Finance (No. 3) Bill

Frank Dobson Excerpts

Tuesday 5th July 2011 Commons Chamber

[Chris Leslie]

We discussed in Committee how the bank levy might be altered, and I will come in a moment to my own criticisms of how the Government have framed the bank levy. Their original plans would have brought in far more revenue, but the banks started complaining so the levy was shrunk back to a level that the banks felt was acceptable, not to a level the taxpayer felt was acceptable.

[Frank Dobson (Holborn and St Pancras) (Lab)]

Will my hon. Friend confirm that in order to pay for the corporation tax reduction, which has greatly benefited the banks, the Government withdrew quite a bit of the special funding that had previously been provided for investment in industrial activity? So much for their claim to be promoting British manufacturing! In fact, their taxation policies continue to over-promote the banks.

[Chris Leslie]

Indeed, they have imposed stealth tax after stealth tax on ordinary working people and small—and larger—businesses in this country. For some reason—we know not why—they have sought to give help and support to the banks at a time when they ought to be paying their fair share.

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[Stephen Williams (Bristol West) (LD)]

I thank the hon. Gentleman for giving way three times on the same point. My recollection of the Committee stage upstairs was that he and his colleagues did not oppose the Government’s reduction in corporation tax and actually thought it a good thing. Perhaps he will recall that the reason the bank levy was increased was to take account of the fact that some banks might benefit from that reduction.

[Frank Dobson]

They “might” benefit?

[Chris Leslie]

I agree with my right hon. Friend—they definitely will benefit from the reduction. I am not sure that the counteracting change—the tweak to the bank levy—goes far enough to counteract that corporation tax change. There are ways in which the bank levy could be amended further, but in general we support the principle; it is the design and the level at which it is set that we object to.

Amendment 31, tabled by my hon. Friend the Member for Hayes and Harlington (John McDonnell), relates to a financial transaction tax, for which a strong and impressive case can be made. Many of us, on both sides of the House, will have received letters and e-mails from constituents through the Robin Hood Tax campaign, which many charities have advocated. I pay tribute to the technical work that they have done on that issue. What may well be very minor changes to transaction levies could, according to many of these designs, generate significant and useful resources. Clearly, though, we need a design that does not jeopardise the rejuvenation of a stable and well-balanced financial services sector, so we would need an honest assessment of the impact of such a tax.

I am appalled that the Government have for now ruled out a financial transaction tax. It should not only stay on the table, but be actively examined and reviewed. Government Members might say that they are pursuing a financial activities tax—a slight variant in this policy area—instead, but the Chancellor, having talked about that last June, has made absolutely no progress with international jurisdictions in advocating or gaining support for it. We see no action by Ministers on what were ultimately G20 discussions about a financial transaction tax. We have not seen them explore either that possibility or a financial activities tax. The only qualm I have with my hon. Friend’s amendment is whether it stresses sufficiently the need for international agreement and discussion. Nevertheless, it is certainly something that, in broad terms, we think needs to stay on the table to be examined further.

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[Chris Leslie]

I cannot answer for the motivations of Ministers. It is difficult to know what motivates them. Is this a question of omissions? Is it incompetence? Is there some other devious motivation, or malice for those who might benefit from the proceeds of these revenues? We do not know, but we look forward to hearing the Minister’s justification for failing to get transparency and failing to repeat the bonus levy.

Recent figures suggest that some of the largest investment banks are actually increasing the slice of their revenues that they pay to their staff. The ratio between remuneration and revenues is known as the compensation ratio, and it is interesting to note from the detailed figures that even the Royal Bank of Scotland’s global banking and markets division paid 34% of its net revenues in remuneration in the first nine months of 2010, compared with just 27% of net revenues in the full year of 2009. The amount of compensation, in the form of salaries and bonuses, is therefore going up as a proportion of revenues. That was also the case for J. P. Morgan, which paid 39% of its net revenues in the first nine months of 2010, compared with 33% in the full year of 2009. Barclays paid 43% of its net revenues compared with 38% over the same periods. Compensations are strong and still growing.

[Frank Dobson]

Does my hon. Friend agree that the Orwellian use of the term “compensation” in relation to working for a bank suggests an effort to increase public sympathy for some of the greediest and most stupid business people this country has ever seen?

