Tax Avoidance (HSBC)

Frank Dobson Excerpts

Monday 23rd February 2015 Commons Chamber

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

Does the Chancellor agree that obtaining financial advantage by deception is a criminal offence even when carried out by bankers? Does he recognise that HSBC has 556 subsidiary companies in tax havens? We know what has happened with one of them, but when will there be an inquiry into the other 555?

[Mr Osborne]

Some very serious allegations have been made about HSBC Swiss and its role in knowingly advising people on tax evasion. Of course, our prosecuting authorities will want to look into the matter, but the House needs to know that the information that was received from the French authorities under the last Government—[Interruption.] This is important, and it is relevant to the right hon. Gentleman’s question. The information was received as the result of a negotiation with the French authorities about what use it could be put to, and the French agreement struck by the last Government said that we could use it only for prosecuting or pursuing individuals with regard to their tax affairs. We are currently in active discussion, which I think will come to a fruitful end, to get the French to allow us to pass some of that information to the Serious Fraud Office and other prosecuting authorities, to address the concern that he rightly raises about the potential or alleged role of banks in the affair.

Tax Avoidance

Frank Dobson Excerpts

Wednesday 11th February 2015 Commons Chamber

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

HSBC had a lot of customers in Switzerland with secret bank accounts, and it helped them and conspired with them to break British law. Even if HMRC does not want to do anything about it, it seems to me that this was obtaining financial advantage by deception, which is a general crime, not something that needs to be prosecuted by HMRC.

Why are the names of these self-confessed tax swindlers kept secret? The names of small businesses that get into trouble with HMRC—it is worth bearing in mind the fact that that organisation puts more companies in this country out of business than any other—are not kept secret, even if all that happened was that they could not keep up their tax payments: they have not been doing any fiddling or swindling, or breaking the law.

I want to move on to the much wider question of whether the HSBC subsidiary in Switzerland was the only offender. HSBC has 556 subsidiary companies located in tax havens. Why are they there? It might be because of the weather in some tax havens, but not in all of them. Was the Swiss racket a one-off? No answer. Barclays has 390 subsidiaries in tax havens and RBS has 406, while Lloyds, to be fair, has rather fewer with just 297.

[Mark Garnier]

Will the right hon. Gentleman give way?

[Frank Dobson]

No I will not, because other Members want to speak.

Between them, the big four banks have 1,649 subsidiaries located in tax havens. So far, we know about the wrongdoing of only one of them. When will the Government start to find out what the other 1,648 have been up to, and probably still are up to, in tax havens abroad? We know that all four big banks will have been involved in money laundering, sanctions busting, fiddling foreign exchanges and fiddling LIBOR, and some of that is facilitated by having subsidiaries in tax havens. Basically, subsidiaries in tax havens exist to help people and companies avoid paying tax. There is no other good reason for being located in a tax haven other than to save tax.

The fact is that nothing is being done. Many small businesses find it difficult to meet their tax obligations in this country. Firms in Norwich, Carlisle, Worcester or Gloucester that find it difficult to do so will be hounded by the Inland Revenue, but these big companies and big individual tax swindlers in tax havens will not. It is about time that there was a thoroughgoing inquiry into the whole thing.

[Ian Swales (Redcar) (LD)]

This whole area of tax ranks as another mess that the Government are having to clear up. We inherited a situation in which the Labour party had put into action the philosophy of its former Business Secretary in being

“intensely relaxed about people getting filthy rich”.

[Frank Dobson]

The hon. Gentleman should complete the quotation. I am not usually regarded as the greatest defender of Lord Mandelson, but the part-sentence he has just quoted was followed by the words “providing they pay their fair share of tax”.

[Ian Swales]

I accept that correction. On Labour’s watch, the rate of capital gains tax was 18%, and it had been as low as 10%, which especially benefited hedge funds; it is now up to 28%. There was pensions tax relief on up to £250,000 a year; the figure is now £40,000. The rate of VAT on their yachts, sports cars and Rolexes was 2.5% lower. There was lower stamp duty on property, and there was no duty on property bought and sold through corporate envelopes. The rate of income tax was 5% lower throughout the 13 years of the previous Government until 5 April 2010, the day before they left office. There was also tax avoidance on an industrial scale.

We have to be careful of our language, but it is worth saying that avoidance is fine as long as it follows the law. As with pension contributions, many ways of saving tax are perfectly legitimate—in fact, they are encouraged by the Government, sometimes to support economic activity—but many others are not. For example, a Radio 1 DJ used the so-called “working wheels” bogus scheme to create losses on a used car business. That scheme was promoted by NT Advisors. The clue was in the name, because NT stood for “no tax”. That happened in 2007-08. The appropriately named Take That and many others used a scheme to shelter £340 million from the taxman. There was the case involving Patrick Degorce, in which Goldcrest Pictures sold him the rights for two films for the artificially inflated amount of £21.9 million. They were immediately sold back for a fraction of that, which meant that his hedge fund profits of £18.8 million could be entirely sheltered from tax. The promoters of that scheme made £1.6 million on the deal and HSBC made £438,000 for giving the advice. Incidentally, Patrick Degorce later worked with Lansdowne Partners, which is a hedge fund founded by a Conservative donor. To me, such schemes look not just like tax avoidance, but like fraud.

I welcome the moves that the Government are making. The number of prosecutions is up from 165 in 2010-11 to 1,165 in the current year. However, there is a lot further to go. A culture change is needed. When people engage in such activity, they are depleting the public purse. Whereas benefit fraud is treated as a crime in this country, tax fraud is treated as a sport. It is perhaps ironic that tax avoiders often give a great deal to charity. I do not know whether that is because of guilt or because they feel like giving back some of the money that they have salted away.

I have often spoken about tax avoidance in this place. I will repeat what I have said before about one big issue that I constantly raise, where there is more that the Government need to do. International finance directors will say that the main way in which they shift profits around is through their financing structures. It is simple and totally legal to finance a UK activity from offshore, then export the UK profits via interest payments to a low-tax regime. Many companies do that and those that do not may be aggressively taken over, as was Boots, so that somebody else can do it.

Large parts of the financing of the private finance initiatives that ballooned under the last Government have been moved offshore. Some 50% of the PFI schools in my constituency are owned in Jersey. Junctions 1A to 3 of the M40 are 50% owned in Guernsey. Famously, HMRC’s own offices are wholly owned in Bermuda after a deal that was done in 2001.

Dealing with tax evasion and avoidance is important to my party because they are not victimless activities. Every pound that is lost is a pound less for public services or a pound extra that has to be raised from other taxpayers. As the hon. Member for Glasgow Central (Anas Sarwar) said, charities such as ActionAid and Christian Aid point out that aggressive tax avoidance is a drain on third-world countries. I disagreed with him when he said that the UK is not taking a global lead on the issue, because that is one of the things that the Government are doing. We are changing the international climate, as well as closing many loopholes and spending much more to deal with the issue in this country.

There is more that needs to be done. We have not made much headway on tax simplification in this country. We still have the most complex tax code in the world. We need more transparency and more country-by-country reporting. As I said, we need a culture change, so that tax cheats are seen as just as antisocial as benefit cheats.

Based on my experience of this issue in this place, I am left with the nagging feeling, which I think is shared by the public, that Labour lacks the competence to deal with it and the Conservatives sometimes lack the will, whereas the Lib Dems are proud of our contribution and will keep campaigning.

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[Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)]

As my hon. Friend the Member for Birmingham, Ladywood (Shabana Mahmood) said in her opening remarks, the tax system in this country is based on trust: trust that the Government will make responsible decisions on how to use the money they collect; trust that if I pay my fair share, so does my neighbour; and trust that the Government will be even-handed in their application of the rules. But, as we have heard in today’s debate, under this Government that trust has been eroded.

I wish to highlight a few points made by Opposition Members in the debate. My hon. Friend the Member for Glasgow Central (Anas Sarwar), who has been a champion on this issue, rightly raised international aspects, the links with tackling poverty and the role of non-governmental organisations. My right hon. Friend the Member for Holborn and St Pancras (Frank Dobson) raised serious concerns about HSBC operations and the links to tax havens, and the role of the other big banks. My hon. Friend the Member for Bishop Auckland (Helen Goodman) highlighted specific examples that have been in the public domain relating to large companies and their position on paying tax, and she stressed the need for fair play. My hon. Friend the Member for Edinburgh North and Leith (Mark Lazarowicz) highlighted the sometimes inappropriate messages sent out to the public when people are not held to account and the need to crack down harder. My hon. Friend the Member for Llanelli (Nia Griffith) emphasised the need for fairness and spoke about the damage done to honest businesses when larger businesses are not held to account. She also rightly raised issues relating to resources for HMRC. The hon. Member for Foyle (Mark Durkan) also spoke about international matters and the need for EU countries to work to take action, as the G20 countries also should.

We heard a number of strong speeches containing important points, but we have also heard a lot today about the Government’s record—or perhaps lack of a good record—on tax avoidance. We have heard about a tax gap of £34 billion, which has grown larger by the year, and a Swiss deal that, of course, is full of holes. The Chancellor claimed when announcing it in 2012 that it would raise £3.1 billion, but as we have heard today, it has raised just £873 million. Perhaps the Government are failing because rather than closing existing loopholes, they are busy opening new ones.

The Office for Budget Responsibility has warned that the Government’s shares for rights scheme could cost the taxpayer hundreds of millions of pounds, yet it seems today that the Government regard their record on tax avoidance as a source of pride, rather than as something that needs far more work. Let us go back to that much quoted study by the Financial Times, to which a number of hon. Members have referred, because it is important yet again to put on the record what it actually said:

“Measures put in place by Labour during its 13 years in power to counter corporate tax avoidance are projected to raise ten times as much over the next four years as those introduced by the current coalition government.”

There we have it: 10 times more raised under plans introduced by our Government during those 13 years. And that is even before we get started on HSBC.

We all know the story by now. HMRC was passed information about HSBC’s complicity in abetting tax evasion. Other Governments in other countries received the same information and used it proactively to recover millions of pounds of unpaid tax. What did our Government do? They cut corners and they cut deals behind closed doors. As our motion highlights, just one of 1,000 people alleged to have avoided or evaded tax has been prosecuted. Perhaps the Government are going to point to the money repaid, but it is just a fraction of what is owed. As Labour Members have repeatedly asked, what kind of message does that send? It sends the message that not paying tax is fine for big companies and big corporations because this Government will not pursue them.

My hon. Friend the Member for Birmingham, Ladywood also quoted Richard Brooks, a former HMRC tax inspector, in her opening remarks. He said that the Treasury and HMRC

“knew that there was a mass of evidence of tax evasion at the heart of HSBC”

in 2011, but the Government

“simply washed their hands of it”.

She was also right to say that that is a damning indictment. It is not good enough and it is time we got some answers.

My hon. Friend also put questions to the Chancellor when she wrote to him earlier this week and she reiterated them to the Minister today. Did he ever speak to Lord Green about tax avoidance and evasion at HSBC? Given the scale of the alleged wrongdoing, why was there only a single prosecution? What role did Ministers play in deciding on a selective prosecution policy for those accused of tax evasion or avoidance? These are substantive questions and we deserve substantive answers, but so far we have had no answers at all, and the Government must now come clean and supply answers to those specific questions.

