Lab)]

I would like to get some clarity on the taxation of the banking sector. The Business Secretary made it clear over the weekend that if the financial services sector did not exercise restraint in bonus payouts during the current round of bonuses, which goes on until April next year, the Government would consider imposing further taxes above and beyond existing taxation arrangements and the banking levy. Will the Chancellor, who adopted quite a different tone in New York, please confirm whether the Government are considering imposing extra taxation, over and above the existing arrangements and the banking levy, on the banks if they do not exercise restraint?

[Mr Osborne]

We said in the Budget that we were looking at the case for a financial activities tax, which is one of the two taxes that the International Monetary Fund—[Interruption.] The hon. Member for Wallasey (Ms Eagle) says it has nothing to do with bonuses. I suggest that she goes and considers what a financial activities tax is. The IMF has set out some of the principles behind it, but we have followed the principles behind the other IMF proposal, which is the bank levy. In the past couple of weeks, we have demonstrated that we are prepared to increase the rate of the bank levy to sustain the revenue.

Banking Reform

Chuka Umunna Excerpts

Monday 29th November 2010 Commons Chamber

[Sajid Javid (Bromsgrove) (Con)]

I thank the right hon. Member for Oldham West and Royton (Mr Meacher) for securing this debate, which is a valuable one to be having in the House. I draw the attention of hon. Members to my entry in the Register of Members’ Financial Interest, which is a legacy of my spending 18 years in the banking industry. Before Labour Members get a bit too excited by that revelation, as many have unfortunately done in the past, I should say that for the past three or four years I felt that the profession of banker was possibly the worst to have in the eyes of the public, but that was before I became a Member of this illustrious House.

The motion states that we want to

“prevent a recurrence of the financial crash”.

Obviously we are all united on that, but it is important that we examine the causes of the crash, which we could debate for a long time and go round in circles. I am sure that many rational people will disagree on the responsibilities of banks and bankers. I may have misunderstood the motion, but it seems to suggest that banks are entirely responsible for the financial crash. That is wrong and it does not do justice to Members of this House or to our constituents in preventing something like this from happening again.

The financial crash happened because too much money was chasing too few assets—financial assets or real assets such as real estate. There are three principal reasons for that, the first of which was that world financial reserves, particularly in the east, were growing at a substantial rate. Indeed, they continue to do so, as more people in the west consume goods from the east. To give just one illustration, China’s financial reserves in 1990 were $165 billion but today they are $2.65 trillion. Those reserves needed to find a home.

The second reason is that commodity prices have grown substantially, partly as a result of the growth of the east and other emerging markets, and that has led to a substantial increase in sovereign wealth funds, both in the middle east and in other markets. Those funds also needed to find a home, and they created a colossal wall of money when combined with the financial reserves.

The third reason is something that bankers have called the “Greenspan put”. Alan Greenspan became chairman of the Federal Reserve in 1987, just before the Wall street crash, and one of the first things he did when he found a problem in the financial markets and a potential crisis brewing was to lower interest rates as quickly and as substantially as he could. That happened again when the US Federal Reserve led the way after the dotcom bubble burst in 1991, again when Russia had problems and there were problems in Asia, and it has just happened again. Bankers have got used to that approach and it results in what the markets call a “put”, whereby they feel they can sell assets if things go wrong. That has encouraged bad behaviour and a moral hazard: the idea among many bankers of “heads we win, tails the taxpayers lose.”

In addressing these issues, we must not forget those key facts about what caused the crisis. However, bankers did play a significant role and there are things about banks that we need to examine. Although there are issues to address in respect of financial derivatives, I would not make that the key priority. The first thing to examine is the idea of retail banks and commercial investment banks acting as one entity, because that seriously needs to be looked at.

I started working in the banking industry in New York in 1992. Under the Glass-Steagall Act, which was in place at the time, the bank I worked for had to have a completely arm’s length relationship with its retail banking division. That made a big difference to the risks the bank took or even contemplated taking. That situation changed in the late 1980s in Britain, when the big bang took place and the implied Glass-Steagall arrangement disappeared, and it formally changed in the United States in 1999 when that Act was removed. It is vital to examine that. The second thing to look at is, as has been mentioned, banking capital itself.

[Mr Chuka Umunna (Streatham) (Lab)]

Would the hon. Gentleman be prepared to share his thoughts on whether we should return to a Glass-Steagall model, which I understand the Clinton Administration did away with when in office?

[Sajid Javid]

There are some considerable merits in that model and given what has happened we should consider it seriously. I hope that the Vickers commission does that.

Secondly, we should consider the banks’ capital requirements. It is right that under Basel III capital requirements should be lifted. The core tier 1 capital requirement will be lifted from about 2% for banks to about 7%. Some points are still missed, however. The focus is far too narrowly on the default risk of assets and we have strange incidences even with default risk—for example, under the new proposals industrialised sovereigns are still considered to be risk free. As we speak, Ireland’s 10-year Government bonds are trading at more than 11%, Spain’s 10-year bonds are trading at more than 6% and Germany’s are trading at more than 2.5%, but they are all treated as zero-risk weighted and no risk capital will be set aside. No account is taken of liquidity, either. One of the largest problems for banks over the past three or four years was lack of liquidity, but the capital requirements do not take full account of that.

One of the biggest mistakes that made Britain’s situation far worse than that of other countries was the change in regulation when Tony Blair’s Government first took office. The jobs of people at the Bank of England, who knew what they were doing, were taken over by people at the Financial Services Authority, who did not know what they were doing. I remember an FSA audit where the chief auditor of my credit derivatives book, which had a market value of more than €100 billion, was a 27-year-old with a degree in biology. It is no wonder that problems started to happen. We do not necessarily need more regulation, just smarter regulation.

There are many issues to consider that we could debate for a long time. Banking regulation is one such issue, but we do no service to our constituents if we merely focus narrowly on it when we consider the lessons of the financial crisis.

--- Later in debate ---

[Mr Chuka Umunna (Streatham) (Lab)]

I, too, congratulate my right hon. Friend the Member for Oldham West and Royton (Mr Meacher) on initiating this important debate. I welcome the fact that we are conducting it in a reasonably non-partisan way. I have listened with interest to the comments of my fellow Treasury Committee members, and the last three contributors in particular. Although I do not agree with everything that has been said, there is much common ground.

My general approach is that we should not set out to destroy the City. It makes a valuable contribution to our economy, not least to the tax take of the Exchequer. I spent much of my legal career working there and I know that a number of other Members present also worked there for some time. The important thing is that we reform the City so that it is run in the interests of all the British people, not in the interests of a few people in the square mile, as often seems to happen. Above all, let us reform it so that never again do any of our constituents have to pick up the tab for the mess in the sector.

We should be clear. All major political parties and Governments across the world bear responsibility for allowing what happened to develop. Let us face it: the consensus pre-crash was for a light-touch model of regulation. However, we should not forget—this is where I differ from some other Members—that it was ultimately the bankers who were to blame. Now we have to resolve what happened.

I disagree with the motion in that it suggests that nothing much has happened. I am glad to hear that other Members disagree with that. Let us look back to the G20 in April 2009 and recall what was achieved there, following the leadership demonstrated by the former Prime Minister. I remember him being ridiculed as he went around the world trying to galvanise consensus on a set of outcomes, but the summit produced outcomes that have been built upon. Three come to mind. First, the leaders resolved to establish the Financial Stability Board, the successor to the Financial Stability Forum, and as a consequence the world has a standing body of Finance Ministers, regulators and central bankers, which seeks to provide early warnings of financial risks and has a greater mandate to promote financial stability globally.

Secondly, the leaders who attended the summit took concerted action to improve the quality and quantity of capital in the banking system, and I endorse the comments of the hon. Member for South Northamptonshire (Andrea Leadsom), one of my Treasury Committee colleagues, because what came out of it—with the FSB and the Basel Committee on Banking Supervision working together —helped to produce more stringent capital adequacy requirements and the minimum equity requirement will go up to 7%. Perhaps it is regrettable that that will not happen until 2019, and perhaps it could be sped up, but it has definitely made a difference.

Thirdly, the leaders resolved to endorse and implement new principles on remuneration, and, as a result, in the March Budget the former Government put in place the apparatus within which a remuneration disclosure scheme could be enacted.

[Jonathan Edwards (Carmarthen East and Dinefwr) (PC)]

Does the hon. Gentleman agree that, if there is greater transparency on bonuses, the threatened diaspora of bankers will be nothing more than hot air?

[Mr Umunna]

The apparatus would help to introduce greater transparency on bonuses, because if we want to do something about reckless remuneration we need to know about it. I speak to many people in the City, and, although some of course disagree with the measure, many accept that it needs to be introduced. Action was taken, but some measures are still outstanding.

[Charlie Elphicke]

Will the hon. Gentleman give way?

[Mr Umunna]

I am going to make progress, because I do not have much time.

I welcome the introduction of the independent banking commission, which the new Government were right to set up. Without pre-empting the commission, I firmly believe that we should separate retail from investment banking. There is some consensus on that, but it is a question of degree.

