Loan to Ireland

Greg Clark Excerpts

Monday 10th June 2013 Written Statements

[The Financial Secretary to the Treasury (Greg Clark)]

I would like to update the House on the loan to Ireland.

Ireland completed the ninth quarterly review of its International Monetary Fund and European Union programme of financial assistance on 22 April 2013, following which, the utilisation period for the seventh instalment of the UK bilateral loan began.

Upon request, the Treasury disbursed the seventh instalment of £403.37 million on 6 June 2013, with a maturity date of 7 December 2020.

The interest rate charged on the loan is calculated as set out in the loan agreement as the UK’s cost of funds plus a service fee of 18 basis points per annum, creating an effective per annum interest rate on this tranche of the loan of 2.331%. The UK more than covers its cost of funds.

The Treasury will provide a further report to Parliament in relation to the bilateral loan as required under the Loans to Ireland Act 2010 as soon as is practicable following the end of the next reporting period, which ends on 30 September 2013.

The Government believe that it is in our national interest that the Irish economy is successful and its banking system is stable. The Government continue to support Ireland’s efforts to improve its economic situation.

Oral Answers to Questions

Greg Clark Excerpts

Tuesday 14th May 2013 Commons Chamber

[Helen Goodman (Bishop Auckland) (Lab)]

Q6. What recent assessment he has made of the performance of the economy in the north-east; and if he will make a statement.

[The Financial Secretary to the Treasury (Greg Clark)]

Last year, the north-east was Britain’s biggest destination for inward investment, after London and Greater Manchester, it doubled its trade surplus in goods to the highest in England and saw unemployment fall faster than in any other region of the country. The north-east independent economic review, published last month, shows the region’s further huge potential, which the Government are determined to support.

[Helen Goodman]

In fact, after the £2.8 billion of cuts that the Government have imposed, unemployment in the north-east is 10%, which is the highest in the whole country. I am pleased that the Minister mentioned the independent review, which recommended a doubling of apprenticeships, significant investment in transport infrastructure and the locating of major public institutions, such as the business bank, in the north-east. Have the Government put forward any resource to make any of those things happen?

[Greg Clark]

First, I congratulate the hon. Lady’s team of Spennymoor on, I am afraid, beating my team of Tunbridge Wells in the final of the FA Vase at Wembley 10 days ago. If she was there—I am sure she was—she will have seen that Spennymoor’s approach was characterised by very positive play, and she would do well to pay tribute to the efforts made in the north-east in much the same way. Exports are growing, employment is growing and the number of apprenticeships has doubled since we came into office. I will visit Newcastle in two weeks to discuss the implementation of the economic review, which I hope she will support.

[Sir Alan Beith (Berwick-upon-Tweed) (LD)]

Will the Minister go a little further north when he goes to Newcastle and have a look at Northumberland, where we are proud of our record on exporting manufacturing businesses? Will he also continue the good work of Treasury Ministers in encouraging the Department for Transport to consider a properly dualled A1 to link us to the markets and places where we can do business in this country and abroad?

[Greg Clark]

I shall certainly do that. One of the bright spots in the north-east is its exporting of manufacturing goods, particularly in areas of high technology. Exports in specialised manufacturing were up 24% in the last year and power-generating machinery was up 20%. I shall certainly visit some of the businesses in the north-east, including in Northumberland, to encourage them to do more.

[Pat Glass (North West Durham) (Lab)]

Despite what the Minister says, the north-east’s unemployment is the highest in the country and continues to rise, with youth unemployment having reached dangerously high levels in constituencies such as mine. When will he introduce those recommendations in the economic review targeted at helping young people in the north-east?

[Greg Clark]

I welcome the hon. Lady’s support for the economic review and its proposals. She will know that under the city deal that we negotiated with Newcastle, which is already being implemented, sites are being prepared for new businesses to move in, creating valuable jobs. I hope that she will maintain that support for the proposals as we implement them.

[Richard Graham (Gloucester) (Con)]

rose—

--- Later in debate ---

[Katy Clark (North Ayrshire and Arran) (Lab)]

Q12. If he will introduce a statutory code of conduct for the banking industry.

[The Financial Secretary to the Treasury (Greg Clark)]

The Parliamentary Commission on Banking Standards was established to consider and report on professional standards and culture in the UK banking sector. The Government look forward to considering the commission’s report and we will make decisions on the need for further action in the light of its recommendations, including on whether there should be a code of conduct.

[Katy Clark]

A recent survey by Which? showed that 87% of the public wanted an independent code of conduct for bankers. Does the Minister agree that such a code would restore trust? Does he also believe that he should look again at the amendments on banking reform tabled by Labour proposing a licensing system that would enable bankers who broke the rules to be struck off?

[Greg Clark]

As the hon. Lady knows—her colleague the right hon. Member for Wolverhampton South East (Mr McFadden) might also like to comment on this—the commission has been hard at work considering various representations, including those from Which? and the British Bankers Association, on whether there should be a code of conduct. I am sure that the House would expect us to wait for the commission’s recommendations and then to respond to them.

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

Does the Minister agree that it was politically unwise for the Treasury to brief that it hoped the Parliamentary Commission on Banking Standards would endorse its politically motivated attacks on the previous Chancellor’s bail-out of the Royal Bank of Scotland? Does he further agree that the uppermost criterion for the reprivatisation of RBS must be the interests of the taxpayers who bailed it out, rather than any political or electoral timetable?

[Greg Clark]

It goes without saying that the interests of the taxpayer must be paramount, and I am not aware of any of the briefing that the right hon. Gentleman refers to.

[Paul Goggins (Wythenshawe and Sale East) (Lab)]

Q13. What assessment he has made of the obligations owed by Yorkshire bank to investors in Arck LLP.

[The Financial Secretary to the Treasury (Greg Clark)]

A Serious Fraud Office investigation into Arck is under way, and the Government cannot comment specifically on any ongoing investigations. However, lawyers acting on behalf of Arck investors have themselves announced that the Financial Ombudsman Service is investigating complaints about Yorkshire bank’s role as custodian to Arck LLP. If the FOS were to determine that there had been any regulatory breach or failure by Yorkshire bank, and that that had led to investor detriment, it would be able to set an appropriate level of restitution.

[Paul Goggins]

I am grateful to the Minister for that reply. A constituent of mine is one of the 750 investors who placed about £60 million of their pension funds and savings into a ring-fenced, segregated account at Yorkshire bank. When Arck LLP went into liquidation, it was discovered that there was just £25 left. The Minister must agree that Yorkshire bank has some serious questions to answer. Will he raise this case with the Financial Conduct Authority and do everything he can to ensure that those investors are properly compensated?

[Greg Clark]

I will certainly do that, but I happen to know that the Financial Conduct Authority is already well aware of the case, and it is obviously taking a close interest in the continuing police investigation.

[Mr John Baron (Basildon and Billericay) (Con)]

Q14. What steps he is taking further to reduce Government expenditure.

--- Later in debate ---

[Mr Graham Allen (Nottingham North) (Lab)]

Q15. What steps his Department has taken to promote the growth of a municipal bond market in the UK.

[The Financial Secretary to the Treasury (Greg Clark)]

Under the prudential system, local authorities are able to borrow for capital projects, providing they can afford the borrowing costs. Local authorities can choose the source of these funds and they are free to use municipal bonds where they wish to do so.