I found it increasingly difficult to listen to what the Ministers were saying. Somehow they were denying all responsibility and failing to join the dots when they were given information, and they failed to ask the right questions. People have lost faith in this Government because they have shown time and again that they cannot be trusted to act fairly and in the best interests of all. Our motion sets out what we would do to restore that faith. We will be able to do that because we recognise a fundamental truth about the tax system that this Government have failed to appreciate, which is that it is about trust and it is about fairness.

Let me reiterate what our plan is to restore that faith. We will introduce penalties for those who are caught by the general anti-abuse rule. We will give the plan teeth by introducing a tough penalty regime, with fines of up to 100% of the value of the tax that was avoided. We will close loopholes on stamp duty that allow the hedge funds to avoid paying hundreds of millions of pounds in tax through intermediary relief. We will take action to close loopholes that allow some large companies to move profits out of the UK and avoid corporation tax. According to HMRC, the tax loss from that loophole is around £200 million each year, and it has been reported elsewhere as £500 million.

[Frank Dobson]

Does my hon. Friend agree that it is absolutely essential that if people have swindled their tax, confessed and avoided going to court, their names are disclosed, even if they are great big corporations or wealthy individuals, in the same way as a small business in Swindon would have its name disclosed if it was being pursued by the Inland Revenue?

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[Priti Patel]

Let us be quite clear on the point regarding Lord Green: that is now a matter for him. He is also not a Minister. We should be very clear about that.

When it comes to tax in particular, let us focus on the facts here. We have specifically taken action to get back money lost in Swiss bank accounts. Our agreement has so far raised more than £1.2 billion that would otherwise have remained beyond our reach, which is almost two thirds of the £1.9 billion that the latest forecasts expect it to raise. That is more than 22,000—[Interruption.] The hon. Member for Birmingham, Selly Oak (Steve McCabe) sits there laughing. It was his Government who did absolutely nothing in this area, despite having the opportunity to close down loopholes. Labour Members do not like hearing it, but these are facts.

[Frank Dobson]

Will the Exchequer Secretary give way?

[Priti Patel]

No, I will not give way because of time. The right hon. Gentleman has had his chance to speak in the debate. Tax avoidance is a serious issue for the public and for us as a Government. Let us be clear: it was his Government who chose to sit on their hands in this place.

We have taken clear and concerted action to tackle tax avoidance in every single year of this Parliament. We have closed loophole after loophole to clamp down on those who did not follow the rules. We have made more than 40 changes to tax law in this Parliament to introduce major reforms. Those measures to tackle aggressive tax planning, avoidance and evasion add up to £7.6 billion of additional revenues in 2015-16 alone. Many of the issues that we have tackled have been problems for years, but nothing was done until we took that clear action.

The wealthy could avoid stamp duty under a Labour Government, so we stopped that. Private equity managers boasted about having lower tax bills than their cleaners, so we tackled that head on. Nor have we been afraid of addressing and tackling the clear structural issues. We introduced the UK’s first general anti-abuse rule, or GAAR, in 2013. We are consulting on strengthening that. In 2014, there was a new regime for high-risk promoters of tax avoidance schemes under which the most outrageous promoters can be monitored, fined and publicly named.

Last year, we went further. The Chancellor announced in his Budget the accelerated payment of disputed tax in avoidance cases. We removed the cash-flow advantage that tax avoiders had over the majority of taxpayers who pay their tax up front.

These are fundamental changes. Incentives to enter avoidance schemes have been removed. As my hon. Friend the Financial Secretary stated, under these new powers, HMRC has already secured £185 million for the Exchequer coffers. In addition to those new powers, contrary to what the Opposition say, we have supported HMRC with more resources, to tackle avoidance, evasion and non-compliance. Year on year HMRC is able to do more and recover more tax that would otherwise have gone uncollected. This progress was recognised by the National Audit Office last year.

We are taking action on the international stage and leading the world in reforming the current international tax rules, which were first developed in the 1920s. The OECD’s BEPS project, led by the Prime Minister and the Chancellor through the G8, the G20 and the OECD, will help resolve those problems. We announced in the autumn statement that we are taking action on a country-by-country reporting level.

We have not stopped there. We have taken groundbreaking action domestically and introduced the diverted profits tax, which will complement the BEPS process and strengthen our action against multinational companies that try to avoid paying their fair share. From 1 April this year, the tax will be applied using a rate of 25%.

These are clear actions that this Government have taken, contrary to the assertions that we heard from the Opposition. For all the political noises that we heard, for all their new-found wisdom in the area of tax avoidance and evasion, we are the party in government that has been sensible, pragmatic and firm in leading the way and leading the debate. We have been clear in every step that we have taken. Since 2010-11, the percentage tax gap has stayed lower than at any time under the previous Government, saving the country £4 billion. There is always more to do, but this is clearly in line with all the reforms and measures that we have introduced in government. The Government remain committed to all the action that we have taken, which is why the House should thoroughly reject the Opposition motion.

Question put (Standing Order No. 31(2)), That the original words stand part of the Question.

Tax Avoidance (HSBC)

Frank Dobson Excerpts

Monday 9th February 2015 Commons Chamber

[Mr Gauke]

On multinational companies, I would make three points. First, we are ensuring that HMRC’s large business unit has sufficient resources to monitor large businesses adequately. Secondly, we are leading on international reform through the base erosion and profit shifting project with the OECD. Thirdly, I would highlight the diverted profits tax measure announced at the last autumn statement, which has been consulted on in recent weeks, and for which we hope to legislate in the Finance Bill before the end of the Parliament.

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

The public cannot understand why the names of these self-confessed tax swindlers are remaining secret. Will the Government publish the list of those with whom HMRC has come to an agreement, so that the public can see it and we can check it against the list of donors to the Tory party?

[Mr Gauke]

HMRC is essentially performing the same process that has been undertaken for many years, including when the right hon. Gentleman’s party was in office. It is consistent, for example, with the Liechtenstein disclosure facility, which was agreed by the previous Government, the point being that it is the most effective way of getting the tax, the interest and the penalty; of getting the money into the Exchequer; and of changing behaviour. I make no apology for HMRC pursuing that route as the first line, because it has proven to be effective.

Income Tax

Frank Dobson Excerpts

Wednesday 5th November 2014 Commons Chamber

[Paul Uppal]

rose—

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

rose—

[Chris Leslie]

I will give way to my right hon. Friend, but first I want to hear a little more of the logic and the ideology espoused by the hon. Member for Wolverhampton South West (Paul Uppal).

[Chris Leslie]

Again, Conservative Members do not want to talk about the 50p rate of tax. They will find any example of other things. They will talk about the personal allowance or venture capital arrangements, and maybe we will get them on to VAT. We want to know the ideological basis for cutting the 50p rate to 45p. They may have thought that that would suddenly enliven enterprise across the country, but it has not done so.

[Frank Dobson]

There have been references to the ladder of opportunity. Education and training are a major part of that. It is this Government who have taken away the education maintenance allowance, which allowed large numbers of working class children to stay on at school, at college and in training. Taking that away has shifted several steps out of the ladder of opportunity.

[Chris Leslie]

It is important that we look in aggregate at the fate that has befallen so many of our constituents since 2010. We have had 24 different tax rises, as well as the effect of wages not keeping pace with prices. Let us look at some of the changes that have taken place since 2010—freezing child benefit, cutting maternity grants, cutting tax credits, abolishing the education maintenance allowance, higher insurance premium taxes, a frozen higher rate threshold, the granny tax, freezing allowances for pensioners and, of course, raising VAT to 20%.

In what must count as one of the most brazen transfers from the least well-off to the richest in recent years, the Chancellor announced in his conference speech a £3 billion strivers tax hit on tax credits until 2018—the same £3 billion sum given away in the tax cut to millionaires. There we have the comparative priorities—£3 billion in a tax cut to the very wealthiest in society, and the same amount taken away from some of the poorest and middle income families.

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

I welcome today’s Opposition motion, which is an opportunity to show the clear ideological divide between Opposition and Government Members. The Opposition’s motion reiterates their intent to reintroduce the discredited 50p tax rate, which, taken with other policy announcements, such as the so-called mansion tax, clearly demonstrates their willingness to sacrifice the current economic growth and prosperity and, indeed, our nation’s economic future, on the altar of their socialist beliefs. It is probably an attempt to shore up a sort of core-vote strategy—a failing strategy—that will do nothing to increase the nation’s belief in the credibility of either the Leader of the Opposition or the shadow Chancellor.

If we go back to the politics of the 1970s, as the Labour party is proposing, we might want to remember the words attributed to the then Labour Chancellor, Denis Healey who, talking of tax, said that he would squeeze the rich “until the pips squeak”. Social mobility and the ability to move between countries was not as high in the 1970s, but that policy led to what was called the brain drain. I seem to remember from my childhood that, given our economy then, we were regarded as the sick man of Europe, which we are far away from being under this Government’s long-term economic plan.

[Frank Dobson]

Does the hon. Gentleman acknowledge that average annual economic growth during the Callaghan and Wilson Governments was almost exactly equal to the miraculous levels achieved during Mrs Thatcher’s prime ministership?

[Andrew Bridgen]

The right hon. Gentleman, whom I much respect, has the advantage of me in years and service in this House. His figures may well be correct—I cannot challenge them with the information I have—but he must look at the economic backdrop of the relative growth of other economies in the world at the moment, and at the challenges that we face, such as the drag of the eurozone. There is no doubt that this Government are set to deliver the highest economic growth of any developed economy in the world this year.

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[Sir Malcolm Bruce (Gordon) (LD)]

The motion seems to me a distraction for a party that has no credible economic policy and wants to draw attention away from that fact. We, as Liberal Democrats, voted for the reduction from 50p to 45p, but on the conditions which we negotiated within the Government, that rich people would pay substantially more in taxes as a direct result. That is precisely what has happened. It ill behoves the Labour party to latch on to a headline figure when its analysis does not stand up. There has been talk about the low wage, low tax economy, but I happen to remember the first two years of the Blair Government, when sticking to Conservative party spending plans meant tens of thousands of experienced doctors, teachers, nurses and public sector workers were thrown out of work by the Labour Government and then had to be re-employed subsequently at much higher cost.

[Frank Dobson]

Will the right hon. Gentleman give way?

[Sir Malcolm Bruce]

No, I will not at this time, and I want to let other hon. Members in. That is what happened and I had the debate then.

The point I want to make is that the Labour party has never yet had the will to say sorry to the British people for what it bequeathed to us. The fact is that the economy collapsed by 7% in a single year. It has been a huge heavy lifting task for this Government to rebuild the economy to the point where we now have a strong and balanced recovery. My party’s objective is precisely to have a stronger economy and a fairer society. We believe we have made a very significant contribution to achieving that. In particular, I am slightly surprised at the disdainful way Labour Members treat the raising of the tax threshold, which has been hugely beneficial to many people on low earnings by taking them out of tax.

I have to say that I am astonished that the motion refers to the 10p tax, which has been nothing but a source of political embarrassment and division for the Labour party ever since it was thought up, invented and abolished by the Labour party. It is not clear to me whether Labour Members want to replace the 0p rate by a 10p rate, which of course means that what we are talking about is a tax increase, or whether they will follow the advice of the IFS, which says that raising the tax threshold is a much more efficient way of delivering benefits to poor people than a 10p rate. That is why we have supported raising the threshold and delivered it.

