Finance (No. 2) Bill

Jim Cunningham Excerpts

Wednesday 9th April 2014 Commons Chamber

[Cathy Jamieson]

Yes, I hear what the Minister is saying and I shall deal with some of that in a moment, because I am concerned to ensure that we get all the sums right and reach figures that everyone would agree on. Again, that is one reason we want this report brought forward, because we are now being told that the levy will generate £2.3 billion in 2013-14, £2.7 billion in 2014-15 and £2.9 billion in each of the following three years. I would give way to him again if he were able to give the details, but perhaps it would be more appropriate if he did so his response later, as it may take time to get them. We do not have the detailed figures, the evidence or the workings to show how those figures are arrived at and whether things are on course to deliver them. That is why it is important to get the report we are calling for today.

Let me say something about the problems with the levy as we see them. As I have said and as my hon. Friend the Member for Nottingham East has in previous contributions, the Government’s levy lacks ambition. The argument is that the initial levy was set at a relatively low rate, both by international standards and when measured against the scale of the taxpayer subsidies received by the sector during the financial crisis and thereafter. In discussion of the Finance Bill in May 2011, he said:

“The bank levy is a sensible idea in theory, and we broadly support it. However, the yield suggested in the Bill—only £2.6 billion—is not just small but pathetic by international standards”.—[Official Report, 3 May 2011; Vol. 527, c. 482.]

I will happily give way to the Minister if he wants to comment on the international standards, but again, perhaps he will do so when he winds up.

One other problem with the levy is that its two objectives can be seen as a bit of a paradox or even somewhat contradictory. By setting the levy as a tax on bank liabilities in excess of £20 billion and charging a lower rate for more secure long-term liabilities, the Chancellor was actively encouraging the banks to reduce their exposure by moving towards more stable forms of funding.

[Mr Jim Cunningham (Coventry South) (Lab)]

My hon. Friend has just touched on the central point about the levy: that the Government never had the will to take on the bankers in the first place, as we see if we compare what happened in this country with what happened in the United States. That is why they cannot wholeheartedly support a proper levy on the banks; it is a token levy.

[Cathy Jamieson]

My hon. Friend makes an interesting point. I suspect that if I were to stray into a long debate on what happened in the US versus what happened here, I would see—yes, I do see—Mr Bone’s eye upon me to ensure that I did not yield to that particular temptation. However, I say to my hon. Friend that that could usefully form the subject of another debate at some point, but he makes an interesting point about the will to take on the banks. I want to choose my language carefully because I want to avoid getting into that whole thing of our being seen as aggressively pursuing the banks. I recognise that there are some in the banking sector who understand how badly they got it wrong and who want to see change, but the scale of the problem has not been universally accepted, and nor has the degree of culture change that is required. The Minister has heard Opposition Members talk about that issue many times when discussing other legislation.

Returning to the initial imposition of the levy, the Chancellor also wanted to generate more than £2 billion in annual revenues. One problem was that, as was pointed out earlier, the more the banks changed their behaviour and remodelled their balance sheets, the less money the levy generated. Was the Chancellor unable or unwilling to decide whether he wanted behavioural change or a targeted revenue sum? Was it possible to do both? Some evidence suggests that it was not, because it has not brought in the amount of revenue that he intended.

Not content with devising a levy the dual aims of which are somewhat contradictory, the Chancellor also proceeded to cut corporation tax annually, arguably handing the banks a tax break. In order to ensure that the banks do not benefit from the tax break, the Chancellor has had to increase the levy every time he cut corporation tax. We have consistently raised doubts about the levy’s ability to raise sufficient funds, especially in the context of the cuts to corporation tax. During consideration on Report of the 2011 Finance Bill, my hon. Friend the Member for Nottingham East said:

“The sector will have a tax cut of £100 million in 2011-12, £200 million in 2012-13, £300 million in 2013-14, and £400 million in 2014-15. That is a £1 billion corporation tax cut over this Parliament.”

He continued:

“The Treasury ought to supplement its very modest bank levy plan with the bank bonus tax because it is only fair that those who played such a central role in the global economic downturn make a greater contribution to help to secure the economic recovery by supporting jobs and growth.”—[Official Report, 5 July 2011; Vol. 530, c. 1383.]

I would have thought that that sentiment—that those involved in making some of the decisions that caused the problems have a responsibility to do what they can to secure economic recovery and a change in culture—would be shared by everyone in all parts of the House. A combination of two factors—contradictory objectives and corporation tax cuts—means that the levy has increased on no fewer than seven occasions. It is important for me to lay this out so that the House understands the time scale for what happened with the levy, because it adds weight to our call for a report to consider that in more detail.

Back in February 2011, it was confirmed that the rate would be higher than originally proposed. That was change number one. In March 2011, at the Budget, the levy was increased to offset the effect of the 1% cut in corporation tax and by the autumn statement in November 2011—autumn was already beginning to be stretched as far as we thought possible, although of course, autumn is now in December as far as the Government are concerned—the rates were increased to ensure that tax would raise at least £2.5 billion a year. I think that was a tacit admission that the initial rate was perhaps somewhat timid. In March 2012, at the next Budget, the levy was increased again to offset the 1% cut in corporation tax.

In the next autumn statement, when the autumn had been stretched as far as possible into the first week in December, the levy was increased again to offset the 1% reduction in corporation tax. At the March 2013 Budget, the levy was increased again—guess why: to offset the 1% reduction in corporation tax. In December 2013, again at the autumn statement, in what appeared almost to be a desperate attempt to get somewhere near the £2.5 billion target, the Chancellor increased the levy again and broadened the tax base in an apparent attempt to mitigate the impact of the very behavioural change that the tax is supposed to encourage.