Finance (No. 3) Bill

Geoffrey Robinson Excerpts

Tuesday 5th July 2011 Commons Chamber

[Chris Leslie]

Indeed, and there are ways the bank levy could be improved. It might be appropriate at this point to refer to the Government amendments 32 to 50, which are technical amendments. It would be useful if the Minister said whether the bank levy’s yield will be affected by those technical changes. Generally speaking, although the bank levy is a fine idea in theory, the way the Government are implementing it in practice is inadequate. It has been designed around a fixed yield of £2.5 billion to £2.6 billion, but when the Treasury originally published its design for the bank levy last June the banks complained that it would cost them £3.9 billion. The Chancellor listened to their complaints and, as a result, watered down his original plans. Indeed, he gave the banks a £20 billion tax-free allowance before they start paying the bank levy, thus bringing the yield back down to £2.5 billion to £2.6 billion.

[Mr Geoffrey Robinson (Coventry North West) (Lab)]

Does my hon. Friend agree that the Government’s bank levy was watered down as part of an agreement in their Project Merlin to secure a wider arrangement for lending by the banks into the economy, which we desperately need? Merlin has turned out to be an absolute flop: the first quarter figures for private sector lending to small and medium-sized businesses show that they are £2 billion short already. What a deal!

[Chris Leslie]

It is difficult to see how the Government thought that that would be the moment of catharsis—the moment when everybody said, “Yes, aren’t the banks doing their just bit? They’re now completely free from their obligations to the taxpayer.” Project Merlin clearly did not achieve that. The Chancellor made some tweaks to the negotiations on the Project Merlin arrangements—he did so in February, on the day of Treasury questions—and he then tweaked the rate again in the March Budget, after criticisms of the big corporation tax cut that the banks will enjoy. However, the bank levy is set at a relatively low rate, especially when we look at what is happening in France, Hungary, Portugal or Austria. Indeed, we even read in today’s Financial Times about the quasi-bank levy arrangements pursued by the Dutch Government.

In future years, the Government should increase the bank levy to ensure that the banks continue to pay their fair share of tax and so that taxpayers are not left picking up the bill for the crisis caused by the irresponsible actions that the banks pursued. That is why in May we called for the Government to review the bank levy and to publish a report of the analysis behind the rates that they had set and the thresholds that they had chosen. They refused to do that; however, as we have seen, they are now refusing even to review the possibility of repeating the bank bonus tax.

Why has the Chancellor failed to take action on excessive executive banker bonuses? At first, the coalition agreement suggested that the Government might well do something about this. It promised to

“bring forward detailed proposals for robust action to tackle unacceptable bonuses in the financial services sector; in developing these proposals, we will ensure they are effective in reducing risk.”

That is on page 9; it is one of the first things that the coalition put into its agreement. The Business Secretary recently described the bankers’ bonuses paid for this year as “offensive”, yet the Government could not even promote proper transparency on bonuses and remuneration, never mind taking action to ensure that they were fair and reasonable. The most that the Government could extract voluntarily from the banks was an agreement in Project Merlin to report anonymously on the total remuneration of the five highest-paid bank senior executives outside the board. The Government are not even forcing the banks to disclose all the bonuses over £1 million, which was a key recommendation of the Walker review. That would have been easy to implement, given that it was part of Labour’s own legislation. The provision is on the statute book, ready to be triggered.

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[Chris Leslie]

Indeed. That is precisely why the bonus payroll levy arrangements that we advocated excluded bonuses of up to £25,000 going to those working on the front line in the banks. We thought that those working at that level should not be affected by that particular payroll tax. What we are talking about now are senior executives. Stuart Gulliver, chief executive of HSBC, gained a £5.2 million bonus while Eric Daniels, the former chief executive of Lloyds, secured £1.45 million.

[Mr Robinson]

Does it occur to my hon. Friend, as it does to me from time to time, to ask what sort of activity these bankers engage in that can generate such enormous profits? Anybody who has worked in any competitive commercial sector in the UK, let alone the manufacturing sector, operating in the international economy, knows that those sorts of margins and returns cannot be generated in the real world. Are we heading back to the same sort of distortions that led to the previous crash?

[Chris Leslie]

There are serious issues about the balance of power between management and ownership. Many shareholders are also very exercised about excessive remuneration, compensation pay or call it what we will, and I believe that the balance of power needs addressing in the longer term. It is interesting to note how banks have tried to shift their remuneration approaches according to the political and tax arrangements of the day. While the Minister will no doubt tell us that bonus payouts for the City in 2010-11 were predicted to come down by 8% in comparison with 2009-10, what he will not tell us is that that apparent fall in bonuses was largely offset by a 7% increase in salaries for senior banking executives. The roundabout continues, but some people never lose out when it comes to this particular game.

Analysis of official earning figures by pay research specialists Income Data Services showed that large payouts in the financial sector during February and March this year helped to maintain payments during the 2011 bonus season at a similarly high level to that recorded in 2010. Not enough has changed; Ministers are not exercised or angry enough about this particular scandal, and action is necessary.