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

I support the motion, because I think it is about time that the rich paid a fairer share of income tax. They have been getting away with 40%, 40p in the pound, for far too long—[Interruption]—since 1988-89. Let me point out to Government Members, who usually rant on about the wonders of the Thatcher Government, that the top rate of income tax came down to 40p only after Mrs Thatcher had been Prime Minister for nine years. For nine of her 11 years in office, the top rate was 60%. The standard rate of income tax was 30%, also for eight or nine years. To describe the 50p rate as an easy choice, the product of socialist beliefs, and bashing the rich is ludicrous. When Government Members portray that rate—which is lower than Mrs Thatcher’s top rate—in such terms, it shows that they are actually harsher than Mrs Thatcher.

My colleagues have talked about the impact on people who are badly off, but I want to draw attention to the major beneficiaries, most of whom are in banking or associated finance businesses. They have benefited not just from this tax cut, but from the taxpayer bail-out of their useless, greedy, stupid, incompetent banks. They have benefited more than anyone else from quantitative easing. At the same time nurses, teachers and doctors have been faced with—

[Mark Garnier]

Will the right hon. Gentleman give way?

[Frank Dobson]

No, I will not, because others wish to speak.

Let me make it clear that the Labour Government did not bring down the top rate of income tax to benefit the richest and at the same time freeze the pay of nurses, freeze the pay of doctors and freeze the pay of teachers, while at the same time the bankers got their bonuses. At HSBC, which lost £27 billion in the credit crash, Barclays, which lost £8 billion, and Lloyds, which lost £5 billion, bankers’ bonuses have risen, in 2012 and since then. At HSBC, 239 people are currently receiving £1 million or more a year. The worst off received a £40,000 tax benefit, and most will have received £100,000. For example, Mr Stuart Gulliver, chief executive of HSBC, apparently receives £32,000 a week in what are described as “special allowances”. I do not even know whether he pays tax on those special allowances, but that means that he receives, each week, an amount that is close to the national average annual income that is over and above his pay, yet Members on the Government Benches object to the idea that he should pay 50p in the pound tax on that. All I can say is that, following his and his predecessor’s efforts, he obviously has to spend a lot of time trying to minimise the amount of money he has to set aside to pay off for swindling exchange rates and to pay off for the consequences of money laundering and what happened with LIBOR and, generally speaking, in organising an outfit that might be described as the tax avoiders’ alliance.

We have heard talk of behavioural change reducing the possible income from a 50p rate of tax, but these bankers are really good at behavioural change. They do nothing else. They organise all the way around the world, helping people to avoid tax. With the exception of Lloyds, more than 30% of the subsidiary companies of these banks—in some cases these companies exceed more than 1,000 in number—are located in tax havens, and they are not located in tax havens just because the weather is better; it is because they are involved in promoting tax avoidance.

Bankers also say that their pay is a compensation package. I have checked the Oxford dictionary and compensation means recompense for loss, injury or suffering. What have any of these bankers experienced in the way of loss, injury or suffering? It is the rest of us who have had to experience loss, injury or suffering as a result of their stupidity leading up to the financial crisis. Their incompetence and greed inflicted loss, injury or suffering on the rest of us. I thought at one point that it was a perversion of language to use the word compensation in such circumstances, but I actually believe it is a perversion of mindset. They have obviously concluded that they should be compensated for inflicting loss, injury and suffering on the rest of us.

[Mr Angus Brendan MacNeil (Na h-Eileanan an Iar) (SNP)]

Will the right hon. Gentleman give way?

[Frank Dobson]

No, as I shall finish shortly.

None of these people would have any difficulty finding an extra 5p or even 10p in the pound on their income tax.

[Barbara Keeley (Worsley and Eccles South) (Lab)]

Will my right hon. Friend give way?

--- Later in debate ---

[Frank Dobson]

Yes, I give way to my hon. Friend.

[Barbara Keeley]

I wanted to intervene because my right hon. Friend is talking about behavioural change among bankers, but Government Members were shaking their heads and tutting when we were referring to disabled people, and I—[Interruption.] Yes they were; they were doing so when we referred to disabled people being hit by this Government and their priorities. Does my right hon. Friend agree that one group of people who cannot change their behaviour are the 60,000 carers who are required by this Government to pay the bedroom tax? They cannot change their behaviour: they cannot work; they cannot change their hours. Some people can afford to pay 5p or 10p extra in the pound, but people who are being hit badly—disabled people and carers—cannot do so.

[Frank Dobson]

I entirely agree with my hon. Friend.

My final point is this: the bulk of people who will benefit are in the banks and the rest of the finance industry. This is a very privileged industry, because every other industry in the country has to pay a 20% transaction tax, which is known as VAT, yet the City businesses pay virtually no transaction tax. I think if we want to raise some more money we ought to be introducing a transaction tax in line with what Mrs Merkel has been suggesting.

Finance Bill

Frank Dobson Excerpts

Tuesday 1st July 2014 Commons Chamber

The Government say that the increased yield when the rate was cut to 45p is evidence that a lower rate of tax on that occasion resulted in a larger yield. However, they conveniently forget that just as people shifted income into 2009 and 2010 to avoid the 50p rate when it was introduced, once the Chancellor had said in his 2012 Budget that he would abolish that rate the following year, in 2013, people effectively decided to delay their bonuses and income until the new tax year 2013-14 in order to pay 45p rather than 50p. That is why our new clause requires the Government to consider the impact of the cut in the additional rate on the level of bonuses in particular. We know that income forestalling and deferment both occurred, and the Government cannot ignore the deferment of bonuses when they seek to argue that they made the right decision, and cite increased revenues in support of their argument.

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

Is it not the case that the very well paid people who got the benefit are a collection of tax swindlers swindling the rest of the taxpayers, and should not everybody in the House be attending to changing the law so that such tax swindling cannot happen in the future?

[Shabana Mahmood]

I am grateful to my right hon. Friend for his intervention. I was about to come to the topic of tax avoidance, which I hope will answer his question.

Another weakness in the Government’s argument is the proposition that behavioural change, or tax avoidance, means it is not worth while maintaining the rate at 50p. This must be the only example of tax avoidance resulting in a huge tax cut, rather than in Government crackdowns to tackle and fight tax avoidance, which they are normally so quick to say they are doing. The Chancellor is on record as saying that he considers tax avoidance to be “morally repugnant”, but in the case of the 50p rate he rewarded a particular form of avoidance with a tax cut. I wonder if that has ever happened for people on middle and lower incomes. I think not.

The message that this Government have sent out is that if people are sufficiently well off to pay for advisers who can tell them how to avoid paying the 50p rate, and are organised enough and can lobby the Government, they are up for a tax cut, but everyone else, sorry, is simply worse off.

--- Later in debate ---

[Ian Swales (Redcar) (LD)]

It is a pleasure to follow the hon. Member for Bethnal Green and Bow (Rushanara Ali). I agree that we should be aiming for a tax system that is as fair as possible and accept that the timing of the top rate cut was not good for public relations or for feelings throughout the country. But let us examine the genesis of this situation.

In 2010, 6 April was an important day. It was the day that the top rate of tax was raised from 40p to 50p. It was also the day that Parliament was dissolved—the very last day that Labour Members sat on the Government Benches. They were sat on these Benches for one day with the top rate of tax at 50p. Clearly, as the right hon. Member for Wokingham (Mr Redwood) said, the rate was raised in the full knowledge that Labour was likely to lose the general election. It was the then Chancellor’s leaving present, which he knew would keep leading to headlines and would be the gift that kept on giving. Listening to the speeches made by Opposition Members today one would imagine that there had been a 50p tax rate throughout their time in government, and not simply on the last day on which they sat on the Government Benches.

[Frank Dobson]

Does the hon. Gentleman, as a Lib Dem, not recall that that date was significant in another way, as it was the day that the leader of the Liberal Democrats signed a pledge to get rid of tuition fees?

[Ian Swales]

Mr Deputy Speaker, I am sure you would call me out of order if I responded to that point.

Labour’s Chancellors were not slow to raise taxes—in fact, there is a long list of almost 100 taxes that they raised in 13 years—but strangely enough, they did not raise this one. Again, as the right hon. Member for Wokingham eloquently said, they knew that it was dubious that raising the top rate of income tax would lead to actual benefits. He mentioned the experiments of the 1980s in this country; François Hollande is conducting a live experiment right now across the channel and is getting very much the same results, with one prominent French citizen, Gérard Depardieu, moving all the way to Russia to avoid penal tax rates.

The hon. Member for Birmingham, Ladywood (Shabana Mahmood)talked about the need for analysis. I make two suggestions. First, I presume that during the 13 years of the previous Labour Government a great deal of analysis was carried out on whether raising the top rate was the right thing to do—as I said, they were not slow to look at new ways of raising money and clearly kept on rejecting it as an option. The Institute for Fiscal Studies has now studied Labour’s proposal to raise the top rate back to 50p and has said that it is of dubious benefit. In fact, I think the hon. Lady herself said that it could cost money and would not be drawn on whether that would make her change the policy.

We ought to take what the Labour party says with a pinch of salt. It cut taxes every single year for millionaires.

--- Later in debate ---

[Frank Dobson]

Uncharacteristically, I will come to the aid of the former right hon. Member for Hartlepool, because his sentence went on to say—and it was the same sentence—

“providing they pay their fair share of tax”.

--- Later in debate ---

[Frank Dobson]

I strongly support new clause 14. It would appear that the Treasury’s Orwellian motto is “Ignorance is strength”. It is not just that the Treasury will not have this study done, but it has not had it done and does not know the answer. The Government are clearly afraid of the answer; what have they got to hide? That is typical of the current Treasury position. On a number of occasions I have asked the Treasury what estimate it has made of the income that would come to it from the implementation of a Tobin tax or Robin Hood tax—a tax on financial transactions such as that being sensibly suggested by Mrs Merkel for the rest of Europe. The answer I get is that the Treasury has never made any such estimates. Having never made any estimate of the possible income—and apparently never estimating what it would cost the City of London—the Treasury nevertheless states that it would be fatal for the City to impose a tax of 0.05% on financial transactions, when every other business in the country pays a 20% tax on transactions known as VAT. It appears that the Treasury is into “Ignorance is strength”.

We constantly hear from those on the Tory Benches about the wonders of Mrs Thatcher and how we should follow her example, so I remind them that for nine of the 11 years that she was Prime Minister, the top rate of income tax was 60p in the pound. Apparently, people managed to pay it. Apparently the money came in, and even rich people did not need a greater incentive to turn up at work.

[Mr Redwood]

Will the right hon. Gentleman give way?

[Frank Dobson]

No, I will not give way—[Interruption.] Well, I have sat here throughout the whole debate and listened to what other people had to say, so I am going to get a little further in.

One thing that is particularly irksome for badly off people in this country is hearing apologists for the City talking about bankers’ compensation packages—compensation apparently for the horrid requirement that they turn up at work. The dictionary definition of compensation is,

“recompense for loss, suffering or injury”.

Those bankers—how they suffer when they are helping people to swindle their tax liabilities; laundering money for gun runners or drug runners; or fiddling money to help people evade sanctions and then having to pay up. We clearly need to ensure that those rich people pay more tax, and the only way to do that is by increasing the rate to at least 50p.

[Mr Gauke]

It is always a great pleasure to follow the right hon. Member for Holborn and St Pancras (Frank Dobson). He suggested that the motto of the Treasury was “Ignorance is strength”. If that is the case, let me say that his was a very strong speech.

New clause 14 calls for the Chancellor to—

[Frank Dobson]

Will the Minister give way?

[Mr Gauke]

I think I should.