[Mr Allen]

I thank the Minister for his warm welcome for my second report about the financing of early intervention, entitled “Early Intervention: Smart Investment, Massive Savings”. One of the report’s recommendations was to free up local authorities to issue early intervention social impact bonds in order to fund early intervention in the localities. Will he meet me to discuss how we can take this forward?

[Greg Clark]

I certainly will meet the hon. Gentleman, who has been a pioneer in these matters. I have been very taken with his report’s recommendations. He points to some initiatives taking place in the US to have social impact bonds, and the authorities in London are keen on this, too. I am sure that he will want to continue his campaign; he will find a receptive counterpart in me.

[Ian Austin (Dudley North) (Lab)]

Q16. What recent assessment he has made of the extent to which the rate of increase of average earnings has kept up with the rate of consumer price inflation.

--- Later in debate ---

[Paul Blomfield (Sheffield Central) (Lab)]

T3. In just over an hour, in an unprecedented move, the bishops of Sheffield and Hallam and a delegation of civic, community and faith leaders will present a petition to No. 10 from thousands of Sheffielders calling for a fair deal for our city. Will Ministers accept their argument that the unfair distribution of cuts is having a disproportionate impact on cities such as Sheffield, widening inequality, hitting those who have least the hardest, and weakening the capacity of the council and the voluntary sector to support them?

[The Financial Secretary to the Treasury (Greg Clark)]

The hon. Gentleman should support the Sheffield city deal, which has been enthusiastically endorsed by civic and business leaders in Sheffield. The point of the deal is to improve the city’s record for getting people into work, thus ensuring that the growing businesses there can access a high-quality labour force.

[Damian Hinds (East Hampshire) (Con)]

T4. In the light of the Government’s commitment to helping families to save for their futures, can the Minister tell us when we will see the details of the consultation on the measure announced in the Budget to allow the transfer of savings from child trust funds to junior individual savings accounts?

--- Later in debate ---

[Caroline Lucas (Brighton, Pavilion) (Green)]

Given the increasing evidence, such as last month’s Carbon Tracker report, showing that so-called unburnable carbon assets pose a serious risk to the financial system, will the Minister look seriously at the proposal that companies should be required to disclose the carbon emissions potential of their fossil fuel assets?

[Greg Clark]

The first requirement is to assess the risk that the hon. Lady has described, and it is for the Bank of England to consider the systemic consequences. Should the Financial Policy Committee of the Bank of England conclude that investment in high-carbon assets poses a risk, it would have to report and explain that risk in its financial stability report.

[George Freeman (Mid Norfolk) (Con)]

Our banking sector is suffering the consequences of a state-sponsored boom in bad loans under the last Government. Has the Minister seen the news of the Co-op’s bad debts, including to the Labour party, and noted the withdrawal of Labour party funding from Lord Sainsbury? Does he agree that nothing better exemplifies the risks of Labour’s addiction to borrowing and trade union funding?

[Greg Clark]

I understand that the Co-op has lent more than £3 million to the Labour party. I would assess that as not being a particularly good credit risk; the Labour party has a toxic credit rating, and the experience has been that when it starts to borrow, it never pays the money back.

[Mr William Bain (Glasgow North East) (Lab)]

The youth employment rate is lower now than in 2009, with a shortfall of nearly 400,000 jobs, so why are the Government continuing to resist a tax on bank bonuses that would help put young people back into work?

Counter-Terrorist Asset Freezing Regime

Greg Clark Excerpts

Thursday 9th May 2013 Written Statements

[The Financial Secretary to the Treasury (Greg Clark)]

My noble friend the Commercial Secretary to the Treasury, Lord Deighton, has today made the following written ministerial statement:

Under the Terrorist Asset-Freezing etc. Act 2010 (“TAFA 2010”), the Treasury is required to report to Parliament, quarterly, on its operation of the UK’s asset-freezing regime mandated by UN Security Council Resolution 1373.

This is the ninth report under the Act and it covers the period from 1 January 2013 to 31 March 2013. This report also covers the UK implementation of the UN al-Qaeda asset-freezing regime and the operation of the EU asset-freezing regime in the UK under EU regulation (EC) 2580/2001 which implements UNSCR 1373 against external terrorist threats to the EU. Under the UN al-Qaeda asset-freezing regime, the UN has responsibility for designations and the Treasury has responsibility for licensing and compliance with the regime in the UK under the Al-Qaeda (Asset-freezing) Regulations 2011. Under EU regulation 2580/2001, the EU has responsibility for designations and the Treasury has responsibility for licensing and compliance with the regime in the UK under part 1 of TAFA 2010.

Annexes A and B to this statement provide a breakdown, by name, of all those designated by the UK and the EU in pursuance of UN Security Council Resolution 1373.

During this period the Treasury response to the independent reviewer’s second report was laid in Parliament.

The following table sets out the key asset-freezing activity in the UK during the quarter ending 31 March 2013:

Loans to Ireland

Greg Clark Excerpts

Thursday 25th April 2013 Written Statements

[The Financial Secretary to the Treasury (Greg Clark)]

HM Treasury has today provided a further report to Parliament in relation to Irish loans as required under the Loans to Ireland Act 2010. The report relates to the period from 1 October 2012 to 31 March 2013.

A written ministerial statement on the previous statutory report on the loan to Ireland was laid in Parliament on 15 October 2012, Official Report, column 1WS.

Payment and Settlement Systems

Greg Clark Excerpts

Thursday 25th April 2013 Written Statements

[The Financial Secretary to the Treasury (Greg Clark)]

HM Treasury has today published a consultation document setting out its plans to change the way that systemically important payment and settlement systems are dealt with in the event of insolvency.

Under the proposed special administration regime, the administrator would have the overarching objective to maintain the continuity of the insolvent firm’s critical services, thereby ensuring that the failure of such a company would not threaten the stability of the wider financial sector.

The Government are determined to ensure that no firm, of whatever type, threatens financial stability in the event of failure. Today’s consultation is just the latest step in the Government’s efforts to learn the lessons of the past and to create a safer financial system for the future.

Copies of the consultation document have been deposited in the House Libraries.

Investment Banks

Greg Clark Excerpts

Tuesday 23rd April 2013 Written Statements

[The Financial Secretary to the Treasury (Greg Clark)]

HM Treasury is today laying before Parliament a copy of the report of Peter Bloxham’s review of the Investment Bank Special Administration Regulations 2011.

Those regulations, made under the Banking Act 2009, came into force on 8 February 2011. In accordance with section 236 of the Act, the Treasury arranged for a review of the effect of the regulations to be completed within two years of the date on which those regulations came into force. Mr Bloxham was appointed on 28 November 2012, and reported to the Treasury on 7 February 2013.

The Act requires a review of investment bank insolvency regulations to consider, in particular, how far the regulations are achieving the objectives specified for the special administration regime, and whether the regulations should continue to have effect. The specified objectives are:

identifying, protecting, and facilitating the return of client assets;

protecting creditors’ rights;

ensuring certainty for investment banks, creditors, clients, liquidators and administrators;

minimising the disruption of business and markets; and

maximising the efficiency and effectiveness of the financial services industry in the United Kingdom.

