Finance (No. 2) Bill

Jonathan Reynolds Excerpts

Committee: 1st sitting: House of Commons
Monday 18th December 2017 Commons Chamber

[James Cartlidge]

The hon. Gentleman makes a very good point, and I will come back to that once I have set out the context of my remarks. The key point is this: there are some concerns, but in a growing economy, consumer debt will tend to rise, so we have to separate out that which is perfectly acceptable and that which may give cause for concern. I will come back to that point, but it is very fair.

In respect of proposed subsection (2)(b) of the Labour new clause, which talks about

“reflecting risks to the financial system”,

we conclude by reminding ourselves that it was the very explosion of the financial system that created the need for this bank levy. As I say, we have to debate the past—why we are here in the first place and where this all came from—and the fact that we are on a journey. The reason this tax is being tapered off is that the banking sector is once again becoming profitable, and we are allowing it to flourish again as a free enterprise-based banking system, but, of course, in the context of very strict regulation and a prudential regime.

Let me go back to the point about personal experience. It amazes me when members of the Labour party stand up and, like Pontius Pilate, wash their hands of the huge impact of that crash. At the time, many of us approached the regulator—the Financial Services Authority—which Gordon Brown launched early in the first Parliament after Labour won in 1997. He claimed that that would avoid future financial crises. We must remember that and have accountability.

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

Will the hon. Gentleman be reasonable or fair enough to acknowledge that while it is entirely possible to say that the system of regulation on the eve of the financial crisis was not adequate— no one is making the case that it was—surely it is illogical and ridiculous to suggest that the Conservatives would have been doing anything different. After all, the banks themselves were not aware of the level of risk they had undertaken, so it was no surprise that the regulator did not appreciate it. One cannot claim that the Conservatives advocated anything different from the overarching framework of regulation that existed at the time.

[James Cartlidge]

I entirely disagree. The absolute root cause of it all was not saving enough and having a bad culture of over-reliance on debt. I well remember that back in ’98 and ’99 when Francis Maude was the shadow Chancellor, he kept saying, with regard to the low savings ratio, “We are storing up problems for the future.” At every Budget, no matter how high Labour was in the polls, our shadow Chancellors and shadow spokesmen—people like Howard Flight—would say that the savings ratio was way too low and we were storing up problems for the future. We did warn, we did say it, and we were ignored.

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[Emma Hardy (Kingston upon Hull West and Hessle) (Lab)]

I wish to support Labour’s new clauses 1 to 3, which call for a review of the change in the scope and rate of the bank levy, the funds from which should be invested in young people’s and children’s services. Given the desperate state of young people’s and children’s services across the country, I am surprised that the Chancellor has chosen to reduce the bank levy, effectively depriving the Government of funds that could be spent on those vital services.

It has now been 26 days since the Chancellor delivered his Budget—his second Budget, and the 10th since the Tories took office in 2010, which is now nearly eight years ago. By coincidence, it is also nearly eight years since my baby was born, who is still my baby despite being eight years old. Every parent wants the best for their child and wants them to have every opportunity to fulfil their potential, but for the almost eight years of her life, we have seen her opportunity rationed and funding for children’s and young people’s services slashed. Sir Roger, I will quickly—[Interruption.] I am so sorry, Mr Owen.

[Jonathan Reynolds]

Sir Mr Owen.

[Emma Hardy]

You have been promoted, Mr Owen.

I want quickly to draw the House’s attention to the funding cuts to Hull City Council’s children’s services budget since 2010 and to argue that rather than reducing the bank levy the Government should be properly funding children’s services. The headline figures for Hull City Council are as follows. Spending on children’s and young people’s services is down by £19.5 million, with more than a quarter of its spending power cut since 2010. That is just half of the £37 million that the council has to cut before 2020. The time taken to get a diagnosis of autism is up, with the average waiting time now at 14 months. The number of Sure Start centres in the city is down since 2010. Those centres were instrumental in supporting me when I had my two girls.

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[Mel Stride]

I am going to make further progress.