[Frank Dobson]

Can the Minister identify anything I said that was factually incorrect? [Interruption.]

[Mr Gauke]

Someone says most of it, but in the time available, I ought to turn to the new clause.

The new clause calls for the Chancellor to publish a report within three months of passing the Act to set out the impact of setting the additional rate at 50% for the tax year 2015-16. In addition, it asks for an assessment of the impact of reducing the additional rate to 45% for 2013-14 on the amount of income tax paid by those with a taxable income of more than £250,000 a year and those with a taxable income of more than £1 million a year, as well as on all those who are liable for the additional rate. It also proposes that the report set out the impact of reducing the additional rate on the level of bonuses awarded in April 2013 to employees in the financial sector. I hope that there will be no controversy when I say that, in order to be credible, any such analysis would need to take into account behavioural impacts, as did the HMRC report on the additional rate that was published at Budget 2012. It is clearly inadequate to look simply at theoretical income tax liabilities when increasing taxes.

Let me use this opportunity to assure hon. Members once more that the Government already consider the impact of any policy decisions taken. The HMRC report on the additional rate concluded that the underlying yield from the introduction of the 50p rate was much lower than originally forecast, due to large behavioural effects.

amendment of the law

Frank Dobson Excerpts

Monday 24th March 2014 Commons Chamber

[Mr Pat McFadden (Wolverhampton South East) (Lab)]

The Chancellor told the House last week that his policies had been vindicated. His basic case is that austerity is working so well that we need it for two Parliaments rather than one, as was planned. Of course, it is welcome that we have economic growth after so many lean years, but the inescapable fact is that the targets in the growth and spending plans set out at the beginning of this Parliament have been missed by huge margins. The cumulative effect is that cuts will last years longer than planned, and an extra £190 billion is being borrowed, compared with the figure in the plans set out after the election. If Labour had borrowed £190 billion more than was planned, I am not sure how Government Members would describe it, but I doubt whether they would be reaching for the term “success”. The return of growth cannot hide the fact that the outcome of the strategy pursued in the past four years is that one of the Government’s fiscal targets has been missed, and the other—the five-year rolling target—continues to be pushed into the future.

The increases in investment allowances are welcome, but let us be in no doubt: this is a U-turn from the Conservative manifesto and from the 2010 post-election Budget. At that time, when the Chancellor was talking about the “march of the makers”, he cut support for investment in manufacturing by £3 billion a year, and called it getting rid of complex allowances and reliefs. Rhetoric and policy were pulling in entirely different directions. I therefore welcome the U-turn, and on this point at least, rhetoric and policy are now pulling in the same direction, although needless barriers were placed in the way of investment by the policy previously pursued.

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

Does my right hon. Friend agree that when the investment allowance was reduced, corporation tax was reduced, which did not benefit manufacturing but benefited the banks?

[Mr McFadden]

That is absolutely right: a cut in support for manufacturing was used for business as a whole.

Although it makes sense to support investment decisions through the tax system, we should not kid ourselves that investment allowances alone will be enough. The UK’s export performance has been routinely described as disappointing in report after report by the Office for Budget Responsibility. Speak to any manufacturer and they will most likely say that their key challenge is skills. If companies cannot get the right people with the right skills, they cannot innovate, they cannot meet orders in time and they cannot operate as efficiently as they want.

If the Government are really serious about supporting UK manufacturing, they should heed the call coming from their own Back Benches today to stop chasing UKIP and putting in place policies that stop the brightest students and workers from around the world coming to the UK. The Government’s arbitrary net immigration target is a barrier to our accessing the best talent in the world, and the exclusion of such talent is not in the interests of UK businesses or the economy; nor is the threat of withdrawal from our biggest export market, the EU. It is no good supporting investment decisions through the tax system with one hand, and threatening to pull away from our biggest market with the other. The stance the Government have adopted on this is a complete failure of leadership: it is party management first, and the interests of the country second. No amount of support through investment allowances would undo the damage that pulling out of our biggest market would do. I am glad that my right hon. Friend the Leader of the Opposition made the announcement he made a couple of weeks ago, exercising leadership on this issue and rejecting the option of following the Government down this path.

Perhaps enough has been said about beer and bingo in recent days. As someone whose father was a labourer and whose mother worked in a local authority children’s home, the only thing I would add is that a more serious working-class aspiration is an education system that opens up opportunity to all; social mobility that is not based on but challenges closed elites; and a path to rising living standards that has been sadly absent in recent years. I suggest to the Government that a poster based on those things might have been truer to the heart of working-class aspiration than the one that was produced.

I echo some of the sentiments expressed by my hon. Friend the Member for Sedgefield (Phil Wilson) on the pension changes. There has been an attempt to reduce this proposal to the question of whether people can be trusted with their own money. Of course people can be trusted in that way, and empowering them to make their own decisions is a good thing. It is something that we should support in politics. Choice in public services empowers people. It has worked well in the area of personal payments for social care, for example. As my hon. Friend said, however, what is in question is not trusting people but trusting the financial services sector that sells people these often complex financial products. I serve on the Treasury Select Committee, and we have seen many mis-selling scandals in recent years, ranging from endowment mortgages to payment protection insurance. We should have learned the lesson that there is often a serious information mismatch between those selling those financial products and those buying them, and that customers are not well served when things go wrong.

How do the Government propose to address that issue? Simply shouting that we should trust people with their own money is not enough, given that the PPI compensation alone has had to be set at £20 billion; and nor is it the philosophy that has been pursued on a cross-party basis for auto-enrolment into the pensions systems. If customers are to be well informed, they need good advice and alternative products in which they can trust. It is perfectly reasonable—indeed, a duty—for a responsible Opposition to ask questions about how that is to be achieved, and to point out the dangers if it is not.

The recent economic growth is welcome, but if it is being funded by consumer spending, people will rightly ask how can we ensure that it has solid foundations and is not simply the froth from another unsustainable housing boom, and how we can ensure that Britain remains engaged with the world and does not turn away from the trade and exports that we need.

[Sir Edward Garnier (Harborough) (Con)]

I agree with a certain amount of what the right hon. Member for Wolverhampton South East (Mr McFadden) has said. I am delighted to hear from him and other Opposition Members a gentle—or, in some cases, not so gentle—movement towards accepting that the saving public, the pensioners, should be allowed to choose their own vehicles to finance their retirement income.

I introduced a private Member’s Bill in 2003, entitled the Retirement Income Reform Bill. It was designed to lift the compulsion to purchase an annuity at the age of 75. The then Government opposed it, but it so happened that I got a majority of more than 100 on that Friday in the spring of 2003. These things happen on Fridays when Government Members are elsewhere. Eventually, however, the Government talked the Bill out. It was defeated on the basis that the public were unable to make their own decisions on the funding of their retirement. It was said that they would waste the money, or simply not do what the Government wanted them to do with their retirement funds. I happen to take the view that the Government are a poor parent, a poor business man and a poor manager of people’s old age. I was disappointed, but not surprised, that the then Government talked out my Bill. The number of private Members’ Bills that get talked out is too big to worry about.

I was interested to hear my right hon. Friend the Chancellor of the Exchequer announce in the Budget statement last week that he intended to liberalise the way in which we deal with pension income. I was even more interested when the shadow Secretary of State for Work and Pensions, the hon. Member for Leeds West (Rachel Reeves), announced that her party and her Front Bench were coming round to accepting that the public should be trusted with the management of their own financial affairs in retirement. She made that announcement rather half-heartedly, but she made it none the less. I think that that is practically and philosophically the right thing to do.

In the course of this afternoon, I have smelled the burning rubber of handbrake turns from Labour Back Benchers who are beginning to realise that they need to catch up with those on their Front Bench, who in turn are deciding that they need to catch up with those on our Front Bench and with public opinion that is in favour of greater liberalisation of the pension and retirement income system. The fact that criticism has been made of the banking system and of the financial services sector does not undermine the practical and philosophical benefits of liberalising the system.

[Frank Dobson]

I agree that those criticisms do not undermine the philosophical side of things, but it is the practicalities that people are bothered about. Most of the concern arises from the fact that the various institutions have been giving people a bad deal on annuities and that, unless they actually go out of business, they are likely to be offering the products that are the alternative to annuities. Does the hon. and learned Gentleman really believe that those self-same institutions will be offering people a good bargain, if they have not done so in the past?

[Sir Edward Garnier]

Yes, I do. I find that view deeply depressing, although not in the least surprising. The right hon. Gentleman is a good old-fashioned socialist and I respect him for that. I wish that more of his colleagues were as clear in their views as he is. I happen to take the view, however, that Mr and Mrs Retirement Person should be allowed to do what they like with their pension funds and that if the financial services sector misconducts itself, we should prosecute it or take regulatory action against it. We should not act to prevent the vast majority of individuals from doing what they think best for their financial future, either pre-retirement or post-retirement, simply because we fear that there might be one or two bad hats in the financial services sector. If those of us who are about to retire wish to invest our pension funds in property or in stocks and shares—

--- Later in debate ---

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

I wish to speak about a huge sum that was not mentioned in the Budget statement, but that will loom large over Chancellors of the Exchequer in years to come: the £50 billion that is committed to the building of High Speed 2. To put that amount in perspective, it is about what we spend on our entire school system each year.

Both the Higgins and Deighton reports on HS2, which were recently produced for the Government, demonstrate that, whatever was wrong with the Government’s original plans, they were amateurish and ill thought out. Most importantly of all, they show that massive additional investment will be needed in the areas that HS2 is supposed to serve if its promised benefits are to come about. The Government have agreed to a huge saving by abandoning the preposterous proposal of a High Speed 2-High Speed 1 link. That link, which would have run through my constituency, was opposed by local people and businesses, as well as Transport for London, the rail freight industry and the Institution of Civil Engineers, but it is still included in the hybrid Bill and was supported by the House when it voted through the paving Bill. Fortunately, now that the Higgins report has said, “Dump it,” the Secretary of State has, to his credit, agreed to dump the link, but I wonder whether any of the people and businesses that spent a lot of time, effort and money opposing the idea will get any compensation.

The other proposition that affects my area involves the redevelopment of Euston station and its use as the terminus for HS2. Long before HS2 was dreamed up, there was an outline proposal to redevelop Euston station, which is awful, on its existing footprint. That proposal would have involved building more than 1,000 new homes. HS2 originally said, “We could incorporate that in our scheme and it would be 1,500 new homes,” but then the masterminds behind the proposition concluded that as the cost of the scheme had increased from £1.2 billion to £2 billion, it was unaffordable and they would drop all the planning gain and extra housing and industrial premises, and replace that with a lean-to shed approach. However, while speaking in Hong Kong, the Chancellor of the Exchequer suggested that there should be a reversion to something like the original scheme, which is what the Government now propose. The proposal is still awful, but it is better than what is included in the hybrid Bill.

Other investment will be needed beyond the budget for HS2 if its benefits are to flow. According to HS2 itself, Euston will not be able to cope with the extra passengers and it will therefore be necessary to build—God help us—Crossrail 2, at a cost of anything between £16 billion and £20 billion, but that is not included in anyone’s budget at the moment. So much for the idea that HS2 will transfer transport spending from London to the north, because although that has already been identified as necessary expenditure, similar expenditure will be necessary in Birmingham, Manchester, Sheffield, Leeds and in the east midlands if the benefits from HS2 are to flow. There is no money in the Chancellor’s Budget for that investment, nor is there money in anybody else’s budget.