Mr Bloxham’s terms of reference set out a two-stage process. The first stage asked him to answer the statutory questions set out above in a report to Treasury. The second stage asks him to consider further possible changes to the special administration regime to improve its operation, as well as wider changes which might provide for a better administration process beyond the narrow bounds of the regime itself.

He concludes that the special administration regime does fulfil a useful purpose and should therefore be retained, but subject to amendment. His report goes on to make a number of recommendations for possible improvement.

The Treasury welcomes this report and accepts the conclusion that the investment firm special administration regime should be retained. The Treasury also accepts that amendments to that regime will be necessary if it is to be better able to fulfil the objectives set for it.

I have therefore asked Peter Bloxham to consider further possible changes to the regime, as recommended in his report. I expect him to report to the Treasury over the summer. The Treasury will also lay that report before Parliament and make a further statement.

Section 5 of the European Communities (Amendment) Act 1993

Greg Clark Excerpts

Monday 22nd April 2013 Commons Chamber

[The Financial Secretary to the Treasury (Greg Clark)]

I beg to move,

That this House approves, for the purposes of section 5 of the European Communities (Amendment) Act 1993, the Government’s assessment as set out in the Budget Report, combined with the Office for Budget Responsibility’s Economic and Fiscal Outlook, which forms the basis of the United Kingdom’s Convergence Programme.

I welcome this opportunity to listen to Members’ views on the British Government’s submission to be made this year under section 5 of the European Communities (Amendment) Act 1993. It is nice to see the hon. Member for Nottingham East (Chris Leslie) in his place. I think we have spent more time opposite each other than we have with our respective spouses in recent weeks.

As in previous years, the Government will provide information to the European Commission on the UK’s economic and budgetary position in line with our commitments under the EU stability and growth pact. This submission, known as the convergence programme, is a legal requirement under agreements this country has entered into, and of course the British Government take such commitments seriously. One must also say, however, that its very name represents something of a relic from a past age—a time when Britain was still ruled by a Government committed in principle to joining the single currency. I can assure the House that that era is well and truly dead and buried.

Members might well ask what purpose is served by this annual exercise and the associated debate in the House. [Interruption.] I thought that this might find an echo in the Chamber. Without wishing to anticipate Members’ contributions, which I look forward to, I would like to suggest three areas for this afternoon’s discussion. I wish first to debate British economic policy within the still relevant context of Europe; secondly, to consider the co-ordination of national economic policies across the EU; and thirdly to reflect on our great good fortune in not having joined the single currency, despite the siren voices heard in this place and elsewhere—thanks, in no small measure, to those who had the courage and foresight to speak against British involvement at a time when their warnings were subject to such derision.

[Kelvin Hopkins (Luton North) (Lab)]

I remember a time when all three major parties, the TUC and just about every good and great person across the land supported joining the exchange rate mechanism. I was one of those who from the beginning said that we should not do so. At the moment, we are all against the single currency, but I remember a time when even the Minister’s party was moving in that direction.

[Greg Clark]

I do not think that that is entirely right, although I happily acknowledge that the hon. Gentleman was on the side of right throughout. I remember working for the Foreign Secretary when he was leader of our party. In November 1997, when, as the hon. Gentleman said, the received opinion was that our joining was inevitable, my right hon. Friend made the courageous decision to set out in a lecture to the conference of the CBI, which then was in favour of joining, the forensic reasons why it would not be in our interests. He committed then, right at the beginning of the parliamentary process that resulted in these measures, to campaign for Britain to stay outside it. While I acknowledge the hon. Gentleman’s distinguished record, I think he would acknowledge that the Conservative party was the first party to commit itself to oppose these measures.

The Government plan to make their submission by 30 April, with the approval, we hope, of both Houses of Parliament. It explains the Government’s medium-term fiscal policies, as already set out in the 2012 autumn statement and Budget 2013, and includes the Office for Budget Responsibility’s forecasts. We think it right and proper to draw from previously published documents presented to Parliament, rather than incur the cost and time to produce bespoke documents for this purpose.

[Mr William Cash (Stone) (Con)]

Is my right hon. Friend aware that the very document to which he refers states:

“The IMF forecasts UK GDP per person to grow faster than the rest of the G7 between 2012 and 2017, with the exception of the US”?

Of course, he will have read the comments made by Madame Lagarde only yesterday. Does he not find them a little incongruous, given that the IMF is now taking rather a different view?

[Greg Clark]

The IMF is considering its view, and we will see what it has to say in the months ahead, when it issues its review. We have always been clear that, as we have advised all EU member states, keeping control of finances is an important precondition for growth. That is an important matter.

As I said, we have been parsimonious in not generating excess quantities of paper. Members will be aware—certainly my hon. Friend the Member for Stone (Mr Cash) will be—that we did not follow the advice that other countries followed and align our financial year to fit in with the norm in Europe. We think it right to stick with our financial year and make use of the documents presented.

With the Budget announcement having taken place on 20 March, shortly before Easter, I appreciate that the timetable was tight, but we made every effort to provide early copies of the convergence programme to the House and the other place in advance of this debate.

[Chris Leslie (Nottingham East) (Lab/Co-op)]

What was going on with the Order Paper before the debate? I think that the Leader of the House, or perhaps the Minister, tabled a motion not to have this debate, but to kick it up to a Delegated Legislation Committee. I understand that some hon. Members, including the hon. Member for Stone (Mr Cash), objected, and now we are not debating whether to have the debate upstairs. What was going on? Why did the Government try to shove this out of the line of sight?

[Greg Clark]

The hon. Gentleman is aware that I am always happy to debate with him, especially on the Floor of the House, which I very much prefer. He will know that at this time in the parliamentary Session, as we approach the end of the Parliament, the business managers—the Leader of the House is here—are particularly jealous of the Chamber’s time, including in respect of the sorts of debate we have had today. They had the foresight, however, to anticipate being fortunate enough to have some time today on the Floor of the House. It was right, therefore, that we agreed with the proposal, and here we are today.

As I said, we have economically re-versioned the Budget 2013 document to set out the Government’s assessment of the UK’s medium-term economic and budgetary position. As confirmed by the independent OBR, the UK economy is still recovering from the biggest financial crisis in generations, one of the deepest recessions suffered by any major economy and a decade of hollow growth built on unsustainable debt levels. In June 2010, the Government set out a comprehensive strategy to deal with the deficit, protect the economy and provide for the foundations of recovery. This economic plan combines monetary activism with fiscal responsibility and supply side reform.

The Government are making progress. We have restored fiscal credibility, thus enabling an activist monetarist policy and the automatic stabilisers to support the economy. The deficit has been cut by a third over three years and is projected to fall in every year of the forecast. The OBR has judged that the Government remain on track to meet the fiscal mandate one year early, while 1.25 million private sector jobs have been created. Employment is just below record levels and we have kept interest rates at near-record levels, helping families and businesses.

However, there is much more to do. It is important that we understand why the road to recovery has been more difficult than was first anticipated. Although Opposition Front Benchers profess an internationalist outlook, they sometimes debate economic policy as though Britain’s economy was closed off from the rest of the world and invulnerable to other countries.

