Tax Avoidance and Evasion

Frank Dobson Excerpts

Thursday 13th September 2012 Commons Chamber

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

I congratulate my right hon. Friend the Member for Oldham West and Royton (Mr Meacher) on persuading the Backbench Business Committee to put forward this debate. It is clear that nobody really knows how much the rest of the tax-paying taxpayers are being swindled out of as a result of tax evasion, tax avoidance and late payment. All we know is that a huge amount of money is not being collected. The question is: whose fault is it?

One of the functions of the House of Commons is to identify who is to blame for waste and inefficiency. On the failure to collect tax we need look no further, as it is mainly our fault as Members of the House of Commons. The rich and the big corporations do not pay what they should, HMRC does not collect as much as it should, and Ministers and officials suggest laws and regulations that do not do what they should, but we pass those laws and regulations. It is our job to decide what tax should be paid, but we tend to forget that it is also our job to put in place statutes and regulations to make sure that the tax we have voted for actually gets paid.

We are pretty good at making sure that most working people pay income tax, national insurance, council tax and, generally, VAT, but when it comes to dealing with large corporations and very rich individuals, our record is, frankly, pathetic. We, the House of Commons, pass statutes and regulations that are simply not up to the job. Government after Government have announced that they are cracking down on tax avoidance and evasion, but the experts in the City keep weaselling away, finding loopholes in the laws we have passed. It is probably true that we will usually be one step behind the City tax advisers, but at the moment we are not one step behind, but stumbling along several laps of the track behind those working the scams in the City.

I believe that this House needs to get its act together. I am not suggesting that we change the way we decide what tax should be levied, but once that has been decided in the usual way, I believe that the practicalities of how it is to be collected should be subject to much better scrutiny and final detailed approval by the House. I suggest that a taxation Select Committee should be established to concentrate exclusively on ensuring that any tax we have voted for is actually collected. The Committee should be able to hire expert advisers and require written and oral evidence from Treasury and HMRC officials and outside witnesses.

The taxation Committee would not need to trespass on the wider aspects of economic and fiscal policy covered by the Treasury Committee. Its sole object would be to formulate new tax regulations and practices in order to give minimum scope for avoidance, evasion and late payment. It should also monitor continuously the effectiveness of any existing arrangements and so keep up with the latest scams. Were the House of Commons, by this approach, to give tax collection the priority it deserves, I believe it would result in much more effective law and practice. Whatever the outcome, it could not possibly be less effective than the present arrangements.

That is not the only problem. Parliament is being denied the right to know what is going on at HMRC. Most of us would agree that most of our fellow citizens are entitled to keep their tax affairs confidential but, like my right hon. Friend the Member for Barking (Margaret Hodge), the Chair of the Public Accounts Committee, I would argue that that anonymity should not apply to major corporations. I remind the House that recently we had the ridiculous situation in which our Public Accounts Committee was told that it could not be told the details and background of the deal that an individual HMRC official had come to with Vodafone because they referred to the affairs of an individual taxpayer. Some people believed that the scam involved Vodafone being let off a tax liability of £6 billion. No one, apart from one or two people at the Inland Revenue and at the company, knows what the truth is. Can we tolerate that lack of transparency and affordability over a sum that is roughly equal to the taxpayer subsidy to the agriculture industry?

I hope that colleagues in all parts of the House see at least some merit in what I am proposing and recognise that we simply cannot go on as we have been doing. Clearly any new arrangements would need to be very carefully thought through, but they really should not be the subject of party controversy. Two of the main rights of a freely elected Parliament are to pass practical and workable laws and to control the raising of tax. We have a duty to the people who sent us here to exercise those rights effectively and so make a better job of it than we have been doing for decades.

LIBOR (FSA Investigation)

Frank Dobson Excerpts

Monday 2nd July 2012 Commons Chamber

[Mr Speaker]

Order. There is a lot of interest but not much time. I am keen to accommodate as many as possible, but extreme brevity is required. So questions, please, without preamble.