I will now move on to other changes relating to stamp duty. Clause 40 brings forward some minor changes to the higher rates of stamp duty land tax for additional properties, which will improve how the legislation works. The changes help in a number of circumstances, including in relation to those affected by divorce or the dissolution of a civil partnership, where they have had to leave a matrimonial home but are required to retain an interest in it, and in relation to the interests of disabled children, where a court-appointed trustee buys a home for such a child.

We will also close down an avoidance opportunity. The Government have become aware of efforts to avoid the higher rates by disposing of only part of an interest in an old main residence to qualify for relief from the higher rates on the whole of a new main residence. This behaviour is unacceptable, and the Government have acted to stop it with effect from 22 November.

Clause 8 introduces a new income tax exemption for payments made to members of the armed forces to help them to meet accommodation costs in the private market in the UK. The exemption enables them to receive a tax-free allowance for renting accommodation or maintaining their home in the private sector. The allowance will also be free of national insurance contributions. That measure will be introduced through regulations at a later date. By using the private market, the Ministry of Defence will be able to provide access to similar accommodation, but with more flexibility.

Opposition Members have tabled amendments 2 and 3 to the armed forces accommodation clause, and I look forward to hearing about them in the debate. The amendments seek to prevent the Treasury from laying regulations that would increase the liability of a member of the armed forces to income tax. I am happy to reassure the Committee that the Government do not intend to use the power to increase tax liabilities either now or in the future. The regulation-making power is retrospective so that the allowance can be provided tax free before regulations take effect. As a standard safeguard, the Bill expressly provides that the Government would not retrospectively increase tax liabilities. I hope that, in the light of that, hon. Members will not press their amendments.

New clause 5, also tabled by Opposition Members, would require the House to expressly approve any regulations made under the clause. The Bill provides for regulations to be made under the negative procedure. Regulations made under the clause will align the qualifying criteria for the proposed exemption with the Ministry of Defence’s new accommodation model once more details are available. Any future regulations will ensure that the tax exemption reflects changes to the model. It would be a questionable demand on Parliament’s time, particularly over the next two years, for it to be called on to expressly approve regulations in these circumstances. The negative procedure provides an appropriate level of scrutiny. I therefore urge the Committee to reject the new clause.

The stamp duty relief for first-time buyers is a major step to help those getting on to the property ladder, and one that has been widely welcomed. The other changes made by these clauses provide relief from some tax costs associated with housing for several groups that deserve them. The clauses also tackle avoidance. I commend clauses 41, 40 and 8, and schedule 11, to the Committee.

[Jonathan Reynolds]

This country is in the grip of a severe housing crisis that the Conservatives have allowed to spiral out of control over the past seven years. Making sure that people have a roof over their heads and can raise their families somewhere safe, decent and affordable is more than just a matter of sound public policy—it is surely a yardstick of a decent society. At the moment, we are falling short of this yardstick to a degree that is shameful for one of the world’s most affluent nations.

Now, after seven years of Tory government, the Government say that they have noticed the problem, yet it is on the brink not of being resolved but rather exacerbated. The Chancellor’s autumn Budget, from which the measures in the Bill are drawn, falls woefully short in addressing the scale of what is needed. Since 2010, house building has fallen to its lowest level since the 1920s, rough sleeping has risen year on year, rents have risen faster than incomes and there are almost 200,000 fewer homeowners in the UK.

[Lucy Frazer]

Can the hon. Gentleman confirm whether Labour built houses when it was in office or house building fell when Labour was in office?

[Jonathan Reynolds]

Labour’s record in office is 2 million more homes, 1 million more homeowners, and—something that is particularly important to me as a Labour councillor during some of that time—an incredible investment in social housing. In local government, we used to ask whether we could ever fulfil the backlog in repairs that the Thatcher and Major Governments had created, but we did, and it made a tremendous difference to people’s lives.