[Chris Leslie]

It is very easy to find oneself tied into the lexicon used by the financial services sector. My right hon. Friend calls a spade a spade, and it is sometimes important to do just that.

The bonuses that I have described are really excessive. For example, we know from the limited disclosures that we have seen that John Varley, the former chief executive of Barclays, received a £2.2 million bonus in 2010 and that, between them, the top five earners at Barclays, excluding executive directors, received more than £38 million in salary and bonuses in 2010 alone. That amount was shared between five individuals. Bob Diamond, the chief executive of Barclays, has received £6.5 million in bonuses for 2010 since January. As many will know, Mr Diamond lost out in the bonanza compared to his two senior managers at Barclays, with Tom Kalaris receiving a cool £10.9 million in salary and bonuses, and the other top manager, Rich Ricci—my hon. Friends might remember his name—receiving a cool £10.6 million. Those two individuals earned enough money—£17 million—in 2010 to pay the wages of more than 500 qualified nurses.

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[Stephen Williams]

I thank the hon. Gentleman for his rather long intervention. As well as the Work programme and investment in apprenticeships, the Government have a growth strategy to develop the new jobs of the future—into which, incidentally, the future jobs fund was not necessarily placing people. For instance, there are many initiatives in the green economy, with the green deal that has come along as well, that will help the young unemployed. I mentioned the situation to emphasise that the problem is not new. The previous Government struggled hard with it as well, as I pointed out in the previous Parliament. I have been consistent in what I have said across both Administrations.

The purpose of amendment 13 is to reintroduce, or at least to examine the case for reintroducing, the bonus tax that the Labour Chancellor introduced in 2009. As I recall, the purpose of that bonus tax was not to raise revenue, but to change behaviour. It was an attempt to persuade the banks that they should not be introducing bonuses at that time, when many of them were dependent on state funds to continue in existence. I also recall that the anticipated proceeds of that bonus tax were about £500 million. In fact, as we have heard on many occasions, it raised in gross terms more than six times that amount, so it did not change behaviour at all. It seems that the Labour party in opposition has switched the underlying purpose of a bonus tax.

I share the moral outrage that many people feel about the level of bonuses being paid by some institutions. I am a free market liberal, so I believe it is up to a company to decide its own remuneration package and justify it to its shareholders, but in the current climate, when many families around the country are facing difficulty, some of the decisions taken by remuneration committees in the City cross the threshold at which it is right that some of us in this place express moral outrage at what they have been doing.

The culture of people paying huge amounts of money to themselves is not a new phenomenon in this Parliament. I remember Lord Mandelson, before he became the Trade Secretary in the previous Parliament, saying that new Labour was “intensely relaxed” about people becoming filthy rich. The hon. Member for Nottingham East looks faintly embarrassed at my reminding him of that phrase, but when the Labour party was in government it encouraged that culture. We should not let Opposition Members forget that.

[Frank Dobson]

I cannot help myself, in these very unusual circumstances, leaping to the defence of Lord Mandelson. If the hon. Gentleman had continued quoting from the sentence, Lord Mandelson went on to say “provided they pay their fair share of tax.”

[Stephen Williams]

I was not aware of the continuation of that quote. However—[Hon. Members: “Withdraw!”] Rather than withdraw, I shall expand on my point and make it more strongly. The previous Government engendered the culture of get rich quick by slashing the rates of capital gains tax and making a virtue of cutting income tax and holding down higher rate taxation. Ironically, it is under the Conservative-Liberal Democrat coalition that capital gains tax has gone up and the 50p top tax rate has been levied in this Parliament.

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[Mr Robinson]

It is interesting—if not more than that—to follow the hon. Member for Bristol West (Stephen Williams), who calls himself a free-trade liberal, or words to that effect. He is a “good doer”, in other words, and he means that he is in favour of every good sentiment expressed in this House but believes that neither he nor any Government can do anything at all about this issue, other than consult the shareholders. If the shareholders—the electorate—were consulted at the moment, his party might not be as pleased with the idea as it seems to be.

Nothing can be done, it is said, and the hon. Gentleman, while agreeing with every sentiment, will not even vote for amendment 31, spoken to by my hon. Friend the Member for Hayes and Harlington (John McDonnell), who I think is going to press it to a vote if he can catch your eye, Mr Deputy Speaker. It calls for exactly what the hon. Member for Bristol West wants, and he would not have to listen to his new masters in the Treasury, because we would be able to have an independent inquiry.