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

Would the Chancellor of the Exchequer authorise Her Majesty’s Revenue and Customs to examine the personal taxation position of all the people involved in this scandal, because if they are willing to swindle everybody, the chances are that they are trying to swindle the Revenue?

[Mr Osborne]

The Chancellor of the Exchequer, hon. Members will be glad to know, under any Government, cannot direct the Revenue towards any individual. It would be a very sorry state in this country if I could direct the Revenue to the tax affairs of individuals, so I am not proposing to do that. However, as I have said at this Dispatch Box, and as others have said, this Government are introducing a general anti-avoidance rule, we are clamping down on stamp duty evasion and we have increased the resources from the budget we inherited from Labour when it comes to tackling tax evasion, and the Revenue is therefore well resourced to do its work.

LIBOR (FSA Investigation)

Frank Dobson Excerpts

Thursday 28th June 2012 Commons Chamber

[Mr Osborne]

It is true that the tripartite regulatory system—and one of the three parts was the Government of the day—failed. That is self-evident, which is why we are making these changes. It is disappointing that they do not command the full support of the Opposition Front Bench, but perhaps the hon. Member for Nottingham East (Chris Leslie), on his 40th birthday, will reconsider his position now that he has reached a new age of maturity.

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

Does the Chancellor of the Exchequer agree, in view of the fact that the already overpaid bankers have been revealed to have bolstered their bonuses by corruption and criminal conspiracy, that it is about time that the Government and, in particular, the news media gave far less credence to bankers and their apologists when they come out urging austerity on everyone else?

[Mr Osborne]

Of course, the credibility of the industry has quite rightly taken a hit because of what happened. However, we have a new pay regime so that we can claw back some of that money from the traders and bank chiefs involved, which is a good thing. Secondly—and we are all rightly concerned about what has happened, and we need to change it—we have to change the financial services industry from one that was part of the age of irresponsibility to an industry that employs many hundreds of thousands of people and which creates jobs and prosperity in this country. It is the largest private sector employer. Knowing the right hon. Gentleman’s constituency, it is almost certainly the largest private sector employer there. Yes, we have to hold those responsible to account, but we must also rebuild the industry, because it is absolutely vital to our economy.

Finance (No. 4) Bill

Frank Dobson Excerpts

Wednesday 18th April 2012 Commons Chamber

[Andrew Percy (Brigg and Goole) (Con)]

I rise to support the comments that have been made by my right hon. and hon. Friends from across east Yorkshire, who have outlined the terrible impact that the so-called caravan tax will have on the county. For the sake of brevity, I shall not repeat their arguments.

Instead, I shall concentrate on a particular document that has caused me considerable alarm. It has also alarmed one of the park owners in my constituency. My constituency also covers part of Lincolnshire, which contains a large number of holiday parks that will be affected by the measure. The HMRC document that outlines a summary of the impacts says of the economic impact:

“This measure might lead to a small increase in the price of static caravans”.

Even I can do the maths on that one, even though my bank balance might suggest otherwise. Applying 20% VAT to the price of a static caravan is not a small increase; it is a considerable increase. One of my park owners told me that the manufacturers sell their units for an average price of £25,000. Doing the math, as the Americans would say, we discover that that will mean an increase of £5,000, which is not a small increase at all.

That same park owner also wanted me to pass on to Ministers a point that I thought we all understood—namely, that businesses make decisions based on the tax regime that is in place, and that they look forward and make those decisions for the many years ahead. Another of my constituents has invested £500,000 this winter to extend the number of pitches on a holiday park that currently has 450 pitches. He said that the tax change would make it almost impossible for him to continue to employ the same number of people that he does at present, or for that expansion, in a relatively depressed area, to go ahead. I urge colleagues across the House to vote tonight to save that industry.