The one headline-grabbing move that the Chancellor made in the autumn Budget was the abolition of stamp duty land tax for first-time buyers up to the value of £300,000. I acknowledge that this was a Labour policy included in our manifesto for the June 2017 general election, but we were very clear in that manifesto that the measure should be proposed only if there were accompanying measures to increase supply. Without these, stamp duty land tax cuts risk further inflating a housing bubble that is snatching the idea of home ownership out of reach for the younger generation.

[Mrs Anne Main (St Albans) (Con)]

In St Albans, we are very grateful for the Chancellor’s abolition of stamp duty. Is the hon. Gentleman saying that the Labour party is against it, and that he does not wish it to happen?

[Jonathan Reynolds]

I have just explained that the policy was our idea to begin with, but it is effective only if it is accompanied by measures to increase supply.

[Rachel Maclean]

The hon. Gentleman says that he will support the policy if it is accompanied by measures to increase supply. That is exactly what the Chancellor has introduced in the Budget, so will the hon. Gentleman support the measure, or is he against cutting stamp duty for first-time buyers?

[Jonathan Reynolds]

No, we are not, as I have just explained, but there have to be measures that genuinely increase supply. I will explain to the hon. Lady that the measures in this Budget do not in any way contribute to that, and we will get on to the Office for Budget Responsibility’s definition.

[Lucy Frazer]

The Budget states that 300,000 houses will be built every year. That is a measure to increase house building, so will the hon. Gentleman commit to supporting the stamp duty measure?

[Jonathan Reynolds]

Members have become accustomed to the fact that the number of homes that the Government claim to build is not always the actual number that are built. I will get to some of that record of failure later in my speech.

[Mr Kevan Jones (North Durham) (Lab)]

Does my hon. Friend think it is a bit ironic that when a similar measure was proposed in 2015, it was derided as a gimmick by the then Chancellor?

[Jonathan Reynolds]

My hon. Friend is entirely correct. As we know, sometimes the situation in the Government means that they tend to look around for ideas, and they often find best practice in the Labour party.

[Sammy Wilson]

Does the hon. Gentleman accept that the additional capital that is being put into housing, the attack on companies that engage in land banking and the aid to enable small builders to build more houses are all supply side measures?

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[Jonathan Reynolds]

We will get on to whether those measures will be effective, based on the assessments that have been made. I am old enough to remember when a tax on land banking was described as Venezuelan-style socialism, so it is good to see some permutation of that idea among Government Members.

The analysis by the OBR on the likely outcome of the policy shows that it will push up prices by 0.3% in 2018.

[John Spellar]

My hon. Friend is talking about land banking by the big house builders. Is not the evidence of that the utterly obscene bonus being paid to the chief executive of Persimmon, which is so outrageous that the chairman of the company has seen fit to resign in disgust?

[Jonathan Reynolds]

My right hon. Friend identifies another feature of a dysfunctional market. That will be corrected only by a change in Government policy, but we have not seen one in the Bill.

Conservative Ministers’ review of a previous stamp duty cut concluded that the tax relief, in itself, had

“not had a significant impact on improving affordability for first time buyers”.

That is why Labour has tabled an amendment calling for the publication of a review prior to the 2018 Budget on the impact of the relief on first-time buyers, including its effect on house prices and the supply of houses.

The Minister, as usual, talked an extremely good game on funding for new housing, which he said would help to ameliorate the supply issue. On further scrutiny, however, we find that no measures in the 2017 Budget will directly increase house building. Only one third of the £44 billion announced in the Budget is genuinely new, and there is no extra Government investment in new affordable homes. That builds on a legacy of failure. Let us remind ourselves that not one of the 200,000 starter homes promised by the Tories three years ago has yet been built. That lack of action is having a serious impact across every part of our society. During the Government’s seven years in power, homelessness has doubled. Shockingly, recent statistics from the Department for Communities and Local Government show that nearly 80,000 households were homeless in September; that includes 120,000 children. The situation is extraordinarily urgent.

[Mr Kevan Jones]

Does my hon. Friend agree that one of the mistakes that former Chancellor Osborne made was the cap on rents, which threw into complete chaos the planning of social landlords and housing associations in budgeting for building new houses? It had the effect of reducing the supply, rather than increasing it.