[Steve Baker (Wycombe) (Con)]

Will the hon. Gentleman give way?

[Mr Umunna]

I am afraid I am going to continue.

Do we go for the Dodd-Frank model, which has just been implemented in the United States, or the Glass-Steagall model, which was in place from the 1930s until recently? Mervyn King has moved a little on the issue. At the Treasury Committee last week, he was very clear that he would not give his view on it until the Vickers commission reports, but Lord Turner doubts that it is possible to separate proprietary trading from commercial banking. That is why I am sympathetic to the Glass-Steagall model, but I am happy to see what the banking commission comes forward with.

I shall conclude by considering some wider issues. I should like two key outcomes from the reforms currently being implemented. First, to pick up on the comments of my hon. Friend the Member for Leeds East (Mr Mudie), we need to return to the notion of our banks as a utility. They are a utility and should be treated as such, because they are absolutely essential to our everyday lives. We have lost sight of their purpose, because we have a allowed a big, shadow banking structure to evolve while 1.75 million adults on lower incomes do not have access to basic banking services. I should like us to introduce a universal banking obligation, so that everybody has access to such services. It is a great shame that the Government have decided to do away with their commitment in the coalition agreement to introduce a people’s bank through the Post Office, because that would have been very good.

Secondly, I agree with the hon. Member for South Northamptonshire that we need greater diversity in the sector. It is dominated by a few major players, and there has been only one start-up entrant in the market, Metro bank, since 2008. In particular, I should like serious consideration to be given to breathing life into the mutuals sector. Why do we not seriously consider remutualising Northern Rock and Bradford and Bingley, as opposed to privatising them, so that we increase the diversity of providers in the sector for our constituents?

There is no magic bullet when it comes to reforming financial regulation. The previous Government made a good start; it is absolutely crucial that the coalition Government build on that.

--- Later in debate ---

[Andrew Bridgen (North West Leicestershire) (Con)]

Thank you, Mr Deputy Speaker, for letting me catch your eye in this debate; this is a little different from the last time that I spoke. I remind you, Mr Deputy Speaker, that it is not the size of the dog, but the size of the fight in the dog that decides who wins.

This is an important debate because we need a vibrant, strong and confident banking sector if we are to see the essential growth that all hon. Members desire for our economy. Before we look to the future, it is important that we should address the problems of the past, including the very recent past.

Many Labour Members seem to be keen simply to bash the bankers and blame them for the financial crisis and recession rather than look at the causal and contributory parts played by their own former Treasury Front Benchers, including the former Chancellor and Prime Minister, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown). He has much to answer for, and I wish that he were in the Chamber more often so that he could do so.

[Mr Umunna]

Will the hon. Gentleman give way?

[Andrew Bridgen]

With pleasure.

[Mr Umunna]

In fairness to many hon. Members who have spoken from both sides of the House, I should say that there has been a recognition that although the crisis was not 100% the fault of the bankers, they bear a huge part of the responsibility. As I said when I spoke, I think that before the crash there was a consensus around the world that tended towards a light-touch regulatory regime. That is something for which everybody, on both sides of the House and in legislatures throughout the western world, has to take responsibility. That has been acknowledged in the Chamber. Will the hon. Gentleman acknowledge that that sentiment has been expressed during this debate?

[Andrew Bridgen]

The hon. Gentleman makes that point, but the previous Government encouraged and took part in an orgy of credit: in fact, they led it, and invited individuals and corporations to join in, safe in the knowledge that the former Prime Minister said that he had ended boom and bust, which now sounds as ridiculous as King Canute claiming he could turn back the tide. The taxpayer now has the hangover from that 10-year orgy of credit.

Under the former Prime Minister’s watch, the Bank of England deliberately stoked a consumer boom that led to spiralling house price inflation and massive levels of personal debt. This is not just my opinion, but that of the previous Governor of the Bank of England, the late Lord George, who said of that period:

“We knew that we were having to stimulate consumer spending. We knew we had pushed it up to levels which couldn't possibly be sustained into the medium and long term.”

That approach led to 20% house price inflation when the consumer prices index was running at 2%, led to financial institutions such as Northern Rock offering 120% mortgages, and ultimately led to a run on a British bank and the financial crisis of 2007. Opposition Members might blame America, global markets, or even the fact that we are not in the euro, as ridiculous as that sounds, but this misguided belief, and the hubris of the previous Prime Minister in believing that he had ended boom and bust, helped to contribute to the banking collapse. It is fascinating that the shadow Home Secretary—or perhaps I should say the shadow shadow Chancellor—stated that the cause of the deficit was not the previous Government’s borrowing, but rather the collapse of tax revenues. He failed to recognise that tax revenues based on rapid house inflation and excessive consumer credit are totally unsustainable.

The failure of the previous Prime Minister’s regulatory regime also contributed to the problem. It was clear in the early part of the decade that the UK had an unsustainable consumer credit funding gap: the IMF said so, as did the previous Governor of the Bank of England. The power to regulate had been transferred from the Bank of England to the Financial Services Authority and the Treasury, with an inadequate definition of roles and responsibilities. It was an absolute disaster, as was shown at the height of the Northern Rock crash, when Mervyn King was asked, “Who is in control?” and his answer was, “That depends on how you define ‘in control’.” The answer was that nobody was in control, and no one could see who was in control. One cannot have a third of a problem—one wants all of the problem or none of it. That was part of the difficulty.

So where do we go from here? I am a firm believer in sound money. A sustainable banking system is one where lending policies are closely in sync with the projected economic activity of the people it serves, not driving them.

Autumn Forecast

Chuka Umunna Excerpts

Monday 29th November 2010 Commons Chamber

[Mr Osborne]

I assure my hon. Friend that I will not tire of reminding the Opposition of that. Of course, if they come forward with a new economic policy we can examine it, but at the moment there is not a new economic policy to examine, so there we have it.

[Mr Chuka Umunna (Streatham) (Lab)]

The Chancellor has said that he sees private sector growth being driven by business investment and by exports. In its report today, the OBR has revised down its forecast for business investment in four of the years between 2010 and 2015. Of course, we have seen the dramatic uncertainties in the eurozone, which is our main export market. If exports and business investment do not turn out to be what he expects, where does he see private sector growth coming from?

[Mr Osborne]

One of the primary tasks of the OBR is to assess whether we will hit the fiscal mandate. The very fact that the fiscal forecasts are not a matter of controversy in the House today shows what we have done to get the British public finances under control. The OBR assessed specifically the scenario that the hon. Gentleman volunteers and said that the fiscal mandate will be met under those conditions. In fact, rather perversely, that helps the fiscal forecasts because of the tax base being more focused towards consumption.

Oral Answers to Questions

Chuka Umunna Excerpts

Tuesday 16th November 2010 Commons Chamber

[Mr Gauke]

My hon. Friend makes an excellent point. As a Government, we are cutting the rate of corporation tax, from 28% to 24%, which is the lowest rate that we have ever had in this country.

[Mr Chuka Umunna (Streatham) (Lab)]

8. What steps he is taking to review the regulation of credit rating agencies.

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

The coalition Government support greater regulation of credit rating agencies. The credit rating agency regulation came into force in the EU, including in the UK, on 7 December 2009. The UK authorities continue to be active in both the EU and G20 processes, including in negotiations on amending the credit rating agency regulation and in examining ways to reduce our reliance on credit ratings for regulatory and official purposes.

[Mr Umunna]

These obviously follow on from the proposals of Jacques de Larosière. One problem that has been identified with the rating agencies is the conflict of interest issue. I think that we should move to a “buyer pays” model. The other issue is a lack of competition in the credit ratings market. Michel Barnier, the EU Commissioner, has floated the idea of having an EU credit rating agency, which I think is a thoroughly good idea. Does the Minister agree?

[Mr Hoban]

Of course there are areas where more work needs to be done, and the hon. Gentleman is right that Michel Barnier has made further proposals, in a consultation paper that he published earlier this year. They included looking at the business models for credit rating agencies. However, I question whether taxpayers in Europe would feel it right that their money should be going to fund credit rating agencies.

Finance (No.2) Bill

Chuka Umunna Excerpts

Monday 8th November 2010 Commons Chamber

[Chris Evans (Islwyn) (Lab/Co-op)]

The conflicting press reports on this policy that we have seen over the last couple of months mean that the Government must explain their plans to withdraw child benefit. Like many commentators and Members of this House, I am deeply concerned by proposals that will see a lone parent or single-earner couple earning just above the higher rate threshold lose their child benefit while a dual-earner couple both earning just under the threshold would continue to receive it.

The reform could also distort incentives for those with incomes around the higher tax threshold. As I understand it, those earning above the 40% tax bracket will no longer receive child benefit for their children—that bracket is currently about £44,000. The system is complicated by the fact that that rule applies to single wage earners. If both parents earned, say, £42,000—or £84,000 between them—their family would continue to receive child benefit.