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

As the chair of the all-party parliamentary group on historic places of worship, I have been approached by people from all over the country and asked to come out against the proposal to take away the zero VAT rating on alterations to listed places of worship. Such alterations include improved access for the disabled, the installation of toilets and small kitchens, the provision of better heating and lighting and the introduction of more energy-efficient measures. They are not just for the congregation; they are for the whole community. They encourage the community use of religious buildings and make an increasing contribution to attracting tourists all over the country. These church buildings are vital, whether they be vast edifices like York Minster, of which as a York lad I am immensely proud, or small parish churches all over the country. The Government need to look again at this silly, stupid, unprecedented and unconsulted-on proposal.

[Mr Gauke]

We have had a thoughtful and impassioned debate this evening, and I am pleased to have the opportunity to set out the Government’s case for addressing some of the anomalies within the VAT system. In the time available, I will try to address as many points as possible, but I hope the Committee will forgive me if I do not take many interventions, so that I can cover as much ground as possible.

Let me begin with hot takeaway food. The current rules on the VATability of such food have been made complex and unfair by a patchwork of different legal decisions taken over the decades. The definition of hot takeaway food has been in place since 1984, and it applies to food that

“has been heated for the purposes of enabling it to be consumed at a temperature above ambient air temperature”

and that is

“above that temperature at the time it is provided to the customer”.

There have been repeated efforts since the 1980s, however, to chip away at this boundary. A number of businesses have argued in litigation that although the food they may provide to their customers is hot and is taken away, it should not be taxed as hot takeaway food, but should instead be zero-rated. Some have argued successfully that their intention was not to provide their customers with food to be eaten hot, but that they heated their food for other reasons instead—for hygiene reasons, or to finish the cooking process, or to provide evidence of freshness, or to create an aroma or to improve appearance, crispiness or texture.

Finance (No. 4) Bill

Frank Dobson Excerpts

Monday 16th April 2012 Commons Chamber

[Danny Alexander]

Very simply, for the reason that I have given several times today. We are raising five times more from the same group of people, which helps us to deliver the policy which we firmly believe is the best way to support working people on low and middle incomes and help them to keep more of what they earn.

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

Will the Chief Secretary give way?

[Danny Alexander]

No. I have been speaking for a long time, and I am going to make some progress now.

We have set ourselves the goal of raising the personal income tax-free allowance to £10,000. Clause 3 increases the personal allowance this year to £8,105. Together with the previous increase, that will lift more than a million low-income earners out of income tax completely. Moreover, we are going further and faster. In the Budget we announced the largest ever increase in the amount that people can earn tax-free—an increase, from next April, of £1,100 to £9,205. That tax cut will be worth £3.5 billion every year to working families. It will benefit more than 23 million people, and will be worth £220 in cash terms and £170 in real terms to every basic rate taxpayer. That is the biggest income tax cut for a generation. Taken with the previous increases, it means that this coalition Government will have halved the income tax paid by someone who works full time on the minimum wage, and lifted 2 million people out of tax altogether. We are living up to our commitment to support hard-working people and families across the country.

We are also reforming the age-related allowances available to those born before 6 April 1948. We recognise that pensioners need additional help, which is why we introduced the triple lock on pensions. The basic state pension will increase by 5.2% in April 2012, which is £127 more than was planned by the last Government and which constitutes the largest ever cash increase. Under our plans for age-related allowances, no pensioners will lose out in cash terms. Instead, given the huge increase in the personal allowance and the reduced difference between it and the age-related allowance, we will simplify the system. Those born before 6 April 1948 will benefit from the age-related allowance or the personal allowance, whichever is greater. That change will remove, in time, the complicated taper which the Public Accounts Committee called

“complex and hard to understand”.