[Mr David Nuttall (Bury North) (Con)]

Given that we have faithfully submitted convergence programme documents every year for a number of years, is the Minister as surprised as I am that some of our continental neighbours have not taken a bit more notice of the path that this Government have pursued or taken a bit more action to get their spending in line, as this Government have?

[Greg Clark]

In fact, some countries are recognising that, but we want to set an example. It is important that we stick to our plans and continue to benefit from the confidence that the markets have shown through the level of interest rates. We also say in our deliberations in Brussels, as well as making the point in budget discussions, that when times are difficult, belts need to tightened.

[Kelvin Hopkins]

I must say that I am astonished. It is almost as if no one in the Chamber has read the newspapers over the weekend and seen the IMF report that it got the premise for austerity completely wrong. Owing to a mistaken figure in a spreadsheet, we are all going for austerity, which is a terrible mistake. Is that not the reality?

[Greg Clark]

I do not agree with that. The hon. Gentleman will be aware that the IMF recommends to many countries around the world, not least in Europe—this is the point my hon. Friend the Member for Bury North (Mr Nuttall) referred to—that they should get their public finances in order.

When the Office for Budget Responsibility revised its forecast for global economic growth—and eurozone growth in particular—and world trade downwards, that had an inevitable impact on UK growth, given that the euro area is the destination for 40% of UK exports. Over the past year, net trade was the key factor in the underperformance of the economy relative to earlier OBR forecasts, as well as in the downward revision of the forecasts this year and the year after. Fiscal consolidation, on the other hand, has not had a larger drag on the economy than the OBR expected in June 2010. Indeed, the UK’s fiscal situation argues strongly in favour of maintaining our commitment to deficit reduction.

Opposition Members sometimes accuse us of going too far, too fast, but there is further to go and we must get there as fast as we sensibly can, not least because so much rests on the market-tested credibility earned by this Government. The near historic low gilt yields that underpin the low interest rates that are so important to millions of households and businesses cannot be put at risk. As shown by global developments, the consequence of losing market confidence can be sudden and severe. A sharp rise in interest rates would be particularly damaging to an economy weighed down by the burden of so much public, corporate and personal debt, built up during a time when it should not have been.

[Mr Cash]

The OBR’s executive summary states:

“Public sector net debt…is forecast to peak at 85.6 per cent of GDP in 2016-17, rather than 79.9 per cent a year earlier as in our December forecast.”

In reality, debt is simply out of control, although much of it is the responsibility of the previous Government.

[Greg Clark]

Of course my hon. Friend is right that the inevitable consequence of running a deficit is that debt increases. It continues to be our purpose to reduce the deficit and return the economy to a balanced budget in order to start to pay down debt, and it is important that we should do that.

Budget 2013 also set out measures to equip the UK to compete in a global race. The Government will give every business and charity a £2,000 allowance towards their national insurance contributions from April 2014, benefiting more than 1 million businesses. We will achieve the ambition for the UK tax system to be one of the most competitive in the world, which includes a further cut in corporation tax to 20%—the joint lowest in the G20—from April 2015. We will increase capital investment plans by £3 billion a year from 2015-16. Public investment will be higher on average over this Parliament and the next than under the previous Government. We will devolve a greater proportion of growth-related spending to local areas from April 2015, in response to Lord Heseltine’s review.

As well as action in the UK to tackle the economic challenges that we face, progress needs to be made to tackle the crisis in the euro areas. However, the growth challenges in Europe continue to be serious, as every Member is aware. We have seen a welcome fall in borrowing rates, particularly for Spain and Italy, from the high levels that they reached last summer, but recent events in Cyprus remind us—and leave us in no doubt—that the euro area continues to be a fragile environment. Only a sustained period of successful reforms and improvements in financial markets can lay the foundations for growth. Economic activity in the European Union remains subdued. In the euro area, most of the so-called peripheral economies are in pronounced recessions, with weak labour markets, adverse credit conditions and an ongoing process of deleveraging all weighing on growth.

Structural reforms at the national level should be supported by the co-ordination of progress towards freer markets at the EU level. The improvement of the single market, regulatory reform and free trade agreements can all help to improve the growth prospects of every country in the EU at a minimal cost. This is a critical agenda that the UK and other like-minded states have advanced at successive European Councils, including in March, and we will continue to push.

[Mr Cash]

My right hon. Friend says that it is critical that we enter into EU free trade agreements. I hope he appreciates that under the majority voting system, the power of the European Commission under the Lisbon treaty means that at present our influence is only 8% at maximum—although it will shortly rise, albeit to only 12%. The whole policy will effectively be driven by the European Union and its objectives, which are largely dominated by Germany. It will not be in British interests.

[Greg Clark]

It is possible for our influence to go beyond our voting weight, just as there are Members of this House—I might include my hon. Friend in this—whose influence goes beyond their proportional representation in this place. I hope he agrees with that.

It is important to maintain momentum on bilateral EU free trade agreements. Ninety per cent of global growth will come from outside Europe after 2015, so the EU needs an outward-looking trade agenda. A free trade agreement with the United States of America is, and must be, a major opportunity that should be pursued with all vigour. It is estimated that EU free trade agreements that are currently under way or in the pipeline could add £200 billion to EU GDP and create 2 million jobs across the EU. We welcome the European Commission’s stated commitment to bringing forward concrete proposals to reduce regulatory barriers for small and medium-sized enterprises. That is long overdue and we look forward to seeing those proposals in June.

It is estimated that removing all barriers in the single market would increase UK GDP by about 7%, while prices could fall by 5% due to increased competition. The single market already adds €600 billion a year to the EU’s economy. Further progress is possible. Ambitious implementation of the services directive by all member states could result in increased national incomes. Service liberalisation would be particularly beneficial to the UK, as services are an area of enormous comparative advantage, as we know, and the UK has had a trade surplus with the EU in services since 2005.

[Mark Reckless (Rochester and Strood) (Con)]

The Financial Secretary cites a number of reports that credit apparently enormously large gains to the single market and, potentially, other trade arrangements. May I ask him to look at the original reports with a certain scepticism? When I used to work with him, I think he would have been disappointed if I had done my analyses in the same slapdash way.

[Greg Clark]

One of the reasons why I was pleased to employ my hon. Friend was his forensic and questioning eye. He is absolutely right that when we look closely at the measures and their estimated impact, we should make our own assessment. However, I think that all of us, including my hon. Friend, would agree that a genuine single market in, for example, energy—an area in which he and I have an interest—could help to increase competition in the EU. As we know, competition is one way we can drive efficiency, which is very much in the interests of all citizens in this country and across the EU.

In addition to structural reforms involving each EU member state and the co-ordination of free trade policies at the EU level, we need reforms in the way the EU works. In his speech of 23 January, the Prime Minister proposed certain principles for reform. He said that the EU had to improve its competitiveness, to become a more flexible organisation, to ensure that its rules were fair for all members and to allow power to flow from the EU to its members and not just the other way around. He also said that the EU had to improve its democratic accountability and to re-engage with voters across Europe. It is national Parliaments that provide the true source of real democratic legitimacy and accountability in the EU. The fact that this debate tonight is being held at the behest of the Chairman of the European Scrutiny Committee serves only to underline that important fact.