My constituents’ great fear now is that, after the announcement that there will be a huge redevelopment at Euston, all sorts of property speculating vultures will descend and want to build a huge office city there and not provide the housing that people desperately need. When we consider that the biggest problem in London for Londoners is the fact that average Londoners are being priced out of the city—and average Camden dwellers are being priced out of Camden—we want to make sure that if the redevelopment of Euston goes ahead, it includes housing that ordinary people can afford and does not include a lot of speculative blocks of penthouses to be bought, but not occupied, by Russian oligarchs. They are the people who are driving up the cost of housing in this country, and as a final offer to the Government, I suggest that if they want a sanction, they should stop the oligarchs buying residential property and take back what the oligarchs have bought up to now if they are not occupying it.

Finance (No. 2) Bill

Frank Dobson Excerpts

Monday 15th April 2013 Commons Chamber

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

Whatever else can be said, it is quite clear that this Finance Bill will not sort out the public finances. As a result, we have got all sorts of efforts to distract people’s attention.

We have got the Work and Pensions Secretary going on about new punishments for people involved in benefit fraud. I am against benefit fraud, but I am against all fraud. Let us try to get things into perspective. In the last year for which figures are available, benefit fraud cost £1.2 billion. A recent study by Oxfam says that in the last year for which it has figures, tax fraud cost the taxpayer £5 billion. Needless to say, the Treasury said it did not recognise that figure, which is officialese for: “I can’t think what to say; I’ll have to find out what the boss says.” However, the Treasury has to acknowledge—because it produced this figure itself—that in the last year for which official figures are available, £4 billion was lost to tax fraud. It also produced figures for that year showing that tax avoidance—not tax evasion—cost the taxpayer £5 billion. There was a further loss of £4 billion for what is called “non-payment”—in other words, businesses making sure that when something went wrong, it was not the taxpayer who got any of the money. That makes a total of £13 billion lost in one year, mainly as a result of the desire and effective efforts by the rich and big businesses not to pay tax. That means that the taxpayer was swindled out of £13 billion in one year alone.

To be fair, that is partly because this House is notoriously bad at producing tax laws that actually work. That might be partly an effect of the fact that for years the Treasury has been advised on such matters by the very banks and accountancy firms that are doing the swindling in the first place. However, there is little real conviction in the idea that Her Majesty’s Revenue and Customs will do a good job of getting the money that we have voted should be taken. In fairness to HMRC, tax avoidance has become a major British industry. It is not a sideline of the big four banks or the big four firms of accountants; it is a major part of their industrial activity. They are not exactly big taxpayers themselves: in one year, Barclays paid just 1% of its profits in tax.

Then there is the massive and disgraceful involvement of the British financial sector in tax havens round the world, usually in British dependencies. When the British empire was at its zenith, the slogan was “Trade follows the flag”, and it still does, because the British dependencies, flying the British flag, are the major tax havens all over the world. The mighty British empire has been reduced to a scatter of sordid tax havens, where most of the fiddling is done by British banks and British firms of accountants. They are there helping the tax avoiders and helping the rich freeloaders to avoid the tax they should be paying here and in other countries. Let me give one or two examples. Barclays has just over 1,000 subsidiaries, 36% of which are located in tax havens. HSBC has 1,500 subsidiaries and, again, 36% are in tax havens. The Royal Bank of Scotland is slightly better—only 31% of its 1,300 subsidiaries are located in tax havens—while just 21% of Lloyds’s subsidiaries are located in tax havens.

[Ian Swales]

The right hon. Gentleman is making a powerful speech, but I am sure he is not suggesting that all this has arisen in the last three years. Can he remind the House of any steps that his Government took in this regard and does he welcome the steps that this Government are taking? They have resulted in, for example, Barclays closing down its structured capital markets department, which was basically about tax avoidance.

[Frank Dobson]

I never said for a minute that it started recently. It has been going on for donkey’s years. I am not sure about the Lib Dems, but I cannot remember an organisation when Labour was in government called Tories in Favour of Stopping Tax Avoidance. Perhaps the minutes will be produced by someone, but it seems extremely unlikely, because everything the Tories ever said when they were in opposition was about Labour being too nasty to the finance industry and proposing things that might damage it. So we trundled on, until the finance industry damaged the rest of us. It is worth remembering that the banks’ wrongdoing has cost us £700 billion in lost production since the crash. That is what we have all lost.

These British banks and firms of accountants are not just organising tax avoidance in the tax havens for all the swindlers. We now know—from prosecutions and from agreements that they have come to with the American authorities—that they have been organising money laundering from massive drug dealing, gun running, people trafficking and busting sanctions on places such as Burma.

I think the British banks should be doing something a bit different. I think they might possibly have done a bit of investing in this country. In the past, small businesses all over the country could go and see their local bank managers at one of the big banks and talk to them about their problems. They knew one another and knew what their prospects were. People could borrow money that way, and it worked. Then the banks started centralising all the funds, so nothing is left with the local bank manager and local firms now have to be interrogated by an algorithm—that is what it boils down to—in the banks’ headquarters. They have not been investing in this country. We have to ask ourselves why a large proportion of the industries that were privatised are now owned by foreign owners, such as Électricité de France or the Australian outfit that owns Thames Water. Could the British banks not have invested in British businesses? Was there not enough profit for them? Does that mean that the profits in the tax havens and from all sorts of derivatives activities were going to raise them more money? That may be so, but what has happened demonstrates just how awful the performance of the British banks and finance industry has been.

I do not think this Finance Bill, any of the proposals the Government have put forward or even the one or two they have started implementing reflect the scale of wrongdoing that needs to be put right—the swindling that involved British companies and the damage that does to us as a trading nation with, until recently, a reputation for honesty and fair dealing. At its core—I say this with some care—this is a corrupt set-up. We have a banking industry and an accountancy industry that are involved in criminal and semi-criminal activity all over the world, yet we say to countries such as Bangladesh, “There’s too much corruption in your country.” If we are going to start trying to sort out corruption in other places, it is about time we did it here and where British companies are operating. We need transparency, and we certainly do not need tax havens, especially those that fly the British flag. Their objective is not transparency but the complete opposite: it is to be as obscure as is humanly possible in order to keep the tax authorities out.

Another point that is constantly made is that, if we were to change the rules on banking and accountancy, the very clever people in the City would simply get round them. That is unacceptable. Why should such behaviour be acceptable in the finance industry? We would regard it as totally unacceptable if the building industry said, “You can rely on us to get round the building regulations,” if the aviation industry said, “We can get round the safety rules,” or if the pharmaceutical industry said, “We won’t carry out the proper checks that are required. We can get round those rules.” We ought to regard it as totally unacceptable when people representing the finance industry say, “Whatever you do in the House of Commons, we’ll get round your rules.”

[Kelvin Hopkins]

The hon. Member for Redcar (Ian Swales) suggested that some people ought to go to prison for such behaviour. Does my right hon. Friend agree that that might concentrate a few minds?

[Frank Dobson]

It certainly should. I am astonished that no one in this country has yet been prosecuted for the fraud involved in the LIBOR rate-rigging, including the British Bankers Association, which was, after all, running the LIBOR system. People were defrauded, so why has no one been prosecuted? I do not know, but someone should be.

Another excuse for not sorting out the problems in our banking industry is that we must not go it alone because that would put the industry at a disadvantage compared with others. We are told, for instance, that we cannot possibly be the first country to introduce a financial transaction tax—a Tobin tax, a Robin Hood tax—because to do so would put our banks at a disadvantage. However, Germany and France have now proposed an EU-wide financial transaction tax, yet our Government still say no. What are they frightened of? The rate of tax proposed on derivatives transactions that the 11 countries led by Germany are establishing in Europe is 0.01%. Apparently, our financial services industry is so pathetic that it would be driven to ruin by a transaction tax rate of 0.01%.

In fact, we already have a transaction tax in this country: it is called VAT. Nearly every other business in this country is paying a transaction tax of 20%. If everyone else is deemed capable of paying 20%, why should the financial services industry be deemed incapable of paying 0.01% on its transactions, 85% of which are carried out within the industry, between its various constituent parts, rather than with anyone else. That is pathetic, and it is about time that we recognised that a substantial amount of money could be raised for the taxpayer in this country, even at a rate of 0.01%.

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

Will the right hon. Gentleman remind the House what the Labour party’s policy is on the so-called Robin Hood tax? My understanding is that the shadow Chancellor is opposed to introducing one.

[Frank Dobson]

That might be the case, but I live in hope.

[Chris Leslie]

Let me make it absolutely clear that we should have a Government who are arguing for a financial transaction tax. We need to ensure that we get New York, in particular, on board, but we now have evidence of what will happen in the European Union, and there is no doubt that there is a very strong case for such a tax.

[Frank Dobson]

Yes, indeed. I have been advocating such a tax for some time, and I shall continue to do so.

I have asked Treasury Ministers several times how much money would be raised for the taxpayer by a 0.01% tax on financial transactions, but the great Treasury mandarins have always said that they have not worked out the figure. If that is the case, how can they possibly conclude that the money that would have to be paid out would damage the finance industry? If they do not know how much such a tax would raise, how can they know how much the industry would have to pay out?

We continue to find ourselves in the absurd situation in which the banks and their friends, and the big accountancy firms and their friends, are advising the Government on the taxation system that should be applied to them. We do not—as far as I know, anyway—have criminals advising the Home Office on criminal law, and I do not think that an industry with such a disreputable record should be advising the British Government on how it should be dealt with.

[David Rutley (Macclesfield) (Con)]

It is a pleasure to speak in today’s debate. This week, of all weeks, is an appropriate time to reflect on economic and fiscal policy, and particularly on the legacy of the free enterprise revolution led by the great Lady Thatcher. There is much in the Bill that will continue this Government’s work to revive the successes of Lady Thatcher’s approach to business, free enterprise and growth. I was fortunate enough to meet Lady Thatcher on the general election nights in 1983 and 1987. She inspired me and many others on this side of the House. She was a towering figure who was well respected across the world, and she richly deserved those election victories back in the 1980s. More than anything, she understood that individuals and Governments needed to live within their means, and that businesses were best placed to create jobs and deliver economic growth. She trusted them to do that, and created the right conditions for them to succeed. That is the proud legacy that the Bill seeks to build on. Indeed, there is a clear focus on freeing up small businesses from the burdens of tax.

[Frank Dobson]

Is the hon. Gentleman aware that the average economic growth during the time that Mrs Thatcher was Prime Minister was no higher than the average economic growth under Harold Wilson or Jim Callaghan?

[David Rutley]

The debate is about sustainable economic growth, and if we look at the record of the 13 years of the previous Labour Government and their promise of no return to boom and bust, the facts speak for themselves.

--- Later in debate ---

[David Rutley]

I thank my hon. Friend for those comments. We may be hearing Eeyore noises from Labour Members, but at least we have now had a sense of Tigger.

[Frank Dobson]

Will the hon. Gentleman give way?

[David Rutley]

I cannot, because Mr Deputy Speaker is giving me dagger looks, so I need to make progress and finish my speech—[Interruption.] I know him well and he is not always like that.

The Bill meets the ambitions of those who want to work hard and get on. It cuts taxes and incentivises business to create jobs and economic growth. It is a plan of action and a signpost giving a clear direction of the work yet to be done. That work will be done by this Government, and I give the Bill my full support.