[Jonathan Reynolds]

Absolutely. A combination of policy measures—not just the failure on new housing completions, but a range of other measures—has contributed to this toxic situation. We see it perhaps most visibly in Greater Manchester—I live there and represent part of it—than in any other part of the country, and thank goodness that we in Greater Manchester have a Labour Mayor in Andy Burnham who is so determined to make a difference on this matter. If Labour was in power, we would set up a taskforce, led by the Prime Minister, to end this, and we would start by setting out plans to make available at least 4,000 homes for people with a history of rough sleeping.

The homelessness statistics obviously include the hundreds of families who tragically lost their homes in the Grenfell Tower disaster in June, four-fifths of whom are still living in temporary accommodation. Although Labour welcomes the additional funding for mental health services for those affected by Grenfell, we have profound concerns about the fact that no new money has been allocated for fire safety throughout the country. The Government ignored calls to fit sprinklers to all social housing tower blocks in 2013, after the disastrous and fatal events that happened at Lakanal House and Shirley Towers, so it remains the case that only 2% of tower blocks in the UK have sprinklers installed. That figure should be of serious concern to us all.

We can see that the measures included in the Bill fall far short of what is needed to fix the housing crisis in Britain. We want in particular to discuss one measure that the Opposition are concerned may be being used as a fig leaf for just another cut. This is in regard to clause 8, the income tax exemption for the armed forces accommodation allowance, which the Minister mentioned. The explanatory note to the clause states that this is

“to allow members of the armed forces to give up their entitlement to accommodation in exchange for an allowance to be used to rent or maintain accommodation in the private market.”

Labour is concerned that this manoeuvre is designed to force more servicemen and women into the private rental sector, as part of a Government shift towards selling off the military housing stock in which armed forces personnel would ordinarily be housed.

[Lucy Frazer]

The hon. Gentleman has mentioned that Andy Burnham is the Mayor of the area he represents. Does he remember that, in 2010, when Andy Burnham was standing for the leadership, he said:

“These issues are important, particularly stamp duty as it stands in the way of young people getting on in life”?

[Jonathan Reynolds]

I commend the hon. and learned Lady for googling that so fast. I do not think that Andy Burnham’s resolution to tackle homelessness should be laughed at; it is admirable. As someone who has lived in Greater Manchester for nearly 20 years now, I see the scale of the social and urban decay on the streets around us. Anyone who travels to Manchester and moves a short distance in any direction from Manchester Piccadilly station will see what an appalling state of affairs we have reached. It is simply the case that every time the Conservatives are in power, they increase homelessness. For me, that is the most visible sign of a Conservative Government in office, and I commend any politician—Andy Burnham is leading on this for us in Greater Manchester—who makes the difference.

[Gareth Snell]

The shadow Minister is making an excellent contribution. I want to point out, as he has in relation to Andy Burnham in Greater Manchester, that continual cuts to local government are forcing many local authorities to disinvest in their homelessness prevention services. For example, Stoke-on-Trent—a Conservative-run council—is cutting £1 million out of its homelessness prevention budget in the next five years. What does he say about such a situation, and what does he think could solve it?

[Jonathan Reynolds]

I agree with the point my hon. Friend has made. The fact is that we know the impact that a series of Government measures have had, and we can reverse or improve on them. Fundamentally, we can change the availability of housing stock, but we can also create a policy framework that prevents people from being made homeless in the first place, and that is what we need to do.

[Lloyd Russell-Moyle]

Does my hon. Friend agree that some of the wider measures, such as forcing through universal credit and local housing allowance caps, are forcing large numbers of people out on to the streets?

[Jonathan Reynolds]

Absolutely. There have been 13 consecutive cuts to housing association budgets, the cumulative impact of which is exactly as my hon. Friend describes. As constituency MPs, we are left requesting our local housing association simply to try to absorb the costs of this Government policy failure. In many cases, the housing association does so, but there is ultimately a cost. The cost is taking away available resources to build further houses, thus getting us into a situation in which the problem is never truly resolved.