The Treasury has a duty tonight to explain how its plans to withdraw child benefit from families with a higher rate taxpayer could work in practice. Some tax experts have said that ending child benefit payments to couples with one higher rate taxpayer earning more than £43,875 a year is unenforceable. The method of recovery will require taxpayers to submit annual paperwork, new HMRC tax codes and a change in the law to cover parents who separate or live apart.

Higher rate taxpayers will need to tick an honesty box on their tax return, stating whether they or their partner have received child benefit in the past year, and it is said that they will be fined if the information provided is incorrect. According to press reports, taxpayers might face fines if they fail to disclose whether their household received child benefit. On 29 October 2010, the Financial Times stated:

“From 2013, higher-rate taxpayers in the self-assessment system will be required to tick a box declaring that their household claims child benefit. They will then pay a higher rate of tax corresponding to the level of benefit, which is worth £1,700 to a couple with two children.

Those on the pay-as-you-earn tax system will be asked in a letter to disclose if their household claims the benefit—a declaration that will put them into a different tax code. The benefit would then be deducted in the next tax year, in an ‘end-year adjustment’ similar to that in the tax credit system.”

We have seen the problems that that has caused over the past couple of years. The article went on:

“Legislation to implement the changes will include laws setting out what will happen to the benefit if parents split up, remarry or share custody.”

To me, it is not clear how a system based on an end-year adjustment would cope with in-year changes in circumstances such as the birth of a child, a partner moving out or a new partner moving in. It is also unclear what a household will constitute for these purposes. As I have said, parents who earn £42,000 each would keep the benefit—worth £1,752 a year for a couple with two children—whereas a family relying on one income of £44,000 would lose out. Someone with children on a £42,000 salary would be better off than someone on a £45,000 salary, as they could keep all their child benefit.

At present, there are no definitions of “household” in either tax or child benefit law. Defining a couple is not easy, particularly if a couple split up. He might be a higher rate taxpayer while she is the carer for the children—or, with equality fresh in the mind, she could be a higher rate taxpayer while he is the carer for the children. When they part, she could claim child benefit as she has little other income, but if the rules treat them as still part of the same household—perhaps they have split up but are still living together—she could lose her child benefit, or even have to pay back whatever she has received.

We already knew that the plans were unfair, but what has been increasingly clear is that they simply have not been thought through. We do not even know if the provisions on independent taxation will be repealed. If mothers are under no legal obligation to tell fathers that they are in receipt of child benefit, how can this tax on families work? The policy will simply create more work; there will have to be a lot of checking up. People will have to put a lot of effort in to get it and to make sure they are getting the right amount.

We are now seeing significant confusion about what the policy means in practice. Quite simply, it is creating more questions than answers. In the June emergency Budget, it was announced that the income tax personal allowance will rise by £1,000 to £7,475 from April 2011. However, the 20% tax band is being squeezed so as not to benefit higher rate taxpayers: whereas the 40% tax band currently starts at £43,875, with no tax on the first £6,475 and 20% on the next £37,400, that will change from April next year. At that point, the 40% tax bracket will start at £42,375, with a personal tax allowance of £7,475 and a reduced £34,900 tax band of 20%. Does that mean that people could lose child benefit even if they earn less than £44,000 from April next year? If that is the case, an additional 800,000 wage earners will be brought into the higher rate tax band from next April, which makes a mockery of the Government’s claims to be on the side of hard-working families. If tax allowances remain as planned, those earning more than £42,375 will be denied child benefit. The Government must answer these questions ahead of April 2011.

[Mr Chuka Umunna (Streatham) (Lab)]

Let me make three very quick points, parts of which will pick up on comments that have already been made.

The first point is the issue of declaration. My hon. Friend the Member for Nottingham East (Chris Leslie) mentioned last week’s Treasury Committee hearing, during which I asked the Chief Secretary to the Treasury how he intended to enforce the new child benefit measure. He said that the coalition Government will introduce legislation to require higher rate taxpayers to declare whether child benefit is coming into the household. Such a declaration is partly dependent on information being passed from one partner to the other. The Chief Secretary was very clear that the obligation to provide the information will be on the higher rate taxpayer. Why not also introduce a requirement in respect of the other half of the couple? As the Chief Secretary did not answer that, will the Minister now shed some light on it and reveal whether the Treasury has taken proper legal advice? The hon. Member for Dover (Charlie Elphicke), a former tax lawyer, is in the Chamber. I wonder whether he advised his colleagues.

[Charlie Elphicke]

I thank the hon. Gentleman for his kind words. As a lawyer, I might be very cautions, but as someone who has been in a relationship and who has found that couples tend to talk, I will ask the hon. Gentleman whether he is aware of any couples with children who do not share their financial information?

[Mr Umunna]

I do not usually ask my friends and acquaintances whether they share financial information with their partners, but I hear the comments of the hon. Gentleman.

My second point is, how will it be possible to prove the connection between the mother and the higher rate taxpayer, bearing in mind the problems that we have been having at Her Majesty’s Revenue and Customs? Given that HMRC’s resources have been cut over the past few years, how will it be able to keep tabs on the situation between couples on a monthly basis? As some 1.2 million families will be affected by the new measure, will HMRC be given any more funding to enable it to enforce the new change and to keep tabs on what is happening out there in the nation?

Finally, John Whiting, joint interim head of the Office of Tax Simplification, has obviously commented on the problems of the new measure, but what is the point in setting up such an office when the people working within it and those heading it up have not been properly consulted or asked to advise on this measure? Surely, if the Government are not minded to accept this new clause, it would be a good idea to delay the introduction of this measure and ask the Office of Tax Simplification to do its job and advise on how it can be more efficiently introduced.

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

My hon. Friend makes a powerful case to look again at the detail. Does he agree that if the objective was to be fair and to put the burden on to the broadest shoulders, surely it would have been better to raise the marginal rate of tax from 40% to 41% , so that the people who have more pay more, and not just clobber people with children, who now have to pay more for their children. Those are couples, only one of whom might be working, where the 40% does not signal the best-off households.

[Mr Umunna]

No doubt the Government will consider my hon. Friend’s interesting suggestion and comment accordingly.

One of the main problems with the new measure is that people fall off a cliff edge when they hit the higher rate. Have the Government considered introducing a taper mechanism to prevent that anomaly from occurring, because obviously that is where the unfairness shines through?

[Mr Gauke]

The new clause would link the future withdrawal of child benefit from higher rate taxpayers with the principle of independent taxation. The payment of child benefit is clearly a spending issue and is not directly linked to the Bill. I therefore shall not try your patience, Madam Deputy Speaker, but it is important to set out the background to the change.

The spending review set out how the Government will tackle the deficit that they inherited from the previous Administration. Given the comments that have been made by the Leader of the Opposition—I congratulate him on becoming the recipient of another child benefit payment, and wish him and his family well—as well as by the hon. Member for Nottingham East (Chris Leslie) and several other Labour Members today, I take it that the Labour party remains opposed in principle to our reform of child benefit and believes that it should continue to be paid to all households.

[Mr Gauke]

I take the hon. Lady’s point, but I am not clear about whether her party’s position is to say, “Something should be done, but we don’t like the way it’s being done,” which, I think, is the position that she sets out, or to say, “We don’t think anything should be done at all,” in which case we must include the £2.5 billion that the measure will save the Exchequer—that is an estimate from the Office for Budget Responsibility—as part of our assessment of the Opposition’s fiscal policies.

[Mr Umunna]

The Minister cites savings of £2.5 billion, but will he estimate the likely cost of administering the new policy, which will have an impact on those savings? John Whiting has said that the extra burden associated with administering the change in the way it is envisaged will make a fairly big dent in the expected savings.

[Mr Gauke]

The hon. Gentleman asks a fair question, but I will not give him a precise number because that is something that we continue to consider. The implementation of any policy clearly involves a cost, but I assure him that this cost will be small when compared with £2.5 billion. I am keen to ensure that the policy does not place an undue burden on HMRC. He made a fair point about HMRC. It faces a budget reduction, even though the Government are protecting it by ensuring that it has more resources to tackle evasion and avoidance, but we are keen to ensure that the burden of administering the policy will not cause it undue difficulty.

We have to take tough decisions and make tough choices, and this is one of the decisions that the Government have taken because we believe it is the right thing to do. We do not think it is fair to tax people on low incomes to pay for the child benefit of those earning much more. We cannot afford to continue providing financial support through child benefit to better-off households where there is a higher rate taxpayer. From January 2013, the Government will therefore withdraw child benefit from families that contain a higher rate taxpayer. Despite the noises from the Opposition, the British people understand that this is a tough, but fair, decision.

--- Later in debate ---

“My Lords, what I said was that we have indeed taken action”.—[Official Report, House of Lords, 1 November 2010; Vol. 721, c. 1417-18.]

