Bankers’ Bonuses and the Banking Industry

Debate between David Mowat and Cathy Jamieson

Wednesday 25th February 2015 Commons Chamber

[Cathy Jamieson]

I want to finish my point. I have been very generous and time is moving on.

[David Mowat (Warrington South) (Con)]

Will the hon. Lady give way just on this point?

[Cathy Jamieson]

No, I am going to finish the point that I began.

Bonuses are a reward for exceptional performance in other industries, so that should be the case in the banking sector as well. However, despite the scandals that have emerged over the past year, most recently at HSBC, it looks as though this year’s round of bank bonuses will once again be very generous.

There needs to be more accountability in banking, and pay must be more closely aligned with long-term performance, so a Labour Government will embark on a serious and far-reaching programme of reform in the banking sector. We will reintroduce our successful tax on bankers’ bonuses, which generated over £3 billion in 2010, and act to ensure that this tax incorporates role-based pay or any other payments made by banks in an attempt to circumvent the EU bonus cap.

Taxation of Pensions Bill

Debate between David Mowat and Cathy Jamieson

Wednesday 3rd December 2014 Commons Chamber

[Cathy Jamieson]

My hon. Friend makes an important point. As I have said, we did have some of this debate in Committee. I know that the Minister, at various stages, has said that everything is under review and that all things are reviewed. What we seek to do is to put some structure around that so that all reports are brought back before the House.

I think I have made my point in previous Bill Committees and probably at the Dispatch Box as well. Even in my relatively short time in this place and on the Front Bench, I have seen Ministers come and go before my very eyes. I have no doubt that the Minister is concerned to ensure that he does the right thing and monitors what is happening, but it is important to have that commitment on behalf of the Government, which is why I have tabled the new clause.

New clause 2 would provide for a Treasury review of the Bill’s operation within 18 months of 6 April 2015. Such a review would include an analysis of its distributional impact by income decile, an analysis of the impact on Government revenues of changes to the taxation of pensions on death, a behavioural analysis and an analysis of the impact on the purchase of annuities. Any Bill that will have a significant impact on not only people’s lives, but the broader industry and the economy, must be based on evidence, engagement and analysis. We know from our probing in Committee why the Government announced the reforms without consultation, and the Minister explained his position on concerns about the impact on the market. However, it would be helpful to have some idea of whether the Government had carried out the behavioural analysis and impact assessment that we are requesting, and indeed of not only the extent to which that had been done, but what information they could set out. Those points have also been pursued by my hon. Friend the Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont), who worked tirelessly on the Pension Schemes Bill. That Bill includes provisions on the guidance guarantee, which is crucial to the Bill.

[David Mowat (Warrington South) (Con)]

Surely the purpose of such a review would be to drive action. We have an expectation of the Bill’s effect on the annuities market, so will the hon. Lady tell us how the results of the annuities aspect of her proposed review would affect a future Government’s actions? Does she think that it would make any difference to Government policy if there was a 10% or a 90% change in the purchase of annuities, because it seems to me that it would not?

[Cathy Jamieson]

The purpose of the monitoring is to determine whether the Bill has unintended consequences. We would want the process to deal with our concerns of whether the market responds to the changes and if the products that people have envisaged will be available. There is the oft-quoted example of what happened in Australia: people drew down money, but many found that they had not properly planned for the future.

The hon. Gentleman asks what the Government would do, but I think that the Government have a responsibility to keep all legislation under review by looking at its effects and examining whether measures are fit for purpose and if they do what they say on the tin. If changes need to be made, the Government of the day will bring forward appropriate provisions. They have a responsibility to make themselves aware of any unintended consequences that might arise from the Bill and they should tell us how they will close any loopholes.

--- Later in debate ---

[David Mowat]

Surely we know the answer to the question prompted by new clause 2(2)(e), more or less; it is that dramatically fewer annuities will be purchased. Okay, a review might show that the figure is 12% as opposed to 90%, but what action would be taken pursuant to that answer?

[Cathy Jamieson]

It is a bit chicken-and-egg: until we do the analysis, we do not really know the extent of the problem. The solution would come once the problems were identified. The hon. Gentleman makes an important point about annuities; that takes me back to the issue that I raised about the opportunity for new products. There is a relatively short period of time in which to develop them. The industry, of course, says that it will try to meet the “challenges”—it consistently uses that word—and ensure that there are options and products. None the less, I find it difficult to understand why the Government seem resistant to the new clauses.