[Kelvin Hopkins (Luton North) (Lab)]

I cannot resist commenting on one of the points made by the hon. Member for Macclesfield (David Rutley). He suggested that businesses are somehow more competitive because we have a better tax regime, yet our trade deficit is in a terrible state, and getting worse. If everything is so brilliant, we should be doing better on international trade.

[Frank Dobson]

While my hon. Friend is commenting on the speech made by the hon. Member for Macclesfield (David Rutley), was he somewhat taken aback to discover that nurses, doctors, firefighters and police in Macclesfield are apparently not occupying real jobs?

[Kelvin Hopkins]

My right hon. Friend makes a good point: when we go to a hospital, we find that no one is there, because those in such jobs are not real people. Indeed, I might add Members of Parliament to that list.

The hon. Member for Cities of London and Westminster (Mark Field) was desperately trying to be positive about the Budget, but in the process he effectively damned the Chancellor with faint praise. If we had pressed him hard enough, I think he would have conceded most of our points.

The Bill will clearly do nothing to transform our economy. We are in a desperate state—an ongoing recession. The Chancellor says that his Budget is fiscally neutral, but when 2.5 million people are unemployed and we have low or negative growth, we do not want a fiscally neutral Budget. We should have had an expansionary Budget to promote growth, but of course even a fiscally neutral Budget could inject growth into the economy by raising taxes and spending more, rather than doing the opposite. If taxes on businesses and the wealthy are reduced, they tend to save their money—indeed, they put it in tax havens—whereas if ordinary people are given jobs, the first thing they do is to spend their money, and that money goes directly back into the economy and starts to generate demand through the multiplier.

The hon. Member for Cities of London and Westminster was right that forecasting is difficult. I remember that in 1990—I am older than everybody else in the Chamber—when The Sunday Times carried out a survey of forecasting organisations, it found that the London Business School was bottom of the league, scoring nought out of 10 for its forecasts, although of course that was the forecasting body adored by the Conservative Government under Mrs Thatcher. The best forecasts were by the Cambridge Economic Policy Group, a left-leaning Keynesian group, which got six out of 10 to come top of the league. The then Government were so annoyed by the Cambridge group that they took away its Government grant because they did not like people telling them that they were wrong, although they were.

Demand for the things that people produce is a crucial factor if an economy is to succeed, because although Governments can cut taxes for businesses and introduce all sorts of supply-side measures, if no one is buying anything, the economy will not grow. An equally crucial factor for sustaining that demand is an appropriate exchange rate. Successive Governments have ignored the exchange rate at their peril, but there have been times when the depreciation of our currency has had dramatic results, and I can cite three examples under a Conservative Government. Following Golden Wednesday and the collapse of the exchange rate mechanism, the economy grew strongly after a substantial depreciation. By the time that 1997 came along, the Conservatives were still being condemned for the collapse of the housing market and the people voted Labour—thank goodness for that—yet the Labour Government benefited from the strong demand generated by that depreciation. In 1979 Mrs Thatcher was praised for her economic policies, but the 1979 Budget, masterminded, if I can describe it like that, by Geoffrey Howe, resulted in a catastrophic collapse in demand. A fifth of manufacturing disappeared and unemployment soared to 3 million. It was only when those policies were reversed that there was a recovery, and on Nigel Lawson’s watch—I do not necessarily agree with everything he did—the pound depreciated by over 30%. Again, the economy grew strongly and unemployment came down.

Going back even further into history, in the 1931 crisis, a Labour Government mistakenly tried to sustain sterling on the gold standard, and tried to keep its parity up. The Government fell apart, and effectively a Conservative Government with a nominally Labour Prime Minister came in straight afterwards. The first thing they did was take the pound off the gold standard and depreciate, and the recovery began. That was only part of it; other factors were necessary to sustain recovery in the 1930s. We had to spend a lot of money, and towards the end of the ’30s the country built thousands—indeed, millions—of houses, and that was how we recovered. That is what we ought to do now.

In other countries, Germany built arms and autobahns; in America, there was the new deal—spending money on all sorts of public works, which created the demand in the economy that brought about recovery. It was not fiddling around with tax rates and supply-side measures. That did not work then, and it will not work now. The exchange rate is therefore absolutely crucial, and the exchange rate at this time is too high. Part of our recovery should depend on a significant depreciation. An erudite and informed book by my friend John Mills has been written about this, and I have quoted from it in the Chamber. It makes a detailed case for such measures.

The trade statistics are disastrous, and some of us have been worried about manufacturing for a long time. Our manufacturing sector is about half the size of the German manufacturing sector as a proportion of our economy, which is disastrous. We should be a similar economy to Germany in many ways. Historically, we have been very similar in all sorts of ways, but our manufacturing has collapsed. That was partly because in 1997, when Labour came to office, there was at the same time a substantial appreciation of the pound, which began to damage manufacturing. We were sustained by an asset price bubble, which carried on, and thank goodness, we had a relatively strong economy for some time. However, manufacturing did not do well, because of the relatively strong pound. It was only the crisis of 2008, when there was a significant depreciation, that saved us. Had we been stuck in the euro, we would be like Spain now—it would be absolutely disastrous—so we must applaud my right hon. Friend the Member for Kirkcaldy and Cowdenbeath (Mr Brown) for keeping us out of the euro, despite pressure from the then Prime Minister. I was one of those who supported my right hon. Friend very strongly at the time.

Financial Services (Banking Reform) Bill

Frank Dobson Excerpts

Monday 11th March 2013 Commons Chamber

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

I think everyone in the House would welcome a step forward in trying to gain some control over the excesses of the banking industry, but most Members—at least those who have spoken—seem to be dubious about whether the Bill goes far enough. Following on from the speech by my hon. Friend the Member for Bassetlaw (John Mann), I tend to be what might be described as a “Bassetlaw-ist”. I think we need to go much further than most people are proposing.

We need to start by recognising that the British banking industry is a failure—it was a failure and it remains a failure. Let me remind the House that, of the big four, HSBC lost $27 billion in the crash, while RBS lost $14 billion, Barclays lost $8 billion and Lloyds lost $5 billion. Between them, these masters of the universe lost $54 billion in the crash. It did them harm, but it did a lot more harm to the rest of us. In the recession that has followed their lunacy—matched all round the world by the rest of the world banking industry—British production has lost £700 billion, as a result of the reduction in goods and services that we have produced.

That is what the banks dropped us in. They did it through all sorts of fancy schemes, in an effort to get rich quick, and for quite a long time they did get rich quick. Everybody was told, “You can’t stop us. We know what we’re doing; it’s the market.” Then the market crashed. Under normal rules, if the market crashes, those who crash stay crashed, but that does not happen with banking. That is why we need to change the rules. The banks demanded taxpayers’ money, either to bail them out or offer them guarantees. They said, “You’ve got to do it, otherwise we will bring the temple down and we’ll bring you all down with us.” In other words, “Heads we win, tails you lose” has been the motto of the banking industry.

That is not all that the banks were doing wrong, we now discover. They were also rigging LIBOR—the London interbank offered rate. Individuals in banks were fiddling, and apparently not a single boss knew what was going on. LIBOR was run by the British Bankers Association, which apparently did not know that any fiddles were going on, so obviously “Ignorance is strength”—this year is the centenary of George Orwell’s birth—was the motto of the British banking industry. People have been prosecuted or threatened with prosecution—they have settled to avoid it—in the United States for LIBOR fiddles, but nobody has been prosecuted here. Why is that?

There have been several repeated conspiracies—in fact, dozens and dozens of them—to gain financial advantage by deception, which is a common-law crime, so we do not need an Act of Parliament, but we now know that LIBOR rigging was not the banks’ only wrongdoing. Instead of “The world’s local bank”, HSBC’s motto turns out to be “The world’s local money launderer —helping Mexican drug barons, fighting the United States’ anti-terrorism sanctions”. Lloyds—motto: “Banking worth talking about”—was involved in money laundering to help sanctions-busters. Barclays—“It’s our business to know your business”—was involved in dodgy transactions and busting sanctions against Iran, Libya and Burma. Most of us would think that sanctions against Iran, Gaddafi’s Libya and Burma were quite appropriate.

The banks have also been spending a great deal of time promoting tax dodging. The big four have 1,649 subsidiary companies. For Barclays, HSBC and the Royal Bank of Scotland, a third of those companies are in—where would you guess?—the places where tax is fiddled. They are in tax avoidance places—Lloyds is a bit better, with only 20%.

Up to now, most criticism, both here and in the newspapers and so on, has been of the investment bankers speculating—“It’s a casino. Separate it out; ring fence it; break it up”—on the grounds, apparently, that retail banking has been a really big success, when actually it has an appalling record. It was the retail arms of the big four that did all the PPI fiddles and the IRSA—interest rate swap arrangements—swindles. Indeed, the big four sold 34 million payment protection insurance polices. Between them, they are now having to set aside £14 billion to repay people who were swindled. That is what the money is for—simple stuff: it is a swindle. Between them, the big four are employing 10,000 people to administer the system of repaying the money they swindled. It is almost a banking job creation scheme.

Then there are the retail banks’ interest rate swap arrangements. Some 40,000 agreements with small and medium firms are now being reviewed. The idea was sold by the British Bankers Association to

“help insulate business customers against fluctuations in interest rates,”

as the BBA put it, but that is exactly what interest rate swap arrangements did not do. A sample survey shows that 90% of the agreements being reviewed break existing banking regulations, yet small firms were bullied into accepting their terms in order to get a new loan or extend an existing one—if they did not agree, they would not get it.

[Jonathan Edwards]

Does the right hon. Gentleman agree that some instances of products being mis-sold by the retail elements of banks were driven by the investment arms of those entities? Ring-fencing will not go far enough. If we are to stop such abuses by the retail elements of the universal banks, we have to have full separation of investment and retail banking.

[Frank Dobson]

Yes, but if we are to get the changes we need, we also need to change the culture in both sectors.

The banks have never competed with one another, or at least not in trying to get customers. Rather, they have tended to compete by copying one another. When one bank comes up with a wheeze that swindles money, the bosses of the other banks say, “Why are they getting all this money in through this swindle? Can’t we do the swindle as well?” That is presumably how PPI started off at one bank and then went to all the others. Interest rate swap agreements certainly started at one bank and were then taken up by the others, because people in those banks felt they had to compete with the other swindlers down the road.

These people—this collection of money launderers, gun runners, drug money launderers, people who swindle small businesses and people who lose billions in their normal day-to-day business—are still paying themselves huge amounts of money. I know that the Prime Minister has a difficulty with facts, but I did not realise that he had a problem with adjectives, because when the Royal Bank of Scotland announced that it was paying £600 million in bonuses this year, he commended it—this bank of losers —for its restraint. That is not my definition of restraint. “Excess” is probably a better word in the circumstances. Restraint involves cutting the benefits of poor people and the pensions of the police, the nurses and the teachers. Restraint involves capping the pay of public employees. They have certainly been losing out. In 2009, I said that the two banks that were being semi-nationalised should have the normal public sector pay policies applied to them, and I think most people in this country would agree with that.

[Kelvin Hopkins]

I am greatly enjoying my right hon. Friend’s speech, and I agree with every word of it. Does he not find it interesting that Lord Lawson has recently suggested that the Royal Bank of Scotland should be brought completely into public ownership? That would involve only a small amount of money, and we would then have a bank that was publicly accountable and responsible.