I had the luck to study with Tobin at Yale university when he first advanced these ideas, and they generated a lot more attention and interest in those days, but if the hon. Gentleman is serious about his wishes, and about the good will that he bears towards every serious intent to put things right, including bankers’ bonuses—which we are discussing in relation to amendment 13, of which I am speaking in support—he should vote with us, and also for amendment 31, in the name of my hon. Friend the Member for Hayes and Harlington.

The strange thing about this debate is that before the election, and even during it, the current Financial Secretary to the Treasury and the current Chancellor spoke with great vehemence and passion about how offensive the whole banking culture was and how, once they were in office, they were going to get tough with the bankers.

As in other matters, however, the Chancellor talks a good talk but does not walk a good walk: one puff of wind from the Governor of the Bank of England and the Chancellor gives in on regulation. One meeting with the bankers and he says, “Okay, we’ll do Merlin, but meanwhile we’ll agree with you on the level of bonuses: I won’t tax your bonuses; we’ll go for a corporate bonus tax instead.”

Of course, we wholly endorse the effect of that tax and fully support the bank levy, but it has an impact on banks’ balance sheets, because as we are asking them to build themselves up, we are taxing them, quite rightly. We can achieve both, however, given the unusual and inexplicable profitability in the banking sector. The joy of what we would do, through amendment 13, is that we would tax the bankers—and so we should—but not impact on the business per se.

My hon. Friend the Member for Nottingham East (Chris Leslie), who introduced amendment 13, said that under this Government about £40 million had been paid in net remuneration—or it may be even gross, I am not sure—to the top five employees of Barclays bank. Some £40 million has been paid in bonuses alone. If anything is offensive, that is, and yet the Government refuse to do anything about it. What they should do is staring them in the face. We are not, in the amendment, asking them to agree with every single purpose to which we would dedicate the use of the funds. They may disagree with us on regional development or on the growth fund for new jobs; they can disagree on any number of items. However, surely no one in this House who is serious about tackling the bonus culture that has become so poisonous in the banking industry, and is spreading increasingly to the rest of the commercial and private sector, can disagree with the need to tackle those bonuses.

We heard the hon. Member for Bristol West speak for the Liberals, but it is interesting to note that there is not another Government Back Bencher anywhere in the House. When my hon. Friend the Member for Nottingham East spoke to the amendment, not a single Government Member, Liberal or Conservative, rose to oppose it. Not only have the Chancellor and his Financial Secretary caved in to the banks, but the whole coalition has fled the Chamber in fear and trembling of saying something that will offend the bankers. There is not one Member there—where have they all gone? What has happened? Are they, like the Chancellor and his Financial Secretary, afraid of offending the banks? I do not know; all I can see is that the serried ranks have fled and the Financial Secretary is left on his own to defend the indefensible—of which he is no doubt perfectly capable.

[Frank Dobson]

They’re collecting their bonuses.

[Mr Robinson]

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

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

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

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

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

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

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[Bill Esterson]

My hon. Friend is right: a virtuous circle is created by investment, and especially investment in construction. It is one of the most efficient ways of putting money into the economy, and there is clear evidence that in periods of recession and downturn the role of the public sector should be to put money into the economy until such time as the private sector is strong enough to take up the slack and create jobs and continue to grow the economy. I fear that stage of the economic cycle has not yet been reached, which is why we need measures such as a bankers’ bonus tax to enable money to come into the economy.

Those 25,000 affordable homes would only be a start, but it would be a very important start. We have a housing crisis in this country, and it will be made worse by the benefits cap the Government are introducing, as revealed by the evidence from the private secretary of the Secretary of State for Communities and Local Government that the cap could result in 40,000 families losing their homes. We certainly need activities such as those mentioned by my hon. Friend to make up for Government problems being caused by activities elsewhere.

I hope the Government will read carefully the two Labour amendments, and acknowledge that, as they merely call for a review and are very reasoned, they are worthy of support. I therefore hope that we will hear later that they accept both amendments.

[Frank Dobson]

I should begin by saying that I support the Robin Hood tax, and it therefore follows that I am opposed to the Sheriff of Nottingham, who in this context is the British banking industry. The sheriff was known for robbing the people and feathering his own nest, which is a characteristic of our banking industry. When the bankers start squealing and the City journalists start repeating their squeals and appearing on radio and television saying how terrible it would be to impose further taxation on the bankers, it is worth remembering the scale of the banking industry, and the scale of the damage the banking crisis did to this country.