I think it was Ernest Hemingway who said that his novels were like icebergs:

“There is seven-eighths of it under water for every part that shows.”

Sometimes the same can be said of legislation, because the devil is in the detail. One has to see the detail, and be on top of it over a period, to find out what the ongoing impact is. That is why, throughout the passage of the Bill, we have tried to identify and probe any fault-lines on the surface of the legislation.

The guidance guarantee has been the subject of considerable debate, although it essentially formed part of the Pension Schemes Bill. Although we have now seen information on the overarching standards and the apportioning of the levy, published on Friday by the Financial Conduct Authority, we have yet to see all the content of that guarantee. Of course, that is the responsibility of the Government, in tandem with delivery partners. It is vital that the guidance is up and running, and is equal to consumer needs, come April next year. The FCA policy statement published on Friday confirmed that, at least initially, there will be no “second line of defence”, as it was described, which makes it even more important that the guidance is fit for purpose.

In the Public Bill Committee, I talked about the potential impact of the reforms on eligibility for social care. We identified two separate but related points on social care that we believe the Government have not yet adequately addressed. The first is the impact that drawing down money under flexi-access may have on an individual’s entitlement to means-tested benefits and eligibility for social care. The second is a point that I raised earlier: the danger that too much emphasis has been placed on early access to funds. That may result in people taking too much, too quickly, and being left with insufficient funds to cover the cost of care later in life. That is why our review calls for a distributional impact of the reforms by income decile. That is also why we need behavioural analysis. Signs may emerge that consumers are accessing their pensions earlier, which increases the chance that they may be left short of money in later life.

As we heard in Committee, many individuals who access their pension flexibly risk being hit with an unexpected tax bill—a point that the Association of British Insurers highlighted:

“Many people will struggle to understand the tax consequences of these reforms. Apart from tax free lump sums, withdrawals from pension pots are taxable pension income…Not only may people find themselves unexpectedly paying higher rate tax, it is possible that some will be unaware that their tax may not be settled for a year after they have accessed their funds through a self-assessment process that they may be unfamiliar with.”

These risks have to be monitored and reviewed, so that any unintended consequences can be picked up and dealt with.

We also need to see—this comes back to the point raised earlier—whether the Bill results in a proliferation of new products. The impact of such products on consumer behaviour should be monitored. In its 2014 risk outlook the Financial Conduct Authority expressed concern that

“retirement income products and distribution may deliver poor customer outcomes”.

It said:

“While recent proposals for pension reform plan to allow consumers to access any amount of their pension pot at age 55, the need for consumers to understand the options available to them at retirement is still paramount. Any future innovation in decumulation products will compound these risks.”

The FCA was, again, trying to look to the future. We share those concerns. We do not want poor outcomes for consumers, and I am sure the Minister does not want that either.

A further issue is that new products may carry additional charges that eat away at an individual’s pension. Research from the House of Commons Library found that current income drawdown products could see 27% of an average pension pot of £30,000 eaten up in fees and charges. If the reforms lead to continued abuse of charges, the Government may have to consider the introduction of a charge cap.

The changes made in schedule 2 abolish the 55% tax on pension funds on the death of the member. We can see the Government’s reasons for doing this, but it would be worth monitoring the impact on consumer behaviour and Government revenue.

I said that I wanted to ask the Minister some particular questions in relation to the autumn statement and the figures that had been published. Throughout the Committee stage, when we were pressing for information and numbers, the Minister said that those would be published in due course. True to his word, that information is now available to us. What effect will the revisions have on the initial costings of the impact of these reforms? Has he had cause to reconsider the impact of the reforms? Can he explain why the tax take increases because of the annual allowance in 2015-16, but falls in subsequent years? What is the basis for those figures?

Can the Minister give us any more detail about the costing of the salary sacrifice and welfare forecast provisions? The numbers are there, but we do not have further information in the autumn statement policy costing document. In comparison to some of the figures provided in Committee, the estimates still seem low. Given that the Minister has revised his forecast to take into account salary sacrifice and welfare at such short notice that it is not included in the autumn statement documents, had the Government fully considered those factors when they initially drew up these reforms, or did they only later recognise the significance of those factors?

We have asked for a review, as set out in new clause 1, to show whether the Bill increases the scope for tax avoidance and the avoidance of national insurance contributions. In the light of the figures that have been published, is the Minister confident that all his projections will prove to be accurate?