Those objectives are complicated by the presence in the EU of the eurozone. Britain has an immediate interest in the stability of the single currency, and we need to be aware of the changes that a more tightly integrated euro area will bring to the EU’s present structure. It is important that we ensure that the EU continues to work for all its members, and that the interests of those outside the single currency should be acknowledged and, more specifically, protected. In particular, it should be understood that whatever binding surveillance eurozone members might agree on, Britain will not be bound by it.

As I said earlier, the convergence programme is, by its very nature, something that harks back to the days when it was simply assumed that Britain was on a one-way route to monetary union across the EU. As the hon. Member for Luton North (Kelvin Hopkins) has suggested, hindsight is a wonderful thing, but let us not forget that, at that time, he and many Conservative Members had the foresight to see any such convergence as the wishful thinking that it was—and, to a certain extent, still is. Those Members included my right hon. Friend the Member for Richmond (Yorks) (Mr Hague), now the Foreign Secretary. As the newly elected leader of the Conservative party in 1997, he had this to say about the idea of dragging Britain into the single currency:

“What are the chances that we will converge in the near future? What are the chances we will converge for ever, without ever diverging again? And would it be wise to run our economy so as to make it converge rather than prosper in its own right?”

Those were wise words, and I look forward to hearing many more in this debate.

--- Later in debate ---

[Chris Leslie]

Unfortunately, we are not likely to have a general election until 2015. I would be grateful if hon. Members did whatever they could to bring that forward a little, but heaven knows what state the economy will be in—even by the time we get to 26 June, which I believe encompasses the spending review period. I am sure that yet further revisions of these figures, which keep changing like shifting sands before us, will be made. We simply do not know what a future Labour Government will inherit—hopefully in 2015. I will get back to the right hon. Gentleman nearer the time. One thing seems clear to me: we have to take some bold action to stimulate the economy, rather than adopt this laissez-faire, arms-folded, non-interventionist approach. Even the Financial Secretary used to disparage that, but he has now signed up wholly to it.

[Greg Clark]

Does the hon. Gentleman agree with the right hon. Member for Morley and Outwood (Ed Balls), who said:

“Long-term interest rates are the simplest measure of monetary and fiscal…credibility”?

[Chris Leslie]

Long-term interest rates reflect a number of factors. Government Members would like to think that low bond yields were a reflection of fiscal policy measures alone—[Interruption.] The Minister should hear me out. He likes to think that that is the one test. As I say, it used to be retention of the triple A credit rating, but that has gone, so something else has had to be found. Long-term bond yields, however, are also a reflection of who is purchasing them. I do not know whether the Minister can help us out by elaborating on who exactly is purchasing the Government bond yields, because the Bank of England seems to be doing an awful lot. One branch of the UK Government institutions is helping out the other branch of Government institutions—depressing, of course, that yield. The Minister should not be too proud of market expectations that things are going to be so bad for so long that our interest rates are at the ultra-low level. It is not a reflection of fiscal policy; it is a reflection of expectations of future economic performance and of the interventions in monetary policy by the Bank of England.

[Chris Leslie]

That is why some in the bond markets in the City and even the IMF and other economic commentators and business leaders are increasingly saying—as PIMCO did today in its intervention on these issues—that we have to do something about this. Demand in the economy is cripplingly bad; we have to do something to take a different course. The Chancellor’s plan is not just failing; it is adding to our problems with the public finances. We will see the state of the deficit reduction plan and what is happening with this trajectory when we see the figures tomorrow. We hear of blaming the snow, blaming the royal wedding, blaming all sorts of other players including the European Union; it is amazing how we never hear that it is the fault of those who currently occupy the Treasury.

[Greg Clark]

I have a genuine question for the hon. Gentleman again. Was the shadow Chancellor wrong when he said:

“Long-term interests are the simplest measure of monetary and fiscal policy credibility”?

When he said that, interest rates were at 4.75%. Was he wrong?

[Chris Leslie]

The Minister can ask me the same question as many times as he likes, but I will give him exactly the same answer. There are a number of reflections and metrics for judging economic performance, but in these particularly stagnant economic circumstances, I do not think that he should wear as a badge of honour those ultra-low bond yields because they actually reflect low and depressed expectations about the future performance of the economy. He knows that that is true. It is also a reason why not just Moody’s but Fitch have taken out the legs from beneath the UK’s triple A credit rating after three years of stagnation, rising unemployment and billions more borrowing to pay for economic failure. It is time that the Treasury woke up and realised that its plan is causing long-term damage not just to the public finances, but to British families and businesses as they pay the price. When even their biggest allies—the IMF and the credit rating agencies—abandon the Government, it is time to put political pride aside and finally act to kick-start the economy.

Most independent forecasts suggest that on Thursday the GDP figures will show small positive growth, but growth of just 0.3% would simply mean that the economy was back to where it was six months ago. After three years of stagnation, we need to see decisive evidence this week that a strong and sustained recovery is finally under way—otherwise the Chancellor will definitely be in real trouble. We cannot seriously be expected to ratify this Budget Red Book as our representation to the European Union, or anyone else, of how our economy is performing.

Are we supposed to ignore the double downgrading of the UK’s credit rating, first by Moody’s and then by Fitch? Are we supposed to skim over the new figures from the Office for National Statistics, which show that the average weekly pay packet was £464 in February and £480 in the same month last year? That is the worst set of data since the ONS started recording such facts. Are we supposed to turn a blind eye to the fact that youth unemployment rose by more than 20,000 last month? The total figure is now just under 1 million. Should we just forget about the risks of that lost generation?

The Red Book is a staggering work of deception wrapped in the heroic conceit of a Government who are trying to fool people into thinking that they are on track. They are losing control of the public finances because they have lost the plot when it comes to the relationship between economic growth, jobs, the economy, and the revenues that we need in order to get the deficit down. It would be far simpler for the House to reject the motion and return the Government to the drawing board to get their act together and work on an alternative plan that might actually give us the bold action that we need, rather than the stagnation that we are suffering.

UK Convergence Programme (2012-13)

Greg Clark Excerpts

Thursday 18th April 2013 Written Statements

[The Financial Secretary to the Treasury (Greg Clark)]

Section 5 of the European Communities (Amendment) Act 1993 requires the Government to report to Parliament for its approval an assessment of the UK’s medium-term economic and budgetary position. This assessment, which has been prepared annually since 1994, currently comprises the Budget report and the Office for Budget Responsibility’s (OBR’s) economic and fiscal outlook.

This then forms the basis of the UK’s convergence programme, which is therefore based entirely on information already presented to Parliament. The UK is obliged to submit a convergence programme annually to the European Commission under article 121 of the treaty on the functioning of the European Union.

Article 121, along with article 126, is the legal basis for the stability and growth pact, which is the co-ordination mechanism for EU fiscal policies and requires member states to avoid excessive Government deficits. Although the UK is bound by the stability and growth pact, by virtue of its protocol to the treaty opting out of the euro, it is only required to “endeavour to avoid” excessive deficits. Unlike the euro area member states, the UK is not subject to sanctions at any stage of the European semester process.

Subject to the progress of Parliamentary business, debates will be held on 22 April for the House of Commons and 25 April for the House of Lords in order for both Houses to approve this assessment before the convergence programme is submitted to the Commission. While the convergence programme itself is not subject to parliamentary approval or amendment, I will deposit advanced copies of the document on 19 April that will be made available to Members through the Vote Office and Printed Paper Office.