This is a substantial Bill. It demonstrates the ambition that we need to secure a tax system and an economy that are built on fairness, that reward hard work, and that restore our private sector’s competitiveness. Even with that scale of ambition, however, the Bill makes substantial progress in simplifying our tax system and living up to our commitment to improving the way in which the Government develop tax policy. More than 75% of the measures in the Bill were announced in the 2011 Budget, with more than 400 pages of legislation published for consultation and more than 450 comments received in return. Through that openness, transparency and consultation, we are committed to building a simple and stable tax system that is easy to understand and easy to comply with. That is why we are addressing a number of loopholes and anomalies in the VAT system—introducing an anti-forestalling charge in clause 195—and why the Bill cuts large swathes of the tax code by implementing recommendations from the Office of Tax Simplification. I thank John Whiting and his team for their excellent work in that regard.

The Government are taking decisive action to restore our stability and return the country to prosperity. Our No. 1 priority remains dealing with the last Government’s legacy of crippling deficit and debt in a fair and sustainable way. Through this Finance Bill, we are continuing to ensure that the richest carry the heaviest burden. We are supporting businesses so that they can restore our global competitiveness, and we are supporting hard-working families on low and middle incomes. I commend the Bill to the House.

Banking Commission Report

Frank Dobson Excerpts

Monday 19th December 2011 Commons Chamber

[Mr Osborne]

I do not think that I have received a single submission on banking reform from the shadow Chancellor since he took up his job.

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

Will the Chancellor of the Exchequer confirm that nothing he has announced today will for the next five years reduce in any way the risk to the British taxpayer in the event of a British bank losing out on sovereign debt in the European Union in a way that damages its retail operations?

[Mr Osborne]

There are things that we have done and are doing now to make our banking system safer. Banks are required to hold more capital—more cushion—to protect them against losses, whether from sovereign debt or anything else. We regularly take part in pan-European stress tests, and actually the British banks pass those tests when other European banks do not. I think that that is because the British banking system is well capitalised and liquid.

We are also introducing a new system of regulation, which, as I say, will be operational in 2013; once the legislation has passed through the House of Commons, the Bank of England will be in charge. Furthermore, we are introducing the Vickers requirements over the next three and half years, until the general election at the end of this Parliament—we are getting all that legislation through as well. We are doing a huge amount to make the British banking system safer now, but also safer in future.

Royal Bank of Scotland (FSA Report)

Frank Dobson Excerpts

Monday 12th December 2011 Commons Chamber

[Mr Hoban]

I think that we should give careful consideration to the idea of debarring people who have been incompetent and mismanaged their leadership of institutions. That applies to the directors of those institutions, but it may also apply to the politicians who designed the system in the first place.

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

Let me begin by declaring an interest: my wife and I have both current and deposit accounts with the Royal Bank of Scotland. As one who was always in favour of tougher regulation of banks, I must also confess that I do not recall encountering an organisation before the collapse which could be described as “Tories for tougher banking regulation”.

Will the Minister confirm that the failures extend beyond the area that he has covered? Will he confirm that the auditor, Deloitte Touche Tohmatsu—which received substantial fees—did not seem to notice that there was anything wrong, and that the benighted rating agencies, which keep telling us what should be happening now, gave triple A ratings to both RBS and ABN AMRO right up to the day on which the balloon burst?

[Mr Hoban]

The right hon. Gentleman makes some important points, and clearly a number of institutions involved with RBS and the regulatory system more widely should bear responsibility for what happened, but let us be absolutely clear that the principal responsibility for the failure of RBS lies with its management.

Jobs and Growth

Frank Dobson Excerpts

Wednesday 12th October 2011 Commons Chamber

[Mr Osborne]

I give way to the right hon. Member for Holborn and St Pancras (Frank Dobson).

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

Why does the Chancellor give such credence to Standard & Poor’s, which gave triple A ratings to every stupid, risk-taking banker, including those in Northern Rock? Standard & Poor’s advised Northern Rock on one of its products for about a year, and then surprisingly gave Northern Rock a triple A rating. Why should we take any notice of people like that?