[Mr Umunna]

Has my hon. Friend noticed that in the same package of measures in the emergency Budget—this was also touched on in the comprehensive spending review Green Book—there is also provision for a remuneration disclosure scheme? In the emergency Red Book and the CSR Green Book, we were told that the Government would come forward with details on how they would implement the scheme, which would require greater transparency in the financial services sector, so that the country could see what those in the sector were earning and whether there were irresponsible remuneration packages in place. It seems that the scheme will not now be implemented in time for the bonus round that my hon. Friend has just mentioned.

--- Later in debate ---

[Chris Evans]

Since coming to the House, I have seen a lot of history being rewritten. We are told whenever we stand in the Chamber that we must apologise for the economy, but to coin a phrase from The Sun on the day after the general election in 1992, “It was the banks wot did it.” There is widespread public anger with the banks, and people believe that they are getting away scot-free.

At my surgeries, in my local Labour party and out in the streets, people ask me why our nurses and teachers are bearing the brunt of the deficit—what about those casino bankers? If it were not for their reckless practices, why did the then shadow Chancellor just before the general election commit to follow Labour’s spending plans for two years if we were so bad at running the economy? The simple fact is that the banks have not paid the price for the deficit that they helped to run up.

The new clause is not about destroying the banking system; it is about strengthening it, which means changing it and making it mixed. I know that this is outwith the amendment, but I would like a mutual element in the banking system, and that could start with Northern Rock. The simple fact is that the banks received £1 trillion. Can anyone imagine what £1 trillion looks like? Can anyone imagine what public works we could do with £1 trillion? Projects in my constituency are crying out for money. The Newbridge Memo, the memorial hall, needs restoration. So much could be done with a tiny part of that £1 trillion. But the bankers remain blasé and people think they are plain arrogant.

If no one believes me, let them look at Lloyds TSB, which this week appointed a chief executive. I will not embarrass myself by trying to pronounce his Spanish name, but we are told he will receive a package of £8 million. Who is worth £8 million, and what message does that send to people who are struggling to get by? It sends the message that the Government do not care how much damage bankers have done—they can carry on as they have been. When we read about such figures, what are we saying to people on the ground? They are the ones who must pay.

My hon. Friend the Member for Nottingham East (Chris Leslie) talked about bankers’ bonuses, and I wholeheartedly agree that something must be done to rein them in. However, I have been a high street banker. I worked for Lloyds TSB, and I know for a fact that someone working as a personal account manager or personal banker is desperate for their bonus at the end of the month, because it makes up their wage. If we rein in the big City bonuses, we must think about the people on the ground. Let us not rein in their bonuses. They still have to pay their bills, and we must think about that. I ask the Government to consider the new clause because the banks really must pay their fair share.

[Mr Umunna]

I endorse the comments made by my hon. Friend the Member for Islwyn (Chris Evans). I, too, hear similar sentiments expressed on the streets throughout my constituency.

Opposition Members are not under any illusion that banker-bashing, as it has been called, or reining in bonuses alone will sort out the problems with the financial services sector. It is important to reform the way it operates generally, which is why I welcome the banking commission that the Government have set up. Its terms of reference are sensible and, as a member of the Treasury Committee, I look forward to providing some input to that.

There are legitimate questions to be answered on whether the financial services sector is doing what the Chancellor said in the emergency Budget he would require it to do. He said:

“I believe that it is fair and right that in future banks should make a more appropriate contribution, reflecting the many risks that they generate.”—[Official Report, 22 June 2010; Vol. 512, c. 175.]

That is why I welcome the new clause. We should reflect on the huge contribution that the British public have had to make to the financial services sector since September 2007 and before.

--- Later in debate ---

[Justine Greening]

I will give way. I see that Labour Members have now perked up from when they were skimming over their past, as they were so clearly intent on doing. It is more difficult for them, is it not, to hear the failures of their Government being set out so clearly? Let us not forget that the last Prime Minister, back in 2007, described this as a golden age. He obviously felt that the regulatory system he had put in place was a great one, but that was subsequently proved not to be the case.

[Mr Umunna]

Does the Minister not accept that there was a move towards a light-touch regulatory model across the entire political system? I am well aware of this because I used to work in the industry myself, and I do not recall the Economic Secretary or any of her colleagues jumping up and down when the Financial Services and Markets Bill went through this House, complaining that it did not introduce stronger regulation. Secondly, did she, like me, hear the comments of the Governor of the Bank of England, Mervyn King, at the Treasury Committee this summer? He was asked whether, if the new regulatory model championed by the Minister had been adopted, the global financial crisis would have been averted—and he said no.

[Justine Greening]

If the hon. Gentleman checked the Hansard of our debates on the original tripartite regulatory system, he would see that we did raise concerns about the nature of that system. We were told that our warnings were wrong. It is not acceptable for Labour Members simply to wash their hands of the regulatory system that they now clearly feel absolutely failed.

In fact, we have to respond to the regulatory failures of the past by returning the role of supervising the banks to the body charged with the overall monitoring of the economy—the Bank of England. That is why we have also set up the Independent Commission on Banking to advise on the reforms necessary to ensure that we are better protected against another banking meltdown in the future.

--- Later in debate ---

[Justine Greening]

I am sure that the hon. Gentleman is following my comments closely. I was setting out the context for the situation in which we find ourselves. I have pointed to serious regulatory failure, which needs to be sorted out, and the fact that we have inherited a huge fiscal deficit, which also needs to be sorted out. In that context, we should recall that the previous Government had said that they would not introduce a bank levy at the national level and that they wanted international agreement before any such levy were put into place. At that time, we argued that we should get on with that, as a Government, and not necessarily wait for international agreement. The Labour Government rejected that.

In our first Budget, we decided to introduce a permanent levy on banks, which we expect to generate about £2.5 billion of revenue each year. The levy reflects the potential risks that banks pose to the UK’s financial system and the wider economy, and it will ensure that banks make an appropriate contribution to deficit reduction that balances fairness with the competitiveness of the UK banking sector. It is also intended to encourage banks to move away from risky funding models that threaten the stability of the financial sector.

We were the first country in the G20 to take such action—the hon. Member for Streatham (Mr Umunna) talked about leadership, and I think this is leadership—and we have been joined by France and Germany, which made announcements on bank levies in June. Germany’s plans for its bank levy have been before Parliament there, while France outlined the details of its bank levy at its budget in September. Hungary, Portugal and Austria have since also outlined plans to introduce bank levies, while Sweden has already introduced a levy. Our bank levy is a permanent one and a regular source of revenue—unlike the one-off bonus tax of the previous Administration.

[Mr Umunna]

What does the Minister say to the International Monetary Fund? I have already mentioned the IMF’s views on the level at which this levy should be imposed. Conservative Members are fond of quoting the IMF to us time and again, yet the IMF takes the view that at least £6 billion a year can be raised from this levy. Does she agree with the IMF and, if not, why does she think it is wrong?

[Justine Greening]

The IMF has expressed its own views around levels of taxation. In the broader international context, which the hon. Member for Nottingham East (Chris Leslie) mentioned, there are questions about the introduction of a financial transaction tax and a financial activities tax. Unlike the hon. Gentleman’s party, we were prepared to introduce a bank levy nationally, but there are also discussions taking place about international measures that might be taken.

In fact, over and above the bank levy, the Government are taking a tougher approach to tackling tax avoidance by the banks. Prior to the spending review, only four of the top 15 banks had adopted the previous Government’s code of practice. We have asked Her Majesty’s Revenue and Customs to work with banks to make sure they adopt and implement the code by the end of this month, thereby making the commitment to comply with both the letter and the spirit of the law, and not to engage in or promote tax avoidance.

New clause 3 provides:

“The Treasury shall publish a report before the 2011 Budget examining the level of taxation on the banking and financial services industry.”

We have had some sort of rationale for it, but I have to say that I see little merit in making such a report in isolation. The report itself would be no substitute for the overall strategy for improved regulation and the complementary bank levy ensuring banks make a contribution in respect of the risk they pose to the financial system and wider economy. As set out in the spending review, the Government will continue to monitor tax receipts from the banking sector to ensure that banks make a fair and growing contribution to the public finances as the economy recovers.

In addition, there are, of course, already statistics available on the amount of tax revenue derived from the financial services sector. Historical figures for corporation tax receipts paid by several broadly defined business sectors are regularly updated and published on the HMRC national statistics website. To improve predictability, it is important that the Government provide clarity on the direction of tax policy, and the vehicle through which that is best delivered is the Budget itself. The new clause would require the Government to produce a superfluous report in advance of the Budget and therefore in advance of any announcements that the Chancellor might wish to make about tax policy generally that might impact on the banking and financial services industries.

The Opposition want a report on the banking industry. What the Government want, and what we have, is a strategy to ensure that the financial services sector pays its fair share. We have been clear about what we want to achieve, not only through the bank levy but through the code of practice, and by fixing the banks’ ineffective regulatory system—the system established by the last Government, who let our country down so badly. The new clause does nothing to support those aims, and I ask the hon. Member for Nottingham East to withdraw it. If he is not willing to do so, an apology to the British people for the mess of a regulatory scheme that he left behind would not go amiss.