The Budget report and the Office for Budget Responsibility’s economic and fiscal outlook were laid in Parliament on 20 March 2013. All of the information the convergence programme will contain has therefore already been published and made available to Members.

The UK’s convergence programme will be published in late April and will be available electronically via HM Treasury’s website after publication. It will be submitted to the EU by 30 April as required by the European Commission.

Finance (No. 2) Bill

Greg Clark Excerpts

Wednesday 17th April 2013 Commons Chamber

[Chris Leslie]

That is an option, and we certainly need to go back to the drawing board and make sure that we design the bank levy in a way that actually works. The proposition we have made in the amendment is to repeat the bank bonus tax that worked very successfully in 2009. That could be incorporated into the bank levy process—that is one option—to ensure that we get a fair share for the taxpayer, who has suffered as a consequence of the requirement to bail out the banks.

[The Financial Secretary to the Treasury (Greg Clark)]

Will the hon. Gentleman clarify whether his policy is for a one-off payroll tax or a permanent one?

[Chris Leslie]

This is where we need to look at the interplay with the bank levy. Clearly the levy should be a permanent way of ensuring that we net the right level of resource for the Treasury in recompense for the deficit that the banks created. It is possible to have a bank bonus tax that is more sustainable, but I am open to discussion with the Treasury about how that might work. Even if we netted less than the £3.5 billion that the first bank bonus tax brought in, it would still be considerably more on top of the bank levy, which clearly needs to be topped up. It is important that we look at that—

[Greg Clark]

Given that the hon. Gentleman clearly does not know whether it would be permanent or temporary, can he at least give an assurance to the Committee that he will not commit any spending to be funded by that levy that goes beyond any particular year?

[Chris Leslie]

I can tell the Minister that in this financial year it would be necessary for us to repeat that bank bonus tax. We will set out our tax and spending proposals when we write the manifesto for the general election. Heaven knows what kind of mess we will have to untangle after a further two years. It would be invidious to make decisions at this point in the cycle when the Minister will not tell us what is in the spending review in just two months’ time. We will make an assessment in two years’ time. I can certainly tell him that, from our point of view—this is a serious policy distinction—a bank bonus tax would be necessary now, particularly to help fund a compulsory jobs guarantee for young people. That is a necessity, given the unemployment figures we saw earlier today.

[Chris Leslie]

We feel that £2 billion could be raised this year from a repetition of the bank bonus tax. That would be an important contribution from those who are doing particularly well. I do not know whether the hon. Gentleman moves in those circles and whether he has seen, as though nothing much has changed in the world, how high bonuses continue to be. Yes, changes from the European Union and elsewhere are being forced on to the bonus culture, but bonuses are still excessively generous to the very lucky few. There are a number of reasons why the bank bonus tax would be good not just for the taxpayer, but in changing the culture in the sector itself. The tax raised £3.5 billion when it was last tried in 2009.

[Greg Clark]

At what rate would the bonus tax be to raise that amount of money this year?

[Chris Leslie]

I was anticipating that question from the Minister. This is the Minister who has tweaked and changed the rate, I think, five or six times in various Finance Bills, all to fit the £2.5 billion figure that he has totally failed to address. We need to go back to the drawing board on the bank levy and find a way of calculating it so that it properly yields the sums that we envisage. Of course, the bank levy has to be thought through, so that we get that resource in. It is totally unacceptable to have lost nearly £2 billion for the taxpayer in the past two financial years. Just think what that £2 billion could have achieved in that period. This is not small money. There is the classic chancellorial phrase, “A billion here, a billion there and very soon it starts to add up to real money”, but this is significant resource. It is to the great shame of Ministers that they have allowed that money to slip away from them.

--- Later in debate ---

[Chris Leslie]

The study commissioned by the Financial Times which showed the massive impact of the extreme austerity being pursued by the Government will bring home to many communities where some of the poorest people live the fact that that money and those resources are being taken out of their local economies.

[Greg Clark]

I am sorry to press the hon. Gentleman on this point, but can he answer a conundrum for me? He has helpfully said that he wants to raise £2 billion this year through his payroll tax. The Centre for Economics and Business Research estimates that this year’s bonus pool would be £1.6 billion in total. How will he raise £2 billion from that?

[Chris Leslie]

I do not recognise that figure. [Interruption.] The Minister is making various projections about the bonus pool, but even if the changes meant that we did not manage in years to come to yield what we now feel we can yield—he could equally make the argument that said, “Well, the European Union is making changes to limit bonuses,” which would obviously mean changes to salaries and elsewhere—what we are proposing would add considerably to the bank levy revenues that he has managed to generate. As we have set out in the amendment before the Committee, we need to incorporate a repeat of the bank payroll tax. It is important to recognise that, although I am happy for the Treasury to commission further research on the issue. If the Government are interested in this agenda and are starting to move in that direction, that might be useful.

--- Later in debate ---

[Greg Clark]

rose—

[Chris Leslie]

I want to move on, but I will give way to the Minister first.

[Greg Clark]

I thank the hon. Gentleman for giving way; he said earlier that he would do so.

The hon. Gentleman said that he had based his assumption on calculations. The authoritative source on these matters is the CBI, which has published figures consistently over time. It says that the bonus pool was £6.5 billion in 2010 and is £1.6 billion in 2013. Will he share with the Committee the calculations on which he has based his assumption about the bonus pool, and the source that he used? If he cannot do that, I hope he will desist, both in this debate and in future, from making any spending commitments that rely on a source that is fanciful.

[Chris Leslie]

I would be happy to enter into correspondence with the Minister about the matter. However, we feel that, according to a conservative estimate —I use the term, on this occasion, in a relatively pleasant way—£2 billion could be netted for the Exchequer, as opposed to the £3.5 billion that was netted in 2009.

Our amendment would require the Chancellor to

“review the possibility of incorporating a bank payroll tax within the bank levy”.

I am delighted that the Treasury has conceded that it wishes to engage in such a review. I am delighted that there has been a bit of movement in that regard. I would quite like to ask where the Liberal Democrats are on the issue, but then I would quite like to ask where the Liberal Democrats are generally—although I shall not dwell on that.

[Greg Clark]

I would like the hon. Gentleman to be more precise about the figures. He said that last time the payroll tax raised £3.4 billion—

[Chris Leslie]

I said £3.5 billion.

[Greg Clark]

The hon. Gentleman says that it was £3.5 billion. I am sure he will confirm that he has read the analysis published last year by Her Majesty’s Revenue and Customs, which clearly states that £3.4 billion is a gross receipts figure and that the net yield was £2.3 billion. He will agree with that, I am sure.

[Chris Leslie]

No. The figures given in the HMRC study were estimates—and, incidentally, it was not a study by the Office for Budget Responsibility. For “HMRC”, read “Ministers”. They may well pooh-pooh the payroll levy and the bank bonus tax, but we feel that there is ample evidence to demonstrate how it operated before and how it could and should operate again. If only Ministers would adopt a more “can do” attitude, rather than trying to deflect attention from the massive embarrassment of having promised to raise £2.5 billion from a bank levy and having brought in only £1.6 billion in the last financial year. Although we said year after year that the levy would not be strong enough, they turned a blind eye, and indeed they have turned a blind eye to their banker friends for far too long.