[Mr Osborne]

That, of course, is the attitude of the Labour party. It ignores entirely the views of the world bond markets and the credit rating agencies. That is exactly the approach that got Britain into this economic mess. Because the Government have a credible plan, we are pulling this country out of that mess.

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

I recall taking part in a number of debates on the economy before the general election and saying on several occasions that there were four ways to deal with the deficit: by cutting spending; by increasing taxation; through economic growth, which would be the most important way by far; and through inflation, the method that dare not speak its name. Since then we have seen the cuts, we have seen people losing their jobs and we have seen the economy undermined. The thing to remember is that when someone is thrown out of work we lose the output of their goods and services and, on average, they cost us £12,000 in tax not taken in and benefits paid out. We now have the highest jobless total since the one under the previous Tory Government. Some of us—not just Tories—have memories about what went on before.

[Gareth Johnson (Dartford) (Con)]

rose—

[Frank Dobson]

I am not going to give way to anybody because it takes up time from everybody else’s speeches.

VAT has been increased, and that hits the worst-off most. There has also been what is, in effect, a tax increase on everybody who has to commute to work: the massive fare increases that have been pushed through, which are far above the rate of inflation. We have certainly seen inflation. One of the reasons why Governments quite like inflation is that if they borrow £1 and there is 5% inflation, they pay back 95p instead of £1. That is why the Government have not taken any notice of the problems caused by the rate of inflation, but it certainly hits people’s pensions and wages.

As for growth, there simply isn’t any. Growth is needed both in this country and worldwide. Growth was the theme of the London G20 summit. I know that it is very unfashionable to praise the former Prime Minister, Gordon Brown, but the fact is that at that summit, and in the run-up to it, he did more than anybody in the world to convince all the Governments that they had to start investing more in the world economy. I have heard from someone else that it is Sarkozy’s private view that Gordon Brown’s intellect and drive—

[Mr Deputy Speaker (Mr Nigel Evans)]

Order. The right hon. Gentleman should refer to the former Prime Minister by his constituency.

[Frank Dobson]

I am sorry, Mr Deputy Speaker. It is Sarkozy’s view that it was the intellect and drive of my right hon. Friend the Member for Kirkcaldy and Cowdenbeath (Mr Brown) that virtually saved the world from a total disastrous slump.

Since then, the new UK Government have joined the backsliders; they are not going for growth, either here or worldwide. They have let the bankers and speculators back in charge, blaming public spending everywhere in the world and blaming public services for what has gone wrong. This Government have been delighted to wheel on witnesses defending their policy, but I ask people to look at who these famous witnesses are. They are the bankers, the financiers and the speculators—the people who caused the worldwide problem in the first place.

About two days before its recent unfortunate fraud case, a very distinguished person from UBS said that we needed austerity for all and then everything would be okay. Unfortunately, the interviewer did not ask, “Are you one of the people who lost £44 billion in the crash?” A couple of days later, someone from Citigroup was advocating austerity for all. Unfortunately, the interviewer did not say, “You are from the company that lost £60 billion in the crash. Why should we take a shred of notice of someone with your track record?” Then, my favourite, Ernst and Young, said that we needed austerity for all, but never mentioned being the auditors of Lehman Brothers. One would think that a period of silence—a decade of silence—would have been appropriate.

Frankly, we have seen that the bankers, financiers and speculators have far too much power in this world. We have the Alice in Wonderland situation where the banks cause a recession; the Greek economy declines; the banks in effect charge the Greeks exorbitant rates of interest; the banks, who created the crisis, then threaten the ability of the Greeks to pay them back, meaning that the Greeks might default; and, if the Greeks default, the banks default. The banks start it off, and in the end might default—and what happens? They do not rely on the private sector or market forces. They come grovelling to taxpayers all over Europe to ask them to bail them out of their stupidity—for that is what their policies are. We hear about social security scroungers, but the worst social security scrounger in the world does not compare to the scrounging banks when they get things wrong.