[Frank Dobson]

I entirely agree with that. I also agree with my hon. Friend the Member for Bassetlaw that it would be good to see the Halifax building society separated out from Lloyds HBOS, so that what was the country’s leading firm could be relocated and its decisions could once again be made in Halifax, rather than in the City of London.

Let us remember that while the people who are nursing the sick and carrying out operations in hospitals, the people who are teaching our children, the people who are policing our streets and the people who are risking their lives to fight fires are being restricted, HSBC is paying 204 people more than £1 million a year, Barclays is paying 428 people more than £1 million a year and RBS is paying 95 people more than £1 million a year. They are being paid those sums to play with other people’s money. That is all they are doing; if they lose but cannot go broke, they are clearly not playing with their own money. But not everyone at Barclays is getting £1 million a year; 100,000 people working for that bank are paid at a level that entitles them to child tax credit. What is more, it is people such as them all around the country who have been losing their jobs while that collection of losers at the top carry on.

Then we have the Prime Minister and the Chancellor, whose top priority in Europe is to prevent those horrible Europeans from imposing a limit on bankers’ bonuses. We used to be told that if we imposed such limits, the bankers would go elsewhere. We were told that they would go to Switzerland. Well, they will not be doing that since the referendum in that country, because they would now be worse off there than they would be here. Would they perhaps go to the United States? Some of them would have to think very carefully about that, because money launderers can be locked up over there, and that has indeed happened, even to Brits.

What all this boils down to is that the banking industry does not need mild tinkering; it needs a total worldwide transformation. Instead of acting as the back marker in the convoy, we ought to be out there banging a drum and getting a grip on the world banking industry, for the benefit of ordinary people in virtually every part of the world.

--- Later in debate ---

[Mr Meacher]

I do agree, and I know that the hon. Gentleman believes that banks have far too much power to create money out of nothing. He and I may not agree on exactly how that can be dealt with, but it certainly needs to be dealt with.

[Frank Dobson]

Does my right hon. Friend agree that one of the characteristics of our banking system is that the banks have invested more money in fancy offices in the City for themselves than in British manufacturing industry?

[Mr Meacher]

That is also true. My right hon. Friend listed some of the huge abuses that have been turned to the private benefit of the bankers and the people at the top, and that is another example.

Our balance of payments problem cannot be allowed to continue. That is integral to our future. If Britain is to achieve what we all want—a long-term recovery with stable growth and full employment—we need a lending system that prioritises manufacturing, construction and export promotion, and allocates credit in accordance with the national interest rather than the private interest of banking executives and traders. The Bill is concerned almost exclusively with limited regulation. All the historical evidence suggests that it is likely to be highly ineffective even on that score, but its real fault is that it does not even address the central issue in the financial sector, which is immensely important and crucial to Britain’s survival. This is a feeble Bill, and the next Government will have to introduce a proper Bill to achieve the necessary regulation.

--- Later in debate ---

[Frank Dobson]

The hon. Gentleman is fairly youthful, so he may not remember the time when most big banks had local bank managers and so had some of the characteristics of the Bank of Dave, in that there was someone local who knew the locality and its businesses. Many people now find that they apply to the bank and the algorithm says no.

[Steve Baker]

My bank manager is named Guy Birkby, and I am sure that he would not wish to be compared with Dave Fishwick because he is an employee of Handelsbanken. I moved my money to Handelsbanken specifically so that I could have a local bank manager who knows me. Indeed, when I ring the bank, people recognise my voice and off we go, and that is a far better way to do business. This particular combination of personal relationship and personal liability—in Dave’s case, not Handelsbanken’s—is a way to re-establish trust. What are the other ways of doing that? They are unlimited liability, which I have discussed, trustee savings banks and mutuals. I am afraid that one of the big flaws of the big bang was that it encouraged this limited liability corporate form where nobody ends up taking the risk and it falls to the taxpayer—it is a disaster.

On ring-fencing, I very much share the comments made by the Father of the House, my right hon. Friend the Member for Louth and Horncastle (Sir Peter Tapsell). I am extremely sceptical that ring-fencing will work. I think that the efforts in the Bill are extremely brave, and of course I shall support it, but this is the last brave attempt to prop up the contemporary monetary orthodoxy. I shall come back to that subject after talking about depositor preference. When we combine the ring fence with the particular instance of taxpayer-funded compensation, there is a real problem that the same old incentives are being preserved. Commercial risk is being subsidised by the taxpayer and to deal with the consequences of having encouraged that reckless behaviour at taxpayer expense an attempt will then be made to regulate those risks away—it has not worked before and it will not work now.

On depositor preference, I have learned through my last five or six years of working with academic economics that if there is one subject we cannot resolve it is who owns—or should own—the money in someone’s bank account and what the contractual obligations should be. In other words, if someone’s money is on demand and they can have it back any time, should there be a 100% reserve—it is their property and the bank is safekeeping it—or should it be the bank’s property which it can use to fund itself?

That question is extremely difficult to resolve, but I shall just cite a speech I have used before, in which the Earl of Caithness said:

“The current crisis, like previous ones, emanated from a base of judicial decisions. Prior to 1811, title to the money in depositors’ accounts belonged to the depositor. However, in that year, decisions in Carr v Carr and, in 1848, Foley v Hill gave legal status to the banking practice of removing depositors’ money from their accounts and lending it to others. Since then, title to depositors’ money has transferred from the depositor to the bank at the moment when the deposit is made.”—[Official Report, House of Lords, 5 February 2009; Vol. 707, c. 774-75.]

That goes very much to the point about the money creation process on which the right hon. Member for Oldham West and Royton (Mr Meacher) and I had an exchange. There was a time when this fractional reserve process created money, but that has now become meaningless, as banks are able to lend with almost no restraint. As I explained in my maiden speech, that is the fundamental reason for this massive boom-bust cycle.

I try never to have an idea of my own on these matters, so let me come back to what Irving Fisher wrote in 1935, when he brought forward a plan for 100% money. He said:

“The essence of the 100% plan is to make money independent of loans; that is, to divorce the process of creating and destroying money from the business of banking. A purely incidental result would be to make banking safer and more profitable; but by far the most important result would be the prevention of great booms and depressions by ending the chronic inflations and deflations which have ever been the curse of mankind and which have sprung largely from banking.”

So I return to David Fishwick, because he knows instinctively, as a business man, that if he takes somebody’s money on demand deposit he should 100% reserve it, in case they want it back.

By this point, I will have upset my friend Professor Kevin Dowd, who was a tutor to Andy Haldane at the Bank of England. I have had the privilege of meeting both of them to discuss these matters. Kevin is a free banker—he would believe in fractional reserves on demand deposits, without a shadow—but in his banking system there would be no limited liability and no taxpayer-funded deposit insurance, banks would issue their own notes and money, at bottom, would be gold. That commodity backing would limit the banks’ ability to create deposits.

There is also a problem in our banking system with accounting, which is another area where I have introduced a Bill. Since I did so, significant progress has, thank goodness, been made on one aspect—loan loss provisioning, which Members can refer to in the media. However, there is another problem with international financial reporting standards accounting for banks, which is mark-to-market accounting. We have heard today the story of how banks have securitised lending and sold it. In a chronically inflationary banking system where banks lent money into existence and, as we heard from another hon. Member, were encouraged to make bad loans—they were creating money to make bad loans into property—they of course wanted to get this off their books. So they wrapped it up in a bond, insured it with a derivative and sold it. They did not even have to sell it. They just took this instrument, moved it from one accounting book to another and they could then immediately mark its value to market. What does that mean in plain terms? It means that one can take 30 years of cash flows, unrealised, from mortgages not yet paid, and by marking them to market within a bond, around a vehicle that is all these mortgages securitised, one can take bad loans—loans that probably will not be repaid—and take it all as profit in capital today. You can pay yourself a massive bonus out of cash not realised—out of capital.

If hon. Members and the Minister wish to know more about how this works, I hope that they will look at my colleague Gordon Kerr’s book, “The Law of Opposites: Illusory profits in the financial sector”. Gordon has spent many years engineering financial products. In a sense, he is a dissident banker gone good. In that book, he explains how those accounting problems, combined with easy money, create so many of the problems that are, as Fisher said, the curse of mankind today.

At bottom, there will ultimately turn out to be two banking reforms that we should adopt. As I have said before—this is particularly the case for the question of the status of demand deposits, gold as the ultimate backing to money and so on—we will find in the end that the Bill is an honourable and brave attempt to prop up a contemporary monetary orthodoxy that is failing. This is the end of the post-Bretton Woods monetary order through which we have been living. We were told that it was a banking crisis. We learned a little later that it was a debt crisis. In a minute, people will realise that what we use as money is debt, that what the banks deal in is debt and that the vast majority of the money in our accounts was created by somebody else taking a loan. When that is accepted, we will discover that this is a monetary crisis. We will then find that there are two plausible ways to reform money and banking.

We could have 100% reserves on demand deposits and the preservation of state control over money and banking—that is, paper money, fiat money, the central banks planning interest rates, taxpayer backing and so on. That is the sort of plan advocated by my friend Jesús Huerta de Soto as a route to what we really should do, which is get the state out of money and banking. We should have a free banking system, as proposed by my friend Professor Kevin Dowd. He has brought forward a plan called “two days, two weeks, two months”, which would return us to a free banking system backed by gold within that time scale. It would not need regulation and it would be just and moral because people would take responsibility for the things they did.

This is not the first time that a monetary order has come to an end. By some calculations, in the 20th century there were about eight global monetary orders. The thing that is remarkable about the post-Bretton Woods order is not that it is ending but that it has lasted so long. I am afraid that I agree that this Bill is not enough, but it makes some progress and I hope that it will be the last attempt to prop up a contemporary banking system that cannot last.

[Kelvin Hopkins (Luton North) (Lab)]

That was a fascinating speech by my good friend the hon. Member for Wycombe (Steve Baker). I cannot compete with his erudition; I have a much smaller speech on a smaller issue.

In 1983, I stood for Parliament on a manifesto that called for the public ownership of large sections of the banking system. It is an irony that large sections of it are now in public ownership, having been put there by people who profoundly disagree with and disbelieve in that process, but who were forced to do so or to let the system collapse. That is interesting. I certainly wish to see public ownership go further, as well as public regulation and accountability, as the risk in banking is being underwritten not by the borrowers but by the Government, by the state and by the citizen, and if risk is not and cannot be transferred, the ownership and accountability should be in public hands as well.

During the Minister’s opening speech, I mentioned audit and the appalling failures of the audit industry during the banking crisis. The hon. Member for Chichester (Mr Tyrie) said that more needs to be done, and much more certainly needs to be done. I hope that some component of the Bill, when it is amended, might deal with audit.

There is a need for radical reform of the rules governing audit. The Financial Reporting Council is undertaking a consultation on the new rules that will compel auditors to write what is called a commentary, flagging problems, risks or disagreements with management at audited companies and institutions in clear and comprehensible language so that shareholders can understand. That will be seen as controversial by company management, but will be welcomed by shareholders and, by the same token, by bank depositors and customers.

We should of course remind ourselves that auditors, above all, represent shareholders—or at least they should. In reality, however, they are taken on by managers so power is effectively in the hands of managers and shareholders, or bank depositors, and customers simply have to trust them. When an audit contract comes to an end, auditors are unlikely to be critical of managers for fear of failing to be re-engaged. The inevitable cosy relationship between auditors and managers lies at the heart of what has gone wrong in the banking sector.