I will return to the armed forces accommodation allowance. The Ministry of Defence has a target in the 2015 national security strategy and strategic defence and security review to sell off 30% of its estate by 2040, but the Conservatives have a track record of making poor decisions on selling off service family housing in the name of short-term savings. Annington Homes bought most of the service family accommodation from the Ministry of Defence for £1.6 billion in 1996. A 999-year lease was granted back to the Ministry of Defence at a discount, with the stipulations that the MOD would be responsible for maintenance and that Annington Homes could terminate individual leases and had the right to include five-yearly rental reviews and a breakpoint at 25 years. The National Audit Office has said that the MOD has therefore not benefited from the rise in house prices since the agreement and, in fact, has paid higher rental costs to Annington Homes. In 2016, Annington’s annual statement estimated its property portfolio to be worth £6.7 billion.

[Mr Kevan Jones]

Having tried to get out of the Annington Homes contract when I was responsible for armed forces housing, may I say that the situation is worse than my hon. Friend describes? The MOD is still paying not only for empty houses, but for houses that have been demolished. It was the worst deal possible for the taxpayer.

[Jonathan Reynolds]

I am grateful to my hon. Friend for sharing his expertise with the Committee. It truly is an appalling record of failure.

As every Member knows, there are enormous problems in the private rented sector in respect of affordability, quality and security of tenure. By forcing service families into the private rented sector, we risk reducing the quality of their accommodation and their quality of life. It might therefore impact on recruitment and retention rates.

The Government have so far offered little detail on which members of the armed forces will be entitled to the new allowance or what the rate will be and have not said whether the Treasury has done an impact assessment on local housing supply. The proposal ignores the fact that there is not a supply of affordable housing to buy or rent near many military bases.

It seems clear that the Government are attempting to rush the proposal through to make short-term savings, without considering the potential repercussions. Labour is demanding more consultation with armed forces personnel and a full and robust impact assessment of any proposed changes. Clear communication with armed forces families must be a top priority throughout this process and their long-term interest must be considered, as well as the long-term value for money for the taxpayer. Committing to sell this Government-owned housing risks shackling the public purse to ever-rising rents, as well as poor outcomes for armed forces personnel.

Given Labour’s concerns over the lack of detail over the armed forces allowance and any potential safeguards for members of the armed services in the private rental sector, Her Majesty’s Opposition have tabled an amendment that calls on the Government to publish a review of the measure to Parliament before it is enacted.

Overall, the measure forms part of a housing package that barely scratches the surface in addressing the country’s housing crisis. All the measures are too minimal to make a serious difference to the housing pressures that people face and too late to make up for the Government’s lack of action over the past seven years.

[Robert Courts]

It is a great pleasure to speak in this debate. I only wish to make some very brief comments because I have already spoken this evening and I am conscious of the fact that other Members wish to speak.

I will make a few comments about the armed forces exemption that we have just been discussing, because it has particular relevance to my constituency, where a great amount of the Royal Air Force is based at Brize Norton. We are awaiting the redevelopment of the two REEMA sites, which are particularly important. Already, a great number of Royal Air Force and Army personnel live either on the base or outside it, in particular in Bampton, Witney, Carterton and Brize Norton village.

I am glad that the Government have proposed this welcome measure. It falls into a similar bracket as the Armed Forces (Flexible Working) Bill, which we have discussed in the House over the past few weeks and months. It is important that we understand that expectations are changing. The armed forces offer must be able to stand alongside what can be received in the civilian world. This measure has the potential to provide exactly that.

At the moment, there is the anomaly that if personnel live in Ministry of Defence accommodation, it is essentially provided tax free, but if an armed forces allowance is given, there is taxation on it. That is how the rules work at the moment, so clearly personnel would be disadvantaged. We have to accept that in many cases, armed forces personnel wish to live outside a base, perhaps close to where their spouse works or where their children go to school. I welcome the measure because it moves us a step along the road towards realising that.