Finance (No. 3) Bill

Frank Dobson Excerpts

Tuesday 5th July 2011 Commons Chamber

[Chris Leslie]

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

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

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

[Chris Leslie]

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

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[Stephen Williams (Bristol West) (LD)]

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

[Frank Dobson]

They “might” benefit?

[Chris Leslie]

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

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

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

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[Chris Leslie]

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

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

[Frank Dobson]

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

[Chris Leslie]

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

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

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[Stephen Williams]

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

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

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

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

[Frank Dobson]

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

[Stephen Williams]

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

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[Mr Robinson]

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

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

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

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

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

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

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

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

[Frank Dobson]

They’re collecting their bonuses.

[Mr Robinson]

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

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

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

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

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

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

--- Later in debate ---

[Bill Esterson]

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

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

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

[Frank Dobson]

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

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

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

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

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

--- Later in debate ---

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

[Frank Dobson]

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

[Mr Hoban]

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

Finance (No. 3) Bill

Frank Dobson Excerpts

Monday 4th July 2011 Commons Chamber

[Stella Creasy]

The hon. Gentleman is being a little unfair to accuse me of not putting out a positive message about credit unions, given that I worked long and hard to set up the Waltham Forest community credit union and to secure it more than 4,000 members from my borough. My point is that when only 2% of the British public are part of a credit union, it cannot be the answer to the problems caused by these companies. The question is how to get the right mix, and I believe that regulation needs to be part of that mix. Of course extending access to affordable credit is part of the solution, but it will take decades for credit unions to provide a serious alternative to these companies from which people are borrowing and getting into debt with now.

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

rose—

[Stella Creasy]

I will give way very briefly.

[Frank Dobson]

In response to the intervention by the hon. Member for Stroud (Neil Carmichael), is it not a further problem that because of the cuts to citizens advice bureaux, welfare rights units and law centres, good advice, which might help people to steer clear of loan sharks, is less and less available? As the years go by and the cuts continue, the problem will get even worse and the inequalities will grow.

[Stella Creasy]

There is a real concern about the lack of advocacy services and about people’s inability to get help in negotiating with their creditors. I believe that we have to make credit affordable for all; payday lenders could be part of the mix if they were properly regulated. That is all that the new clause calls for.

Let me present some figures that might tempt Treasury Ministers when they see what could be achieved in the way of tax through this review. The Competition Commission inquiry into the lack of effective price competition in doorstep or door-to-door lending estimated that companies were making an excess profit of at least £150 million a year. The commission considered that 90% of that excess profit was made by Provident Financial alone. On that basis, Provident has made £675 million in excess profit out of low-income communities since 2005—a sum greater than the total amount of credit union lending that took place in 2010.

The Competition Commission’s findings showed that excess profits amounted to additional costs to the consumer of approximately £9 for every £100 lent. A cap on that basis would have allowed Provident to charge no more than £53 for every £100 lent in 2006—still a lot of money. Even allowing for inflation at about 4.5%, taxing credit lent at a rate of £63 per £100 lent in this market would save consumers some £18.80 on every £100 borrowed or about £94 on the cost of a typical £500 loan. Even if Ministers rejected looking at tax measures, they could look at how to introduce an effective cap on the cost of credit.

Let me be very clear: I do not want to see a cap on interest rates. I know that Members have been lobbied extensively on this and been given information about capping the costs of credit based on caps on interest rates. I do not believe that caps on interest rates work effectively. The European research shows that low caps in America have been problematic, but it points out that the more flexible caps in Europe have been effective in controlling the market.

There are many myths about capping the costs of credit, as there were about regulation and the minimum wage. To those who argue that capping the costs of credit would cut lending and put firms out of business, I say that they should look at Poland, France and Germany, which all have such caps. To those who fear that caps would encourage all banks to start charging 4,000% interest, I say that that clearly would not happen. The EU research shows that interest rate caps have in some cases led to less illegal lending, as consumers are better able to manage their borrowing requirements without turning to informal sources of credit.