Comprehensive Spending Review

Chuka Umunna Excerpts

Thursday 28th October 2010 Commons Chamber

[Ms Eagle]

Whatever happened to old-fashioned courtesy? The hon. Gentleman should ask himself why I do not want to give way to him when he is so generous and lovely to me when I do.

Money spent on infrastructure investment kept the construction sector going. As we saw from the GDP figures on Wednesday, that is still having a positive effect. The deficit was unavoidable. It was vital to support people and businesses through tough times, but let us be clear about Labour’s spending before the crisis hit. Far from being too high, it was, as the Prime Minister said—I am quoting him directly—“really quite tough”, while the Chancellor was urging us to spend more.

The second myth is that the scale of the cuts is unavoidable. As my right hon. Friend the shadow Chancellor has pointed out, Government propaganda has got it precisely the wrong way round. The fact is that the deficit was unavoidable; it is the June Budget and the Chancellor’s spending review that are a political choice. They are not only avoidable, they are downright dangerous. That is why there was no mention of these supposedly unavoidable cuts in the manifestos of either of the parties now in government when they went to the country. That is why they have no mandate for the cuts policy that they have embarked on since the general election.

Since the election, we have seen the contortions of the Deputy Prime Minister, along with his accomplice in what we now have to call the “quad”, to justify his volte-face. First he told us that he took a call from the Governor of the Bank of England as he stepped into the ministerial Jag, but the Governor begged to differ. Then the Deputy Prime Minister said that Britain was about to become Greece. That is about as close to a myth as you can get, Mr Deputy Speaker. The Government have made their choice, and we on the Opposition Benches will hold them responsible for the social and economic consequences of those choices.

[Mr Chuka Umunna (Streatham) (Lab)]

Has my hon. Friend noticed the tendency of those on the Government Benches, and in particular the Chief Secretary and the Chancellor, when referring to the history of the economy this year, to say that we were on the brink of bankruptcy as a country? Did she, like me, notice Lord Turnbull’s appearance before the Treasury Committee this morning, when he clearly said that this country was not on the brink of bankruptcy and that there was no risk of a sovereign debt crisis?

[Ms Eagle]

It is quite extraordinary that we have a Chancellor who is prepared to make such alarmist statements from the Treasury. He does it for political, not economic, reasons, and it is a disgrace that he continues to do it.

Julian Smith (Skipton and Ripon) (Con): Will the hon. Lady take this opportunity to pay tribute to British business, which has created hundreds of thousands of jobs since this Government started taking the tough decisions that she flunked?

--- Later in debate ---

[Malcolm Wicks (Croydon North) (Lab)]

I shall focus specifically on child benefit, and start by sincerely congratulating the coalition Government. In 1945 the coalition Government, which involved Liberals, Conservatives and Labour, introduced family allowances—a coalition Government who got something right. It was in the mid to late 1970s that child tax allowances were amalgamated with the family allowance scheme to form child benefit.

Unfortunately, there is now a need to restate the case for family support and for child benefit. I want to explain why it is such an important scheme to maintain as a universal scheme. First, there is the societal interest in bringing up our children. No one spoke more clearly about that than Eleanor Rathbone when in 1940 she said that

“children are not simply a private luxury. They are an asset to the community, and the community can no longer afford to leave the provision for their welfare solely to the accident of individual income.”

That was Eleanor Rathbone, the heroine of family support, back in 1940.

A second reason for child benefit is what we might call horizontal equity. The welfare state is not simply about poverty. In terms of child benefit, it is about the fact that whatever people’s income level, if they have children, they are taking on financial responsibilities over and above those who are childless or the single. Horizontal equity is important, as we are finding out now.

Thirdly, there is the sheer cost of bringing up a child. No longer is a child someone who becomes independent at 14, 15 or 16, when they leave school and get a job. Once upon a time children might have been an economic asset on the land. Today our children, with higher and further education, are dependent on their families for longer and longer.

People have had a go at estimating the costs of a child. The most recent estimate that I have seen is from the Liverpool Victoria Friendly Society, which said that the costs of a child could be as high as £200,000. We can add on to that other indirect costs when the mother, staying at home, loses her place on the career ladder, loses salary, loses income and loses pension rights. Our children are very expensive, as many of us who are parents know. It may be that for these economic reasons, the birth rate in societies such as the UK is below replacement level. These are significant issues.

The fourth reason is extremely important. The family allowance—now child benefit—was essentially an income for mothers. That is what Eleanor Rathbone was arguing for. Despite modern times, and despite the rise of the dual worker family and the rise of women’s rights, my guess would be that it is still mothers in most of our families who are responsible for juggling family budgets at different income levels. It is mums who make the judgment about whether the clothes and the shoes can be afforded, how to fund the school trips and the treats for children—[Interruption.] That obviously struck a chord with someone. If my hon. Friend the Member for Bishop Auckland (Helen Goodman) could also laugh at any jokes I make, that would be helpful.

The income for mothers is particularly important for mothers who, often pejoratively, are referred to as the stay-at-home mums—those who make the judgment that for the first few years, they want to look after their own children. Choice is so important. I think that in future we will see more parents wanting to spend time with their children, especially when they are young. That is why the family allowance and the child benefit have been so important, and that is why, following the modern coalition Government’s announcement, we have seen so much concern from those mothers in so-called higher income families about the loss of their income. That is very important.

A fifth reason is that child benefit, alongside other benefits, is part of the universalist spine that is so crucial to a modern welfare state. Alongside free education, a free national health service, pensions and national insurance benefits, child benefit is universalism, and I believe that universalism is a major force for cohesion in our society. It is a “We’re all in this together” social policy, which we start to erode with perilous implications. Child benefit is simple, easily understood and easily administered.

[Mr Umunna]

Will my right hon. Friend give way?

[Malcolm Wicks]

I am happy to give way to my constituency neighbour in Streatham.

[Mr Umunna]

Will my right hon. Friend also acknowledge that one of the good things about child benefit is that its take-up is so high? Take-up is one of the problems that we have with many benefits that are paid out.

[Malcolm Wicks]

I agree, of course, because child benefit is easily understood, simple and a universal benefit. I am very happy to agree with my parliamentary neighbour.

Child benefit is now being undermined, which is why it is so important to restate the basics in favour of family benefits. We are seeing something that will attack the very principle of women’s entitlement. It will essentially punish mothers if their husbands earn above the higher tax threshold; the mums will suffer because of the father’s income. As an aside, let us not assume that in the 21st century income is shared by all families; there are still families where the father keeps more than he gives to the mother and the children. That is not just about poverty, either; it happens at other income levels, too.

The measure is also a snub to those mothers who, as I said earlier, choose to stay at home to look after their own children. We need more choices—about whether people go to work and use child care or stay at home to look after their own children. What message are we sending out to those mothers who want to care for their children in that way?

The measure also introduces, as we know, the unfairness between the dual-earner family on £80,000, who keep the child benefit, and the family with one earner above the threshold, who lose it. The measure is a recipe for complexity, and it will disincentivise those who are just below the tax threshold to earn more money in the future.

This is a measure that needs to be rethought. It undermines family support, and it undermines our children. So much for the party of the family.

--- Later in debate ---

[Stephen Williams]

I thank the hon. Gentleman for his point. Yes, I certainly did address many student audiences during the election in Bristol West, and I made it quite clear that in an ideal world, and in ideal financial circumstances, the Liberal Democrats would have wished to abolish tuition fees from the outset. Financial circumstances did not allow us to do so, however, and that is why we had a phased plan. I spoke at the launch of the National Union of Students pledge on working with the Government for a fairer system of student finance, and I am still working with the Government and the NUS to produce such a fair system. If the Government come forward with a fair system, I will support them; if they do not, I will not.

We know that Labour planned to make billions of pounds’ worth of cuts whatever happened after the election; it has been confirmed in many memoirs. But Labour Members have since been in deficit denial. They have been in denial about the need to tackle the deficit itself, and, as today’s debate has shown, they have not been able to give us a single Government measure that they would support, or to put forward an alternative themselves. The coalition Government are taking the necessary steps to restore order and stability to our public finances. That will restore confidence among British businesses and confidence among countries abroad that Britain is serious about tackling its desperate situation. Confidence and low interest rates are the bedrock for ensuring that our businesses can grow.

[Mr Umunna]

Will the hon. Gentleman acknowledge that there is not a difference in views on the need to deal with the deficit per se but that the issue is rather the speed and the depth with which we do that? Labour Members think that we need to go for a different time scale of deficit reduction as compared with his party—or at least his party post-May of this year. Will he at least acknowledge that there is a view on deficit reduction among Labour Members, but that it may not be the same as his party’s?

[Stephen Williams]

The hon. Gentleman is a thoughtful man who now sits on the Treasury Committee. Perhaps he thinks that this is a serious issue that needs to be tackled, but many of his hon. Friends seem to be in deficit denial. We have not heard thus far in the debate—although there are many hours to go—a single idea from the Opposition on how they would tackle the deficit, whether it is over four years or five years, which is a point of debate.