Finance (No. 2) Bill

Jonathan Reynolds Excerpts

3rd reading: House of Commons & Report stage: House of Commons
Wednesday 21st February 2018 Commons Chamber

[Chris Philp]

As always, it is an enormous pleasure to follow the hon. Member for Bootle (Peter Dowd), whose speeches are always entertaining and occasionally informative. He spent a great deal of time talking about the bank levy and the various new clauses standing in his name on that topic. I wish to start by addressing the central thesis of his comments on the bank levy: his suggestion that banks are not paying their fair share, particularly as two of them received state money from about 2009.

It is a matter of incontrovertible fact that banks, as organisations, are paying more tax proportionately than other kinds of corporates. It is of course right that they do, for the reason that the hon. Gentleman and my right hon. Friend the Member for Broxtowe (Anna Soubry) mentioned: they did receive taxpayer money. They pay this extra money, compared with other businesses, in two ways. The first is through the surplus profit tax of 8%—they pay about a third more corporation tax proportionately than a non-bank corporation does. The second is through the bank levy. Although the bank levy is being reduced, it will remain in force, so banks will continue to pay proportionately more tax than non-bank businesses after the implementation of this Budget. That is a vital point to get across.

The hon. Gentleman also tried to link funding for children’s services to the bank levy. In one of my interventions, I gave some figures on the total amount of tax that banks are paying. We can argue about why they are paying that extra tax. Clearly, it is at least in part due to the surplus profits rate and to the bank levy. It may also, in part, be due to the fact that the banks’ profits have increased. Whatever the cause, the bare fact is that they are paying £7 billion or £8 billion a year more in tax now than they were some time ago. So suggesting that children’s services have been deprived of money as a consequence of changes to bank taxation simply does not bear scrutiny, given that the financial services sector is paying significantly more tax than it was before, whatever the cause of that may be.

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

The hon. Gentleman is, as he knows, unfairly paraphrasing my hon. Friend the shadow Chief Secretary. What my hon. Friend has pointed out is that politics is about choices and that this Government have decided, through this set of proposals, to reduce the amount of tax the banks will pay, in a situation where many core services in this country—public services that are supported by Members on both sides of the House—are on their knees. So references to the background situation or attempts to paraphrase what my colleague said are not correct. He is simply making an analysis of the choices this Government have made, which do not bear scrutiny.

[Chris Philp]

I thank the hon. Gentleman for his intervention but, as I say, the central, key, cold, hard fact, which will not go away, is that financial services are paying £8 billion or £9 billion more in tax now than they were before. That is money that can be spent on children’s services in his constituency or in mine, on the NHS or on schools. We should welcome the fact that the sector is producing this extra taxation, partly because it has become more successful and partly because the rate of tax has progressively been increased over the past seven or eight years.

The hon. Gentleman made a point about choices and his intervention was unpinned by an assumption: that if we increase the rate of taxation, we invariably raise more revenue. I challenge that assertion, as the famous Laffer curve clearly does. It is clear to me that it is possible to reduce the rate of taxation and at the same time collect more tax, because we, thus, incentivise investment and growth. There is no better illustration of that than the trajectory of corporation tax, taken as a whole, over the past seven years: the rate of corporation tax has come down from 28% to 19%—it is heading down to 17% in a couple of years—yet the cash take from corporation tax over that same period has gone from about £35 billion to about £53 billion or £55 billion. That goes to show that we can cut the rate of tax and, by stimulating the economy and investment, actually collect more money. Similarly, it does not follow that putting up the rate of tax necessarily means that more money is collected, because that might disincentivise investment and job creation.

[Jonathan Reynolds]

I feel that we have had this discussion in many of the debates on the many Finance Bills we have debated over the past 12 months. No one on the Opposition Benches denies the existence of the Laffer curve; we simply point out, as a point of fact, that the very large reductions in corporation tax that the Government have introduced have cost the country revenue. That is not in dispute. The analysis is clear that it is not the case that, had the corporation tax level remained as it was when the Conservatives came to power, more tax would not have been generated.