The Government have provided tax cuts amounting to £19 million in the last week by reducing the 50p rate to 45p. A massive number of bank executives are earning more than £1 million this year. A cursory study of the annual reports and accounts of some of the banks concerned—Opposition Members may wish to listen to this rather than talking among themselves—reveals that this year’s bonus results created a staggering number of millionaires. In the Royal Bank of Scotland, 93 bankers were given bonuses of more than £1 million. Given the tax cut, they will benefit to the tune of more than £6 million in the current financial year. Barclays originally reported that it had 428 millionaires, given bonuses. I have been told that only a third are UK-based, but that would still mean that 140 Barclays executives are benefiting from nearly £23 million in tax cuts granted by the Minister because of the reduction in the top band of income tax. Seventy-eight millionaires at HSBC have received a combined tax cut of £3.3 million. Nineteen individuals at Santander are receiving a giveaway of more than £800,000. Twenty-five millionaires at Lloyds are receiving from the Treasury a combined tax giveaway in this financial year of £1.3 million. So they are doing very well, thank you very much, from this Government.

--- Later in debate ---

[Geraint Davies]

That is precisely right, because the creative challenge is how to get the banking community to invest in jobs and small business, and one way is to take some money from them and create some jobs and small businesses. If they cannot work out how to do it, that seems a reasonable thing to do.

[Greg Clark]

Through the hon. Gentleman, perhaps I may express the dilemma that was raised by his hon. Friend the Member for Ogmore (Huw Irranca-Davies). I fear that a cruel deception is being perpetrated on the unemployed. They feel that a sum of money will be available to them, but it simply is not possible to raise £2 billion when the total bonus pool is less than that. I think they should know that.

[Geraint Davies]

Yes. Well, obviously, we clearly need to look at aggregate sums, but what is being debated here is—[Interruption.] What is being debated here is, is whether it is right that a community of people—I am talking particularly about people in the upper echelons of the banking community—who are making obscene bonuses should be given more and more money for doing no more work and having the taxpayers covering their backs in terms of risk, at a time when we are seeing an escalation of unemployment in various communities, including some that I represent, and when the very poorest are being asked to deal with obscene levels of pain in order to reduce the deficit problem.

--- Later in debate ---

[Sammy Wilson]

I will conclude on that basis. I hope that I have addressed some of the points made by coalition Members. The amendment should be supported on grounds of fairness, of improving the banking system and of ensuring that the money that the Government raise from this provision could be used to help to stimulate the economy.

[Greg Clark]

I am grateful to you, Ms Primarolo, for allowing me to get a word in edgeways in this debate. It has been a most illuminating debate. We have discovered that it is the policy of the Opposition to raise £2 billion from a bank bonus tax when the pool of bank bonuses this year is forecast to be £1.6 billion. The Opposition Front-Bench team was commended for proposing an imaginative measure. It certainly is imaginative. Indeed, it is the stuff of fantasy that more could be raised in revenue through a tax than is contained in the tax base to which it applies.

The Opposition have done this before, as I shall say later, and this is a familiar debate. We had this debate in 2011 and in 2012, and now the Opposition have tabled a more or less identical amendment on a policy that was introduced in the dying days of the last Labour Government for one year only—a payroll tax on banks. When the then Chancellor introduced it in December 2009, he insisted that it would be a one-off tax. Indeed, it was not even for a full year, but from December 2009 to April 2010. But in the Finance Bill Committee of the whole House almost exactly a year ago, the hon. Member for Pontypridd (Owen Smith) revealed:

“If Labour had won the election, it may have changed its view and continued the bank bonus tax.”

On reflection, he said,

“I think a Labour Government would have continued it”.—[Official Report, 18 April 2012; Vol. 543, c. 391.]

The annual reappearance of this temporary Labour tax should remind us all that whenever Labour proposes a temporary tax, it is best to assume that it is for life—

[Chris Leslie]

Will the Minister give way?

[Greg Clark]

The hon. Gentleman spoke for 45 minutes and I have about seven or eight minutes. I shall make some progress and try to give him an opportunity later.

The bonus tax raised a net amount of £2.3 billion for the Exchequer, and that was supposed to be that. Amazingly, the Labour party had no other plans to make the banks make any further contribution to the costs they imposed on taxpayers. I agree with the hon. Member for East Antrim (Sammy Wilson) on that point. After that £2.3 billion, it appeared that the banks had discharged their responsibility to the taxpayers. To be fair and to acknowledge the consistency of the Labour Government, they showed no indication during their 13 years in office that they wanted to extract a contribution from the banks, even when the Centre for Economics and Business Research estimated that bonuses amounted to £11.5 billion in 2007.

As we know, the Labour party was “intensely relaxed” about people getting filthy rich. We have taken a different view. We believed from the outset that it was right for banks to contribute more to the taxpayer than other companies which did not pose a risk to the Exchequer and to the taxpayer. We agree with the point about fairness, and that is why the Government introduced a permanent levy—not a one-off—on the balance sheets of banks in the first Finance Bill of the new Government.

As we intended that it should be permanent, rather than—as Labour preferred—for a single year, it was important to design it in a way that would raise money every year. The trouble with a bonus tax, as the former Chancellor eloquently put it, was that

“frankly, the very people you are after here are very good at getting out of these things and...will find all sorts of imaginative ways of avoiding it.”

That was why it could work only for a single year.

[Huw Irranca-Davies]

Has the Minister looked down the back of the Treasury sofas to find the £900 million a year that is missing? What has gone wrong?

[Greg Clark]

I will come on to that point, and the hon. Gentleman will be satisfied with my answer, as I hope he will acknowledge.

Balance sheets, unlike bonuses, cannot be hidden. They are more stable than bonus pools and so offer a far better way to collect a levy to benefit the public. Moreover, balance sheets are a better reflection of the risks, to the banking sector and to taxpayers, than remuneration, as set out by the International Monetary Fund in its 2010 report to the G20. That is why France and Germany quickly joined us in applying bank levies. They have subsequently been joined by Austria, Belgium, the Netherlands, Portugal and others. It is fair to say that those countries have not chosen to charge as much as we have. Relative to the size of our financial sector, our levy raises five times that raised by the French levy and two and a half times that raised by the German levy, but not one of these countries has thought fit to introduce a permanent bonus tax.

A permanent bonus tax would, of course, have been a catastrophically unreliable source of revenue, which is why I am very concerned that the spending commitments proposed by the hon. Member for Nottingham East (Chris Leslie) seem to be based on it. When the Labour tax was imposed, the Centre for Economics and Business Research estimated that the total pool of City bonuses was £6.7 billion. As I said earlier, it estimated that last year bonuses were £1.6 billion—less than a quarter of the 2010 level. With regard to the proposals from Europe, there might be some expectation that the levels will fall further.

A balance sheet tax is obviously a more stable, sustainable and sensible revenue base. However, to address the points made by the hon. Member for Nottingham East, balance sheets are not entirely invariable, which is why we have introduced a second element to the policy. We have specified that the bank levy should raise at least £2.5 billion a year, which is why we have clauses 200 and 201. The clauses increase the bank levy from 0.088% to 0.142% from 5 January 2014. The reason for these increases is simple: the forecast published by the independent Office for Budget Responsibility in December implied that without amendment receipts for future years would fall short of the £2.5 billion required and to which we are committed.