--- Later in debate ---

[Mr Chuka Umunna (Streatham) (Lab)]

Although she is not in her place, I wish to associate myself with the comments, particularly those on welfare reform, made by my right hon. Friend the Member for Lewisham, Deptford (Joan Ruddock), who is also a south London MP. Her comments apply equally to my constituency as they do to hers.

I wish to say a little about the banking sector in the context of this comprehensive spending review, because it has not been addressed in great detail during this debate. During his speech to the CBI on Monday, the Business Secretary said that

“the British economy, two years ago, suffered the economic equivalent of a heart attack with the near collapse of the banking system. Death was averted by speedy intervention to shore up the banking system to prevent an economic slump.”

Although he has tended to peddle some of the myths we have heard in the Chamber today, at least there he acknowledged that the previous Government stepped in to prevent the recession caused by the financial sector from turning into a depression. For me, the real question is what contribution the Government are expecting the banking sector to make to clear up the mess it created.

In his emergency Budget statement, the Chancellor said:

“The failures of the banks imposed a huge cost on the rest of society, so I believe that it is fair and right that in future banks should make a more appropriate contribution, reflecting the many risks that they generate.”—[Official Report, 22 June 2010; Vol. 512, c. 175.]

What was promised in that emergency Budget? First, the Government said that they would set up the Independent Commission on Banking. Secondly, they said that they would take action to tackle unacceptable bank bonuses, referring to the consultation that they would start on the remuneration disclosure scheme and talking about imposing more restrictions on remuneration arrangements for those working in the City. Of course, the centrepiece of the action that the Government said they were going to take on the banks was the banking levy.

So what did we see in the comprehensive spending review? Credit is due in respect of the Independent Commission on Banking. I, for one, am pleased to have seen that set up and its terms of reference are good. Beyond that, there are many questions to be asked about what the Government are doing to ensure that the financial services sector makes its fair contribution. We are constantly told that we will be consulted on the remuneration disclosure scheme in due course. I believe that the Financial Secretary to the Treasury, who is no longer in his place, said that that would take place shortly. However, at the moment it is nowhere to be seen. There is a real risk that if we do not see this in the remuneration disclosure scheme, which would require the banks to exercise more transparency in their remuneration arrangements, things will not be implemented in time for the forthcoming bonus round, which is about to start in December.

We have not seen much movement on the measures to tackle irresponsible bank bonuses either. We have seen movement on this in Europe, but not on the domestic front. As has been said in the Chamber today, the banking levy is to bring in about £2.5 billion of revenue, and the Government are fond of saying that that is higher in net terms than the previous Government’s payroll tax. That is completely disingenuous, because I tabled a parliamentary question during the summer on the likely income from the banking levy and was told by the Treasury that it would raise £1.15 billion in 2011-12, rather than £2.5 billion. I was told that £2.32 billion was to be raised in 2013-14, not £2.5 billion. The income would finally reach £2.5 billion in 2013-14 before falling back again to £2.4 billion in 2014-15. So in 2014-15 the banks would be paying less than the amount that families will lose in child benefit.

What we were also not told in the CSR was that, under the paper issued by the Government, the day after, the banks will have a tax-free allowance—a levy-free allowance—of £20 billion, so they will not pay the banking levy on the first £20 billion of taxable liabilities. This is not a levy; it is a walk in the park for the financial services sector. The five biggest UK banks have already announced well over £15 billion of profits this year, so I ask the Government to spell out how those whom they said they would make pay for the crisis they caused are to be required to make a fair contribution, because we do not see it in the Green Book this week.

Proposed Public Expenditure Cuts

Chuka Umunna Excerpts

Monday 13th September 2010 Commons Chamber

[Mr Osborne]

I do not think that strike action would help anyone at this point in time. Again, the people who suffer most when countries lose control of their public finances are often those working in the public sector, so I would hope that the trade unions, like everyone else in our society, will work together to sort out this national problem—and do so in the national interest.

[Mr Chuka Umunna (Streatham) (Lab)]

The Chancellor’s emergency Budget was criticised for adversely impacting on certain groups, not least women—indeed, it is subject to litigation in the courts at the moment by the Fawcett Society. With particular regard to the extra £4 billion of cuts announced by the Chancellor to the BBC last week, has he carried out an equality impact assessment of the effects of that measure?

[Mr Osborne]

Of course, as we prepare the comprehensive spending review, we will comply with the legislation on the statute book.

Finance Bill

Chuka Umunna Excerpts

Tuesday 20th July 2010 Commons Chamber

[Mr Chuka Umunna (Streatham) (Lab)]

The measures in the Bill and the emergency Budget in general have been called many things. The Chancellor has described them as “tough but fair”, the Prime Minister has described them as “open” and “responsible” and the Exchequer Secretary, who is no longer in his place, has referred to the comments of the Chief Secretary on the Bill’s Second Reading. The four characteristics that the Chief Secretary chose to attribute to the Bill and the emergency Budget were “fair”, “business-friendly”, “responsible” and “unavoidable”. I shall address each of those in turn and relatively quickly as I understand that others wish to speak.

First, however, I want to consider the premise on which the Bill is being marketed to us. According to the coalition, the Bill addresses the need to reduce the deficit that was caused by profligacy of the previous Government. In Committee, the right hon. Member for Wokingham (Mr Redwood) said that “we are where we are because of the utter mess bequeathed to us by Labour in the last Government”. It seems that reference to this supposed mess has become mandatory in all interventions by Cabinet Ministers and Members on the Government side for the duration of the Bill’s passage through the House.

In the coalition’s view, the credit crunch is but a minor detail when studying the public sector debt: the liquidity crisis that took hold of financial markets from August 2007 is just a blip; central banks having to step in to provide extra liquidity from there on is a minor detail; and the collapse of Lehman Brothers in September 2008 is insignificant. In adopting that stance, they utterly fail, as my right hon. Friend the Member for Birmingham, Hodge Hill (Mr Byrne) has pointed out, to acknowledge the huge role that the international banking crisis played in relation to the state of the public finances and our economy at large.

[Jacob Rees-Mogg]

Will the hon. Gentleman give way?

[Mr Umunna]

I wish to make a bit of progress, but I might give way in a bit.

I wish to acknowledge that the Conservative side of the happy couple that is our coalition is at least consistent in its approach. The Conservatives fail to acknowledge the gravity of the financial crisis and its effect on our economy now and they failed to acknowledge the gravity of the crisis back in the autumn of 2008 when the Labour Government and others around the world took decisive action to save the financial services sector from itself and to protect the deposits of our constituents. The current Prime Minister and his Chancellor were then advocating the complete opposite—a do-nothing approach.

Let us be clear. Whatever those on the Government Benches say, no serious economist currently claims that the deficit can be disassociated from the global credit crunch I have just described. The credit crunch led the last Government to spend billions to prop up the financial services sector and to support our economy in the face of a global economic downturn that caused tax receipts to plummet and benefit payments to increase.

[Gavin Williamson (South Staffordshire) (Con)]

Will the hon. Gentleman give way?

[Mr Umunna]

No I will not; I will make some progress first, and I will give way in a bit.

What we are witnessing now is a gross and distorted rewriting of history and repainting of the picture to justify the imposition of a Finance Bill and Budget that are less about economics and all about politics.

On 23 June, in an insightful piece in the Conservative house journal, The Spectator, its political editor described the Chancellor’s Budget thus:

“The mission, as Mr Osborne sees it, is to shrink the public sector and grow the private sector—the classic goal of the modern British centre-right.”

That is what the measures in the Bill and the emergency Budget are all about.

Let us address the Chief Secretary to the Treasury’s claims that the Bill is fair. He said:

“This is a Budget that protects the most vulnerable, especially children in poverty and pensioners, while ensuring that those with the broadest shoulders take the greatest share of the burden.”—[Official Report, 6 July 2010; Vol. 513, c. 203.]

Just a few weeks ago, a Liberal Democrat leaflet was pushed through thousands of letterboxes in my constituency under the headline, “Clegg delivers on promises”, proclaiming that the Government are reducing the deficit in as fair a way as possible. It made a series of claims in relation to the Bill and the emergency Budget. First, it claimed that there will be “more money for schools”. We have seen now how accurate that claim was: consider the Building Schools for the Future debacle that we have witnessed over the past few weeks.

Secondly, the leaflet claimed that

“tax credits for needy households”

will be

“saved”,

yet the emergency Budget, in fact, freezes child benefit, thus producing a real-terms cut for more than 14,000 in my constituency who receive the payment. Thirdly, it claimed that the emergency Budget included

“a tax cut for low and middle income families by raising tax allowances”.

That neglects to mention that the increased allowances are completely outweighed by the panoply of regressive measures in the Budget—most notably, the unfair VAT rise that will be introduced under clause 3.

During the general election campaign, my Liberal Democrat counterpart and I spoke at an international Save the Children event in my constituency and we both talked of the need to reduce child poverty. Save the Children is running an excellent campaign in opposition to the VAT hike—a hike that the Liberal Democrats now sanction. I note that there is but one Liberal Democrat Member, I think, in the Chamber at present.