It is estimated—I think this estimate is generally accepted—that the effect of the banking crisis on Britain has been to reduce our output of goods and services by more than £300 billion. In other words, had that recession caused by the bankers not taken place the country would be £300 billion better off than we are now, and, with a normal tax take, the Treasury would have been about £120 billion better off than now. In other words, a large slice of the famous deficit would have been wiped out, and a large slice of that deficit has been caused by the incompetence, stupidity and greed of the bankers.

When the bankers say they cannot afford to pay any more, it is worth looking at the sums Britain’s leading banks lost in the crisis while still managing to survive—and most of them survived only by being either taken over or backed up by the taxpayer. HSBC lost $27 billion in the crisis; Morgan Stanley lost $15.7 billion in the crisis; Royal Bank of Scotland lost $14 billion in the crisis; Barclays lost $7.6 billion in the crisis; HBOS lost $6.8 billion in the crisis; and Lloyds TSB lost $4.7 billion in the crisis. Yet all of them have paid bonuses to management who presided over those losses. In the case of Barclays, as I understand it even the shareholders have been doing rather badly and have been treated unfairly, because the Barclays leadership has been paying bonuses while the bank’s share value has been halved in the last 10 years. These are therefore undeserved bonuses not only from the point of view of the rest of us, but even from the point of view of the banks’ shareholders. There is a lot of scope for getting some money out of these banks because they are rolling in money, and we should spend it in ways such as those mentioned in amendment 13, tabled by my party’s Front-Bench team, and amendment 31, tabled by my hon. Friend the Member for Hayes and Harlington (John McDonnell).

To put matters in perspective, this year—a frugal, austere year in the City, we understand—City bonuses amounted to more than £6 billion, yet we are told that the Government may not be able to accept the Dilnot report recommendations because they would cost the taxpayer £2 billion. That means that the Dilnot recommendations, which would help all the people who look with fear to the future and to getting older, could be implemented at an annual cost of one third of the bonuses being paid in the City of London. If that does not demonstrate how ridiculous the remuneration in the City of London is, I cannot imagine what does.

As I said in an intervention on my Front-Bench colleague, my hon. Friend the Member for Nottingham East (Chris Leslie), these people in the City have now started to refer to their pay as “compensation”. They apparently need to be compensated to turn up at work, and apparently their normal compensation is not sufficiently high, so they have to get a bonus on top of that to compensate them for going to work and turning up at their office—and then, as we know from the crisis, losing money. It is about time these bankers started compensating the rest of us and doing what my hon. Friend the Member for Coventry North West (Mr Robinson) discussed: making more of the undeserved wealth splashing around in the banking industry available to those who are providing useful goods and services to people in this country and the rest of the world, and getting us to a fairer and better situation.

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The Government are willing to engage in further international discussions of such taxes. The French Government have announced that discussion of a financial transaction tax will be one of its priorities for its presidency of the G20 this year. Discussions have been taking place at a European level, and the European Commission is due to publish an impact assessment on further financial sector taxation, including transaction taxes, in the next few months. The House will be aware that, ahead of this, the Commission last week published its latest communication on the EU budget. This proposes that the EU budget could in future be part-funded through new taxes, including a financial transaction tax. I hope the House is also aware that this Government’s position is clear: we oppose any new EU taxes to fund the EU budget.

[Frank Dobson]

The Minister recently told me that the Government had made no assessment whatever of the money that might be raised by a transactions tax, as proposed by my hon. Friend the Member for Hayes and Harlington (John McDonnell)—a Robin Hood tax. If the Government have made no assessment of the money likely to be raised, how can they have meaningful discussions with international bodies about what the impact of the tax would be?

[Mr Hoban]

Significant studies have been done by both the EU and the IMF on such a tax, how it would work and the pitfalls in the proposals. We will see an impact assessment on that emerging shortly. We have not ruled out a financial activities tax. We are engaged in discussion with our international partners and we have pressed for the Commission to consider such a tax. It is working on that. We are making progress. Another review is not needed; there is sufficient work going on to explore the issue in significant detail. The amendment would impose more burdens on the Treasury and it would be better to allow that work to take its course.