I have had a fair opportunity to set out the case for new clauses 1 and 2, which will allow the Minister to keep his word and monitor, review and report information as appropriate. It is important that the clauses are added to the Bill to ensure that that happens. We need to keep a close watch on the progress of the reforms to make sure that they do not lead to adverse outcomes for consumers or place increased costs on the state. The Government have consistently assured us that they will closely monitor the impact of the Bill, so we see no reason why, even at this late stage, they cannot commit to make good on that assurance and accept the new clauses.

Office for Budget Responsibility (Manifesto Audits)

Debate between David Mowat and Cathy Jamieson

Wednesday 25th June 2014 Commons Chamber

[Cathy Jamieson]

The IFS’s role is slightly different from the one that has been proposed. This is about scrutinising and certifying the policies and plans for government. One hon. Member mentioned the difference between costings and audit. We are saying that the costings should be looked at. That role is slightly different from the one that the IFS fulfils.

We are confident that our policies will stand up to that scrutiny. We are confident enough to say that we want the OBR to run the rule over all the spending commitments in our manifesto. As Members have rightly said, we recognise the need to restore trust in politics. The public want assurances that our policies add up. They want the OBR, having done the work, to be in a position to give them the quality assurance that they seek. We strongly believe that the other major parties should be prepared to do the same thing. That will enable the electorate to make an informed decision based on facts. That is important.

[David Mowat]

Will the hon. Lady give way?

[Cathy Jamieson]

I am very short of time, unfortunately.

It is important to recognise that a number of people—Members have referred to this—have shown support in principle. The Government’s argument is twofold. First, they want to preserve the independence of the OBR. My hon. Friends have advanced a number of arguments as to why the Government seem to be the only people at this stage who are bringing party politics into the debate on the OBR. It is not Members on the Opposition Benches who are doing so. Secondly, it is important to recognise that the Government’s other objection is that there is insufficient time. However, we have the information and discussions have taken place with the head of the OBR. If we do not make a decision quickly and put measures in place, we will run out of time, but there is still a window of opportunity.

I hope that when he sums up the Minister will be able to answer some of the questions that the Financial Secretary to the Treasury was unable to answer earlier. What discussions have Ministers had with the OBR since the plans were first mooted? Our integrity, why we are making the proposal and what we have done about it has been questioned, but it is also the responsibility of Government to take these matters forward. I hope that the Minister will be able to give us information on that.

As far back as 2010, the Chancellor himself said that this was a

“legitimate matter for the House to debate and decide.”“—[Official Report, 12 October 2010; Vol. 516, c. 142.]

It is unfortunate not only that in the intervening years he has not seen fit to address the issue, but that he has not seen fit to turn up today to give us any more information. That leaves Opposition Members with no option but to draw the conclusion that the only reason why the Government do not adopt a consensual approach today and embrace the opportunity to take this proposal forward is that they have no wish to do this whatsoever, and I am sure the public watching will also draw that conclusion. The public will then also draw the inference that those of us on the Opposition Benches draw: that the Government do not wish to have their policies put under the same scrutiny as we are prepared to have our policies put under.

Finance (No. 2) Bill

Debate between David Mowat and Cathy Jamieson

Wednesday 9th April 2014 Commons Chamber

[David Mowat (Warrington South) (Con)]

There is a perfectly good case to be made for reducing the difference between high and low salaries, and the hon. Lady is making it. What I do not understand about Labour’s policy is that it seems to be concerned with variable pay but not with fixed pay. Labour Members appear to be quite sanguine about a pay level of £2 million a year, but not about a pay level that consists of a £1 million basic salary and a £1 million bonus. That strikes me as rather odd.

[Cathy Jamieson]

I think that a separate debate could be had about pay levels overall, but for the purposes of the debate on new clause 5, we are focusing specifically on the question of bonus payments. It has been argued that if we follow this line the banks will find an increasing number of ways of paying bonuses, such as deferring them, and we have not said that is necessarily a bad thing. However, for the purpose of longer-term economic stability, it is surely better for people not to be rewarded for failure, but to be held to account over a longer period.

[David Mowat]

Of course that is right, but if we are trying to reward people for success, it seems logical to assume that variable pay provides a better and more valuable way of doing that than very high fixed pay. I do not understand why the Labour party is so relaxed about very high fixed pay but wishes to tax variable pay, which can be associated—I agree that this is not always the case—with success or failure.