[Andrew George]

Three.

[Mr Umunna]

Okay; three.

The charity said:

“A 20% VAT rate means that the poorest parents will see their VAT bill rise to at least £1,600 a year—affecting already overstretched budgets—and driving some into the arms of loan sharks”,

as my hon. Friend the Member for Wakefield (Mary Creagh) has just mentioned.

The fourth and final claim in the Liberal Democrat leaflet is that they stopped

“Tory plans for a huge Inheritance Tax give-away for the wealthy.”

Even if we accept that claim—I do not—the omission of that giveaway from the Bill pales in comparison with the appallingly regressive overall impact of the Budget, which the Institute for Fiscal Studies and others have looked into. It has calculated that the total effect of the tax rises and spending cuts will cost the average family in the top income decile £1,135 a year. It will cost the average family in the bottom income decile £1,344—£209 more in real terms. The poorest will be 20.5% worse off, and the richest will be 1.6% worse off. So when it comes to social justice, the Government have absolutely nothing to boast about.

The suggestion made in the leaflet that those who are on low incomes should rejoice at the fairness of a Budget that places a larger real-terms burden on the poorest than the richest is an utter disgrace. What is even more disgraceful is the fact that the measures in the Bill and the emergency Budget were a choice. Whatever rewriting of history the coalition indulges in, it cannot distract us from a simple fact: the coalition Government have actively chosen to do this to my community.

[Gavin Williamson]

Does the hon. Gentleman not feel that the last Labour Government had any responsibility for the economic situation that we find ourselves in and that the uncontrolled borrowing had an impact and led to the decisions that are encompassed by the Bill?

[Mr Umunna]

I will turn to those exact points in the rest of my speech if the hon. Gentleman will wait.

Let me address the claim that the Bill will, as the Chief Secretary said, help

“businesses that we rely on to rebuild our broken economy”.—[Official Report, 28 June 2010; Vol. 512, c. 674.]

The signs are that those businesses, along with leading economic experts, do not share his optimism. A recent survey of the service sector by the Chartered Institute of Purchasing and Supply showed that confidence in the sector has been dented by the austerity measures announced in the Budget, of which, of course, the Bill is a part. The survey registered a fall in confidence between May and June this year that was the most significant drop since records began 14 years ago. Since the First Reading of the Bill, the International Monetary Fund has updated its 2011 growth forecasts, downgrading that of the UK by 0.4% on its April figures—the largest drop in the forecast of any major economy over that period. The BDO business optimism index, which measures business confidence, saw its sharpest fall since 1995 between May and June this year, and who can blame those involved?

[Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)]

I should like to echo my hon. Friend’s words, especially given that the Government will reduce annual investment allowances by £75,000 under the Bill, which determines that a monetarist miracle will be export-led. Given that on emergency Budget day, the Engineering Employers Federation, which represents manufacturers, said:

“Reducing the corporation tax rate over time…might be a positive signal for large companies, but not for their suppliers”,

how will that meet export-led targets that are predicted, yet not witnessed since 1945, especially when the majority of nations’ economies are contracting?

[Mr Umunna]

Of course, I agree with my hon. Friend. In addition, behind closed doors, some people in the Treasury share the pessimism about the state of our economy, with a leaked Treasury document showing an expected unemployment increase of 1.3 million over the next five years owing to the coalition Government’s economic policies. As well as the colossal human cost of those job losses, that will exacerbate the deficit by significantly increasing unemployment benefit payments, as I mentioned before, and cutting income tax and national insurance receipts significantly, but let me go on to the next point, as I wish to make some progress.

According to the Chief Secretary, the Bill will help to reduce the deficit and take action to eliminate the structural deficit, which is, of course, an obsession of the Government. We have already seen that their determination to do that could lead to the biggest cuts in Government spending that we have seen for many decades, but let us linger a little on the claim that the Bill is “responsible”. I have already explained how the coalition has sought to conflate public finances before the financial crash with the measures taken to mitigate the crash’s impact on hard-working ordinary people, but it is crucial that we establish what is “responsible” and what is not. The facts tell a very different story from that told by the coalition Government.

When Labour came to power, as the shadow Chief Secretary has said, public sector net debt was 42.5% of GDP. On the eve of the financial crisis, it was 36.5%, and interest payments had fallen from 3% to 1.6% of national income. A recent report by the IFS found that,

“the UK public finances were in better shape when the financial crisis began than they were when Labour came to power.”

By contrast, Germany’s indebtedness amounted to 65% of national income in 2007. In France, the figure was 63.8%; in Italy, 103.5%; and Japan ran consistent deficits, with the result that it owed 167.6% of national income by 2007. In short, the UK Government’s borrowing at that time was not of the order suggested by the Conservative party and certainly did not by any stretch of the imagination cause the economic crisis that followed.

That crisis, of course, caused the world economy to contract for the first time since the second world war. As I said, that called for decisive fiscal expansion—for billions to be injected into failing banks and into a flagging economy. How lucky we were that the then Government intervened. I for one refuse to apologise to Government Members for the bold action that the Labour party took to keep people in work, to ensure that they could still take money out of the ATM cash machines in the wall and to prevent the recession from mushrooming into a catastrophic depression.

Let it be said loud and clear that responsibility was what the previous Government did, but irresponsibility is pinning the blame for the size of the public sector debt on the previous Government and using that as a reason to hack off chunks of the public sector through spending cuts. Will Hutton, whom the Government have just appointed to head up their commission on high pay in the public sector, hit the nail on the head when he wrote in October that it was not the Labour Government

“that got us into this mess…What got us into this mess above all was the 30-year rise of Big Finance”.

However, the same people who insist that the previous Government got us into this mess propose in the Bill a corporation tax cut that will gift millions to big finance—that is what I call irresponsible.

Let me finish by examining the claim around which much of the Budget debate has revolved: that this was an “unavoidable” Budget, thus making the Finance Bill unavoidable, too. The two parties in government have made a set of choices that, I dare to venture, predate the economic crisis by a number of years. The game plan on which the Budget was based was disclosed long ago in the 2005 Conservative manifesto, the author of which happens to be the new occupant of No. 10 Downing street. The Conservatives pledged in their manifesto to slash 250,000 public sector jobs and to abolish 168 public bodies. Back then, Howard Flight, the party’s deputy chairman, was secretly recorded saying that the cuts publicly advocated by his party were a fraction of those planned. He said that the actual plans had been recalibrated into something that would be “politically acceptable” and that his party

“had to win an election first”,

but that afterwards

“you can actually get on with what needs to be done.”

We therefore cannot say that we were not warned, although people’s surprise that the Conservatives have been joined in their venture by the Liberal Democrats is wholly understandable.

Given all the shifting political sands and hidden agendas, the game of choices necessitates an eagle eye, because what stands out from the Bill and the Government’s general economic policies is not just the unfair VAT rise and the corporation tax gift to the City, as well as the disingenuous rhetoric with which they are presented, but what is absent from the Budget and the Finance Bill. Where, for example, is the plan to make the financial services sector bear its fair share of the burden? The Wall Street Journal said that the City should

“count itself lucky with the coalition government's emergency budget”.

Of course, the Government will introduce a bank levy that is forecast to raise about £2 billion, but that is a pin-prick when one considers the vast profits made in the sector. Even the IMF has proposed that the levy should raise £6 billion a year if we are properly to curb the “reckless behaviour” of the people in the industry. That additional £4 billion a year could—

[Mr Deputy Speaker (Mr Nigel Evans)]

Order. The hon. Gentleman’s speech is going wider than the Finance Bill itself, so will he please direct his comments to the Bill?

[Mr Umunna]

I was actually reaching the end of my speech, Mr Deputy Speaker. The key point that I am trying to make is that there is an alternative: a deficit reduction strategy that is based on growth and fair tax rises, as opposed to the scorched earth policy being pursued by the two parties in government. The alternative is similar to the strategy that President Obama is pursuing in the US which, in vain, he is trying to persuade our Prime Minister to follow. The alternative is to go for a more sensible timetable for deficit reduction, because as Roger Bootle of Capital Economics said last week before the Treasury Committee,

“In straightforward economic terms, I am not sure it would make a great deal of difference if the adjustment were over a longer period.”

The alternative is to avoid the overwhelmingly avoidable measures presented in this Bill—not least the VAT rise—that ultimately hit the poorest hardest. I assert that the Bill is four things: avoidable, unfair, damaging to business and deeply irresponsible.

Budget Resolutions and Economic Situation

Chuka Umunna Excerpts

Thursday 24th June 2010 Commons Chamber

[Mr Chuka Umunna (Streatham) (Lab)]

I have listened with interest to the various speeches made today and I do not think anybody denies the need to reduce the deficit. Neither do I think that my fellow Labour Members think that the answers all lie with government, but the big decisions that we are taking at the moment are about judgment and the direction in which we think economic strategy should go.