We announced in the autumn statement, as soon as these forecasts were published, an increase in the rate, which the Bill implements, to correct the shortfall. The March 2013 forecasts made by the OBR show that the levy is now forecast to raise more than £2.5 billion this year, and in all subsequent years. When the bank levy was first set, in Budget 2010, it took account of the planned reductions to corporation tax that were announced at the same time. Since then, as hon. Members know, the Government have been able to make further cuts to corporation tax. We have taken the view that this should not be passed on to the banks. Accordingly, clause 201 increases the bank levy to recover the benefit that would have been received from the cut in corporation tax.

To answer the point made by the hon. Member for Ogmore (Huw Irranca-Davies), the effect of these changes would be to cause the bank levy to yield not £2.5 billion in future, but £2.7 billion this year, and £2.9 billion for every year into the future. This extra revenue more than makes up for the shortfall in revenues experienced during the first two years.

Let me say something about clause 202, the other measure in the Bill relating to the bank levy. The clause removes an anomaly that would have been exploited, whereby banks could have claimed both a tax credit and a deduction for the same foreign bank levy. The view of Her Majesty’s Revenue and Customs is that the existing corporate tax rules prevent such a deduction, but the case law is old and we saw fit to put the matter beyond doubt.

I fear the Opposition have made a mistake in preferring a payroll tax to a bank levy. As countries across the world demonstrate, a bank levy is a better reflection of systemic risk: it is permanent, it raises more money and it is sustainable, not being undermined by avoidance. If the Opposition persist in basing their spending plans on such a flimsy source of revenue as the bonus tax, which actually exceeds what is paid in bonuses this year, then I fear that they have not learned the lesson that they surely must: jeopardising our public finances would take this country back to the edge of ruin from which this Government have hauled it back. If the hon. Member for Nottingham East had any embarrassment or rigour, he would withdraw this ridiculous amendment. I commend clauses 200, 201 and 202.

[Chris Leslie]

The Minister’s smile could not be stifled by the ridiculousness of his last comments. This is déjà vu all over again. We have heard it before from this Minister time after time, year after year. “Our bank levy,” he said, and the Prime Minister has said from the Dispatch Box, “will always raise £2.5 billion.” Last year, however, it was £1.6 billion; this year it is £1.8 billion. The amount of money lost is staggering. We will, therefore, want to test the view of the Committee. The Minister has to get a grip on this issue. He has been haemorrhaging money, and the £2 billion that has been lost should have been put to the better purpose of helping young people get off the dole and back into work. That is what we on the Labour Benches believe.

Question put, That the amendment be made.

Cyprus

Greg Clark Excerpts

Monday 15th April 2013 Written Statements

[The Financial Secretary to the Treasury (Greg Clark)]

I previously committed to keeping the House up to date on the events in Cyprus as the situation developed, in particular the structure of the final bailout package, and the implications for the UK.

As I previously outlined, the Republic of Cyprus requested a programme of financial assistance from its fellow members of the eurozone and the International Monetary Fund. On 25 March 2013, the Eurogroup reached an agreement on Cyprus, which included the resolution of Cyprus Popular (Laiki) Bank and the restructuring of Bank of Cyprus, imposing losses on senior unsecured creditors and some uninsured deposits, including in the case of Bank of Cyprus the exchange of some deposits over €100,000 for equity stakes in the bank.

Britain is not part of the eurozone and was not party to the negotiations. There is no contribution from the United Kingdom through the European financial stabilisation mechanism (EFSM) or bilaterally.

The Eurogroup agreement welcomes a contribution by the IMF to the programme, but no formal proposal has yet been put forward to the IMF’s executive board. The UK will assess and vote on any programme put to the IMF’s executive board on the basis of its own merits, as it has always done. UK support for the IMF does not add to our debt or deficit, and no one who has provided money to the IMF has ever lost that money.

The financial envelope agreed by the Eurogroup is €10 billion, which will cover bonds coming to maturity, deficit financing and the recapitalisation of the other domestic banks. The Greek branches of Hellenic, Bank of Cyprus and Laiki were sold to Greek banks as part of the deal. There will be no contribution from the programme to the recapitalisation of Bank of Cyprus. This will instead be funded by using existing debt holders and some uninsured deposits. Cyprus Popular (Laiki) Bank has been put into resolution and split into a “good” bank, which has been transferred to Bank of Cyprus, and a “bad” bank which will be wound down.

Cyprus is an important and longstanding ally of the UK and a member of the Commonwealth. Therefore, while not part of the eurozone negotiations, HM Government immediately offered to make available technical assistance to the Government of Cyprus during what was a very difficult period for them, which they accepted. This included a team of UK officials going to Cyprus to provide this assistance first hand. The Government of Cyprus have since conveyed their appreciation for this assistance which they found to be very helpful. Officials have since returned to the UK.

In addition, my officials also worked with the Cypriot authorities to develop a solution for deposits held in the UK branch of Cyprus Popular Bank. There was very close and effective co-operation between the Treasury, the Bank of England and its new regulatory arm the Prudential Regulation Authority, and the Financial Conduct Authority. This reflects the working of the new regulatory system that came into legal existence during the management of the crisis in Cyprus.

On 1 April, Cyprus Popular Bank reached an agreement with Bank of Cyprus UK to transfer all customer deposits in their UK branch to the UK subsidiary of Bank of Cyprus. This included some 15,000 accounts with approximately £270 million of deposits. The transfer was accompanied by matching cash assets.

The transfer agreement between Bank of Cyprus UK and Cyprus Popular Bank was given effect by a transfer decree made under Cypriot law. It was subsequently approved by the Prudential Regulation Authority and the Financial Conduct Authority under our new regulatory system. HM Treasury officials assisted in discussions with the Cypriot authorities and also provided some assistance in the legal processes around the transfer.

Unlike Bank of Cyprus UK, which is a UK supervised subsidiary, Cyprus Popular Bank UK operated here as a branch of its Cypriot parent company. Under EU law, primary responsibility for the supervision and resolution of Cyprus Popular Bank UK therefore rested with the Cypriot authorities. Had the transfer not been agreed, the deposits in the UK branch of Cyprus Popular Bank would have been included in the Cypriot bank restructuring with all of the uncertainty that this would have brought with it. That will not now be the case.

The deposits are now with Bank of Cyprus UK, which will continue to operate as a UK subsidiary, regulated and supervised by the Prudential Regulation Authority and the Financial Conduct Authority. All eligible deposits, including those transferred from Cyprus Popular Bank, will now benefit from the coverage of the UK’s financial services compensation scheme up to £85,000.

This has all been achieved without any material recourse to public funds.

More widely, state benefit payments to accounts in Cyprus, which were previously on hold while the banks in Cyprus remained closed, have resumed following their reopening.

As was previously stated, those who have been sent to Cyprus to serve our military or our Government, and their families, will be protected in full from losses on their personal deposits. Ministers from the Ministry of Defence will keep the House updated on this issue.

The Government continue to monitor the situation in Cyprus closely.