If auditors had been doing their job properly and their audit reports had not been so opaque and impenetrable, the financial crisis would not have happened as it did. The fact that banks were gambling with worthless bits of paper based on sub-prime mortgages was the fundamental cause of the banking crisis, and it is not over yet. Auditors did not do their job in relation to the practice of bankers such as those at Northern Rock before and until it collapsed. If they had, we might have prevented that catastrophe.

[Frank Dobson]

Does my hon. Friend agree that it is a trifle irksome to listen to the radio or watch television and to hear someone from PricewaterhouseCoopers telling us what we ought to do for the future when PricewaterhouseCoopers audited Northern Rock and did not spot anything going wrong, or to hear about the famous Ernst and Young ITEM Club when the biggest item in the firm’s history is that it did not spot that Lehman Brothers were broke?

[Kelvin Hopkins]

I thank my right hon. Friend for that intervention, and I am just about to mention those great companies.

As if to reinforce the case for radical reform, on 22 February the Competition Commission published a report that was deeply critical of PricewaterhouseCoopers, Ernst and Young, Deloitte and KPMG—the big four—for a deep “misalignment” with shareholder interests. The commission made it clear that auditors and company executives had acted as a cabal to their mutual benefit and to the exclusion of the interests of investors. Under the definition of investors, we can include depositors and retail customers in the banking sector.

The commission concluded that the relationship between auditors and management has been too cosy and must be overhauled. The big four audit nearly 90% of all blue chip companies. One suggested remedy has been for the mandatory rotation of tendering so that after, for example, five years or so an audit company would have to relocate to other companies and could not be re-engaged. The companies engaging auditors would then be required to ask new auditors to compete for business. That would go some way towards breaking the unhealthy link between auditors and the companies they are supposed to be auditing.

Whatever new rules might be introduced, it is vital that auditors are compelled to ensure that their loyalties are to shareholders, depositors and customers and not to banking and company managers. Auditors failed to raise the alarm before the financial crisis and that must never happen again.

Economic Policy

Frank Dobson Excerpts

Monday 25th February 2013 Commons Chamber

[Mr Osborne]

My hon. Friend is right that what is completely extraordinary is that we have constant criticism from the shadow Chancellor of our fiscal policy but not a clue from him about what he would do except add to borrowing. He has made it very clear that he would add to borrowing, although he has not said by how much, and he has not said which of the cuts he would stick with and which he would oppose, so until we have a credible alternative, we will not have a credible shadow Chancellor.

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

The Chancellor, having abandoned the triple A rating as a benchmark, appears to have adopted the claim that he has created 1 million private sector jobs. Will he tell us how many of those jobs have in fact been transferred to the private sector, or franchised out to it, from the public sector?

[Mr Osborne]

Private sector employment is up by 1 million since the election, the unemployment rate is lower than when we came into office, female employment is at the highest level in our history and the inactivity rate is at its lowest since 1991, so even though there has been a necessary reduction in public sector jobs, which I think even the Opposition accept had to happen—at least, they used to—we have actually seen very healthy jobs growth in the economy.

The Economy

Frank Dobson Excerpts

Tuesday 11th December 2012 Commons Chamber

[Danny Alexander]

Thank you, Madam Deputy Speaker. I hope this debate will be conducted in a calm manner as befits the seriousness of the issues we are discussing.

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

Can the Chief Secretary to the Treasury tell the House of a single Tory or Liberal Democrat MP who objected to a PFI hospital or school being built in their constituency under the Labour Government?

[Danny Alexander]

Not off the top of my head, but I dare say that hon. Members on the Government Benches can speak for themselves. I have, however, heard a number of objections to the structure of PFI contracts. In fairness to the right hon. Gentleman, the PF2 model is not designed to abolish PFI and can play an important role in developing new projects. We want to strip away some of the most egregious features such as facilities management costs—a couple of years ago the Treasury was going to be charged several thousand pounds by the PFI holder for putting up a Christmas tree. That issue was resolved but it is a small example of the excessive costs involved. In Treasury questions earlier today the Chancellor gave an example concerning the cost of changing a light bulb in a hospital in Cumbria.

I am sure that on reflection the right hon. Member for Holborn and St Pancras (Frank Dobson) would agree that reforming PFI to strip out some unnecessary features such as facilities management costs and so on, and having a simpler, clearer model in which the taxpayer can share in any gains, is a big improvement. I hope that when he has looked at what is being proposed, he will welcome it.

--- Later in debate ---

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

As one of the ancients, I must say that I was heartened by the maiden speeches of my hon. Friends the Members for Middlesbrough (Andy McDonald), for Croydon North (Steve Reed) and for Rotherham (Sarah Champion), who brought a great deal of cogency and compassion to the debate. I look forward to their participating yet more.

I have been struck, yet again, by the extent to which the thinking of Conservative Members is utterly dominated by the myth of the Thatcher legacy: that she transformed the British economy and that it was saved from ruin through competition, deregulation and privatisation. One can expect Tories to think that, but a lot of commentators in the newspapers and on television and radio clearly take the same view. It is entirely erroneous. The annual economic growth under Mrs Thatcher was exactly the same as that under the Governments of Jim Callaghan and Harold Wilson who preceded her.

But Mrs Thatcher had no excuse. The windfall takings from privatisation and North sea oil amounted to £155 billion. Practically every other country in the world that had such a windfall established a sovereign wealth fund to be invested over a long period. Instead, these Tories who claim to be careful with money blew the lot.

[Kwasi Kwarteng]

Will the right hon. Gentleman give way?

[Frank Dobson]

No, I shall not give way for the time being because I cannot make up my mind whether the hon. Gentleman is here or not.

The hon. Member for Burnley (Gordon Birtwistle) ought to remember that Mrs Thatcher abolished apprenticeships. She did not invest in research, improving engineering, infrastructure or retooling British industry. Her real legacy was to introduce the almost total dominance of banking and finance into our economy. What a decade and a decade and a decade we got out of that!

The bankers’ bonus has become one of the greatest scandals of all time. The British Bankers Association, the trade group of these respectable bankers, actually ran the LIBOR rate rigging so that people could make money. The payment protection insurance scams were intended to make money—they were not a charitable effort. Barclays was involved in the LIBOR scandal, in the PPI scandal and in sanctions busting, and it managed to lose £7 billion in the crash. Its auditors, PricewaterhouseCoopers, apparently did not notice any of that. It should have noticed, because the bank was not involved in those things as a charity; it was getting a percentage of every transaction and one would have thought its auditors might have spotted that.

The magnificent HSBC was involved in the LIBOR and PPI scandals, and we now know it was involved in sanctions busting in Iran, Burma and North Korea. It has been involved in the financing of gunrunners and in money laundering from drug barons in Mexico. To facilitate the Mexican drug barons it opened not six, 60, 600 or 6,000 but 60,000 secret accounts for Mexicans in the Cayman Islands, and it received a percentage from each. HSBC was not in it as a charity; it was in it to get money.

Presumably, some of the bankers were paid bonuses for the profits they made from sanctions busting, gunrunning and money laundering, yet HSBC, the former masters of the universe, lost £27 billion in the crash and its auditors, KPMG, did not get a sniff of it—not a thing. That is a disgrace and is damaging our economy and the reputation of British businesses trying to get work abroad. People say, “Have you got one of these dodgy auditors? Have you got a dodgy banker on your team? It’s not very helpful if you have.” That is a real problem.

To make up for the mess that the bankers caused—and continue to cause—ordinary people in this country are expected to skimp and save. My hon. Friend the Member for Islington South and Finsbury (Emily Thornberry) shares the problem I have in my constituency of housing benefit. She will, therefore, be familiar with stories such as that of the woman who came to my advice service on Friday and lives in a council flat that was sold under the right to buy. She is expected to pay £485 rent to the private landlord who now owns that flat, but has been told that her benefit will come down by £160 a week, meaning she can no longer live there. Perhaps more importantly—even to decent, what used to be one-nation Tories—her nine-year-old daughter who is doing well at primary school will not be able to live in that flat any more, and neither will her 19-year-old son who is doing an apprenticeship. They will be driven out under what I first described—I know the Deputy Prime Minister does not like this description—as a policy of social cleansing.

The chair of the Tory party—when he isn’t Mr Green—says that people should not be able to live in places they cannot afford, but what about the people in my constituency who sweep the streets, keep the hospitals clean, work as nurses, drive buses and make the city work and a civilised place? They are exactly the people who are being driven out by the benefit changes, and I hope to God my party will vote against them.

--- Later in debate ---

[Frank Dobson]

Does the hon. Gentleman not think it rather odd that the Government are unprepared to give any estimate of how many of those “new private sector jobs” are ones that have been outsourced by the public sector? Has it not been estimated that even in the field of further education, the total approaches 200,000?

[George Freeman]

I am grateful for that intervention because it gives me the chance to make the fundamental point that Labour Members seem constantly unable to grasp—that every penny they spend from this Dispatch Box is money that has to be taken off this country’s citizens in tax, and that they will receive it only if it is earned by the private sector. It is the private sector that ultimately earns the money that the public sector spends. This Government’s rebalancing programme to restore our public finances will allow us once again to spend on the public sector sustainably with moneys earned by the private sector. That is one of the most crucial and important reforms made by this Government, and I welcome it.

Yes, the Office for Budget Responsibility has made clear what the Chancellor has consistently said—that this will be a long a fragile recovery and that it has been made worse by the crisis in the sclerotic eurozone, with the debts of the 2008 recession now being clearer than they were at the time. That has become clear not least because we now have the OBR—another of this Government’s important reforms—putting some transparency and honesty at the heart of Government statistics. That is not always comfortable, but it is an important—

[Frank Dobson]

Will the hon. Gentleman give way?

[George Freeman]

No, I have already given way to the right hon. Gentleman.

Of course we are in the process of a long and slow recovery, but the evidence—in terms of new jobs, the data on private sector growth, and the business community’s strong support for this statement and the measures previously announced by the Government—suggests that the policy of rebalancing the economy is right and working. We must have an economy that is led by the private sector. We need to do more to support industry and the knowledge economy, which this Government are doing, and we need to do more to support regional growth outside Greater London and the south-eastern area.

It is an irony of the last Labour Government that, despite preaching the language of regional economics, what it came down to was a vast tax transfer through the regional development agency structure. In my own field, more than £15 billion was spent on business support, but according to the Richard report, only 0.5% of that was received by businesses on the ground floor, as it were. The last Government embarked on a major boom in regional spending, but it was not sustainable. One of the sadnesses of this crisis is that many of the people who were offered jobs during that boom in the public sector are paying the price now. That is not their fault; it is the fault of those who were running the economy at the time, and I for one am waiting for them to say sorry.

The net growth figures are low at present, but that disguises a very important and profoundly positive change. We have rightly taken money out of the public sector in order to rebalance the economy and bring our public finances under control. The fact that the net growth figures are positive is a sign of the profound growth that is beginning to happen in the private sector, and which bodes well for our public finances in the long term.

I welcome the Government’s plan A-plus, which is intended to restore our public finances and get the deficit under control, and I welcome the fact that the annual deficit is now down by 25%, although there is more to be done. The plan is also intended to free up money to be invested in infrastructure. More than £20 billion has been committed to infrastructure projects that are long overdue, and last week £600 million of extra investment in science and the knowledge economy was announced. I shall say more about that in a moment. The truth is that we need a plan A-plus plus plus, but we do not need the plan B espoused by the Opposition. That B stands for borrowing, it stands for the bankruptcy of our public finances, and it stands for Balls.