I want to pose some questions on those issues, because it is clear, on any analysis, that this Budget is going to hit everybody. My own view, which is obviously not shared on the other side of the House, is that it will hit the poorest and most vulnerable people in society hardest. How can it not, given the figures that we are looking at? The IFS data for 2012-13 leave no doubt of the Budget’s regressive nature. They make it clear for all to see: indeed, the Financial Times said yesterday that

“the result of cuts in government services will be felt more on Nottingham's estates than by the Notting Hill set.”

There has been a lot of talk in the Chamber today about comparisons with the situations in Greece and Canada, but in my view they are false. I think that the most appropriate comparison in many respects is a domestic one, and it was touched on by the hon. Member for Cities of London and Westminster (Mr Field). He is no longer in his place but he made a very interesting speech, in which he compared the present situation with the approach adopted by Geoffrey Howe and Margaret Thatcher. In fact, the Culture Secretary has been talking up the appropriateness of making comparisons with the Thatcher Budget of 1981 and the general economic strategy of that Conservative Government.

There are differences—we are in a different time, and the economic circumstances are not the same—but what is being done with this Budget has strong parallels with what was done in the early 1980s. Geoffrey Howe raised VAT from 8% to 15% in 1979, following an election campaign in which he said that his party had absolutely no intention of hiking up the tax. Today, of course, the Chancellor has raised VAT from 17.5% to 20%, following an election campaign in which he—and his coalition partners in particular—said that they had no plans to increase VAT.

Geoffrey Howe slashed benefits in the 1980s: the 1981 Budget made sickness benefits and unemployment benefits taxable, and unemployment benefit for the over-60s was reduced. The Chancellor today has done similar things today: among many other things, he has cut child benefit and disability living allowance, and reduced tax credits for young parents earning just £15,000 each.

The reactions from the national commentariat are similar too. In 1981, 364 economists signed a letter to The Times warning that the Thatcher Government’s policies would deepen recession and threaten social and political stability. In April this year, 80 economists signed a letter to The Times warning that the current Tory Government’s approach would lead to job losses that would affect spending and confidence and tip us back into recession.

Surprisingly, Washington in some respects took a more cautious approach, then as now. In 1981, just after Geoffrey Howe’s Budget, President Reagan signed the Economic Recovery Tax Act to stimulate US consumption. This month, President Obama wrote to the Prime Minister and other G20 leaders to remind them of the dangers of withdrawing stimulus and engaging in fiscal consolidation too quickly.

What were the effects of the approach adopted by Geoffrey Howe in the 1980s? I can describe what they were in my constituency, in which I am proud to say that I have lived all my life. In April 1981 my mother was out shopping with my sister and me in the middle of Brixton when the riots broke out. I was too young—just two and half—to be able to remember what happened, but my mother remembers it well, and it was terrifying.

Soon after those riots, Lord Scarman was appointed to hold an inquiry into what caused them. It is well known that racism in the police at the time was a major factor, and the rioting was attributed to a loss of confidence in the police among significant sections of the population in my constituency and the other two constituencies in the Brixton area. However, although the report said that

“the social conditions in Brixton do not provide an excuse for disorder”

it added that

“the disorders cannot be fully understood unless they are seen in the context of complex political, social and economic factors”.

The report continued:

“There can be no doubt that”

unemployment

“was a major factor in the complex pattern of conditions which lies at the root of the disorders in Brixton and elsewhere. In a materialistic society, the relative deprivation it entails is keenly felt, and idleness gives time for resentment and envy to grow.”

With regard to the Tulse Hill estate—I have just come from that estate to the House today—it was pointed out that high unemployment, coupled with society’s emphasis on material acquisition, led to both material deprivation and a sense of hopelessness, particularly among the youth. Of course we know what happened after that: unemployment rocketed beyond the 3 million barrier and stayed there until 1987.

[Kwasi Kwarteng]

Is the hon. Gentleman seriously suggesting that riots on the scale witnessed in Brixton in 1981 will come as a result of the Budget?

[Mr Umunna]

No, I am not, but I am seeking to point out what happens when people take a cold, dispassionate and inhuman approach to economics and neglect to consider the consequences of their actions.

[Mr Tom Harris]

I rise in part to respond to the hon. Member for Spelthorne (Kwasi Kwarteng), because it was not my hon. Friend the Member for Streatham (Mr Umunna) who suggested that riots would return to the streets of Britain; it was the Deputy Prime Minister, who said just a few weeks before the general election that the scale of cuts foreseen at the time would result in civic society breaking down in this country. Is the hon. Gentleman suggesting that the Deputy Prime Minister is mistaken?

[Mr Umunna]

Silence.

There has been a lot of talk about IFS and Institute of Directors reports, various statistics, the extent to which we need to reduce the structural deficit and the extent to which it is cyclical—but we are talking about people’s lives, and I am deeply worried about what the approach adopted by the Government means for my constituents and those who live in similar areas. There was talk of contrived anger. My worry is not contrived; it is very real. As has been said, the Office for Budget Responsibility has revised up the unemployment forecast by 100,000 people. The Chartered Institute of Personnel and Development is saying that it is absolutely certain that unemployment will go beyond the 3 million barrier again.

I took the trouble to look into some of the cuts that Geoffrey Howe imposed on the country, and what worries me most is that they pale into insignificance compared with the cuts envisaged by the Government now. Howe cut spending by 4% between 1981 and 1984. The Chancellor is planning 25% cuts over four years.

[Matthew Hancock]

I thank the hon. Gentleman for giving way in his an extremely thoughtful speech. Does he not agree that we have to deal with these huge problems because of the structural deficit that we had going into the recession? Does he agree with this quotation:

“Public finances must be sustainable over the long term…If they are not, the poor, the elderly, and those on fixed incomes who depend most on public services will suffer most.”?—[Official Report, 2 July 1997; Vol. 315, c. 303.]

They are not my words but those of the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown).

[Mr Umunna]

First, the deficit pre-November 2008 was primarily in some respects caused by increased spending to which those who are now in the Conservative Government were then committed. Conservative Members are continuing to promote the view that somehow there was no global credit crunch, and that the bankers, many of whom they are very friendly with, had nothing to do with it—but the general public do not buy that.

Conservative Members will have to accept that, but the real question that I want answered—I note that a Minister is still here—is: what comfort can he give to the people who live in places such as the Tulse Hill estate in my constituency that they will not have to pay the price? What measures will he take to help them to get back into work? What will he do to give them extra training and experience? Why on earth is he cutting programmes such as the future jobs fund, which I have seen working in my constituency, helping to get people back into work? The Government say that the future jobs fund is ineffective and a waste of money, but they do not have figures on which to base that assertion. The Red Book makes no provision for funding any programme to get young people back into work or into training that will replace what the Government are abolishing.

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

Perhaps the hon. Gentleman will think back to the package of cuts that was announced last month. Some £500 million of the £6.2 billion of cuts was recycled into extra training and more apprenticeships; that is where this party’s commitment to growth comes from.

[Mr Umunna]

I am not going to say that I do not welcome things such as apprenticeships, because we need those programmes, but at the same time as the Government are putting in place 10,000 apprenticeships, they are slashing a programme that could place hundreds of thousands of people in work. I do not understand their approach; ultimately, my constituents want to know what is happening.

Financial Services Regulation

Chuka Umunna Excerpts

Wednesday 16th June 2010 Commons Chamber

[Mr Osborne]

Suddenly, the hon. Gentleman is interested in the regulation of Lehman Brothers, but there we go.

The risks were pretty clear. No arrangements were in place for winding up a large and complex financial firm. That was one concern. No arrangement was in place that would allow a global firm to avoid dying nationally in the way that it did. It was heavily exposed to, for example, the derivatives markets and other things. That had not been spotted either by the British regulator or, of course, the American regulator, which was in the lead. We need to investigate precisely that kind of issue, not just here in Britain, but across the world. That is being done in the international councils on which we sit. But surely, whether with Lehman Brothers, the Royal Bank of Scotland, HBOS or Northern Rock, we must learn the lesson of what went wrong. Again, I find it breathtaking that, at the beginning of the Parliament, the Labour party has set itself against changing the system of regulation. [Hon. Members: “No we haven’t.”] Labour Members may say that, but that is exactly what the shadow Chancellor did about 53 minutes ago.

[Mr Chuka Umunna (Streatham) (Lab)]

My understanding is that the credit rating agencies are not subject to any proper UK regulation at the moment and that some action is being taken at EU level in that regard. Does the Chancellor see any place in the new arrangements for UK regulation of the credit rating agencies, which, of course, bear a large responsibility for what happened in the sub-prime crisis?

[Mr Osborne]

The hon. Gentleman is right to draw attention to the role of the credit rating agencies. Of course, all sorts of organisations and products received triple A ratings that they should never have received. That triple A wrapper basically made them immune to investigation by the firms that were buying those products. Certainly, we need to improve the regulation in the domestic sense—here in Britain—but that is also the subject of decision at a European level, and the la Rosière proposals on European supervisory agencies will consider in particular the role and regulation of credit rating agencies.