The fact is that banks are now more likely to pay discretionary bonuses, which would be captured by our proposed bonus tax, instead of paying the guaranteed bonuses that they used to get away with—the multi-year contractual bonuses that looked to the rest of us like salaries but that they called bonuses, which would not be caught. If the guaranteed bonuses become the exception and not the rule, as the Chancellor says, it might provide us with an opportunity to capture more of the discretionary bonuses through our bank bonus tax. As I said, we estimate the yield to be £2 billion.

We have to resolve the sense of anger felt by UK taxpayers towards the banking institutions that they had to bail out. The public are still rightly angry about the greed and irresponsibility of some of the senior executives at our largest banks and about the size of the bonuses. There is simmering anger out there still about the bonuses that continue to be paid when austerity is biting very hard for many of our constituents. Real and visible action is needed on bonuses, not secret voluntary arrangements behind closed doors between the big banks—as with Project Merlin, which the Chancellor pursued before. As my hon. Friend the Member for Coventry North West (Mr Robinson) described it, it was little more than a damp squib.

The banks provide an important utility in our society. They are a key part of our economy, and a strong banking sector is in all our interests. However, by talking tough and acting weak the Government are fuelling public anger while doing little to address the issues. They should stop treating people like fools, and do far more to ensure that the banks and senor banking executives are paying back their fair share—a fair share that could generate money to repair some of the damage to jobs and the economy, and help tens of thousands of young people to secure a decent start in employment.

We are not asking very much. We just want a review of whether the bank levy could be augmented with a repeat of the bonus tax. We want the taxpayer to be given a fair deal in return for rescuing the banks, and we want the Government to take seriously the threat of a lost generation of young people struggling to find work. A fair tax on banker bonuses to help people off the dole and into work is the best way to get the deficit down and stop Britain’s talent going to waste.

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[Stephen Williams]

I have not said, and I hope that the hon. Gentleman does not think, that I do not support what he is trying to achieve. We will have to hear from the Minister what work the Treasury is doing, or may have already done, to produce the facts and figures that we all want.

My final point on the amount that a Robin Hood tax could raise is about what it should be spent on. I have heard about a range of problems at home and abroad that could be solved by such a tax, but I entirely agree with the way in which the hon. Gentleman has refined those objectives down to dealing with poverty at home and abroad. I think we can agree at least on that.

[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.

[Alison McGovern]

Does my hon. Friend agree that one moment in history when the British Government did not act in that way, which I raise because it was important to my constituents, was when the Labour Government stood behind General Motors at Ellesmere Port to maintain that industry in my area at a time of deep economic troubles in this country?

[Mr Robinson]

That is right, and I supported that entirely. I support any large manufacturing company with a base in the UK that we are seeking not to protect, but to develop and expand. I have stressed the progressive loss of self-confidence in British manufacturing across the nation. That example involves a large American company. Although it had got into a much worse mess than the old British motor industry ever got into, because it was American it had a naive faith that it would be able to pull itself, and us, out of that situation.

There has been a loss of confidence in our industries. I will not delay the House by giving example after example, but the view of the Treasury, the old Board of Trade and the old Department for Industry—unbelievably misnamed—has always prevailed: that the Government can do nothing, and market forces must prevail. That is despite the fact that every country that was a real competitor of ours took exactly the opposite view, and ensured that their industries thrived and prospered. They were not protected, but they were supported. We have so many latent advantages that we simply ignored, to the advantage of others and to our own continuing and cumulative disadvantage. That is the point that I am trying to make.

This is by no means a digression from the debate, Mr Deputy Speaker. This is why the tax on the banks should be increased. The banking sector’s preponderance in the economy has to be reduced if we are to survive as a manufacturing and balanced economy in the future. In one way or another, that has to be done. What we have seen from the Government is a pathetic capitulation to the banks. It was difficult enough for us when we were trying to save the banking industry in the crisis, when it was in a bad state. When the banking industry is clearly on the way to recovery, there is absolutely no reason not to proceed with the bonus tax.

The only reason—with which I disagree—is that if we dare tax the banks, they will go abroad because they are being taxed too highly in the UK. This is another area where I would like a study to be done. To what extent is that really a risk? If it were a risk that major bankers would leave the UK in droves and we would have a denuded financial sector over night, it would have some benefits and a lot of disadvantages, but to what extent is it a risk? That could be studied. There are some hard-headed people in the Treasury who would certainly not agree with the banking point of view.

What is so special about the bankers that they can generate these huge profits and bonuses? I do not think that anybody knows. Anybody who thinks about it objectively thinks, “How can that be done?” The manufacturing industries in Germany and France, such as the telecoms sector and the car and lorry manufacturers, are sweating it out in their export markets. They are rebuilding the east of Germany and eastern Europe, and are now helping to industrialise China with massive exports of huge engineering resources. How can it be that they struggle to make 10% on turnover, but bankers can come in and generate huge profits—unrelated, as far as one can see, to any meaningful or socially useful activity, as Lord Turner said in another place?