On new clause 3, as the hon. Gentleman knows, the bank levy is a levy on the risk-assessed capital that is on the big banks’ balance sheets. The Laffer curve would not apply to the calculation of what the return would be if the levy remained the same.

[Chris Philp]

Let me take each of those points in turn. The hon. Gentleman asserts that, had the corporation tax rate remained at 28%, we would now be collecting more than £53 billion. That is an assertion, and not one with which one can agree without contention. For example, because of the lower corporation tax rate, plenty of businesses have made investments that they would not have made otherwise. Several companies had located their corporate headquarters outside the UK—

[Chris Philp]

Just a moment; let me respond to these two points.

Those companies had located their corporate headquarters outside the UK and so paid corporation tax outside the UK, but in response to the Government’s cutting the rate of tax, they came back onshore and now pay corporation tax here. It does not follow at all that a higher corporation tax rate—28% in the case mentioned by the hon. Member for Stalybridge and Hyde (Jonathan Reynolds)—would lead to a higher tax yield. The direction of travel shows that, as the rate has come down, the amount collected has gone up. I just do not agree with the suggestion that, if the corporation tax rate were 28%, we would be collecting £60 billion or £70 billion.

[Jonathan Reynolds]

rose—

[Chris Philp]

If the hon. Gentleman will let me answer his second point, I shall happily take an intervention. He suggested that, because the bank levy is a tax on a balance sheet, there is no Laffer curve effect. I dispute that. Banks are mostly international—for example, our largest bank, HSBC, is a very international bank—and they can choose where they deploy capital. Their finance director will sit and decide where to allocate capital around the world. If the taxation or regulatory regime in a particular jurisdiction leads to the returns in that jurisdiction being unattractive, they will rationally respond to that by allocating their resources—in this case, their bank equity—somewhere else. There is unquestionably a Laffer curve effect in relation to the bank levy.

Before I take the two interventions that I promised to take, and will, let me just say that all that links to a related point mentioned by the shadow Chief Secretary, the hon. Member for Bootle: the disapplication of the bank levy to the non-UK part of a UK-headquartered bank’s balance sheet. In these international times, a bank such as HSBC can choose where it is headquartered and domiciled. HSBC was famously thinking about moving two or three years ago. HSBC is a good example because I think the majority of its balance sheet is non-UK—it has huge operations in Africa and the far east. Were we to continue to levy the bank levy on HSBC’s non-UK balance sheet, there would be a powerful, perhaps even irresistible, temptation for it to change its arrangements such that those profits and that balance sheet were booked through some other centre, such as Shanghai, or probably more likely Hong Kong, or possibly Singapore.

It is beneficial to the UK to have those HSBC assets booked here, because, of course, we get the corporation tax, including the corporation tax surcharge, booked through London, and there are clearly jobs connected with that. If we leave the bank levy on the non-UK balance sheet—the business is done overseas but booked here—and drive the booking overseas, we will lose that corporation tax and those jobs. The change to the bank levy is a sensible measure that will protect London’s status as an international financial centre, because the relevant part of the balance sheet is very internationally mobile.

I think there are two, or perhaps even three, interventions stacking up, so I shall happily take them all.

[Jonathan Reynolds]

I am extremely grateful to the hon. Gentleman for giving way. This argument is integral to the economic prosperity of the UK. On the point that he has just raised, I say clearly that we should wish to keep that substantial national asset, which is our financial services industry, in the UK, but it is Brexit that will drive it away. HSBC’s plans at the minute, in terms of relocating staff, are entirely linked to wholesale banking functions under Brexit. However, if there is one phrase that I would wish to etch on to the door of this Chamber, it is that causation and correlation are not the same thing, and that applies to his corporation tax argument. The average rate of corporation tax in OECD countries is 25%. There is a diminishing return from reducing it. When even Conservative councils are effectively going bankrupt, surely that requires greater reflection and self-analysis of the disastrous trajectory of some of the Government’s tax policies over the past eight years.

[Chris Philp]

A number of points have been raised there. On the point about correlation and causation, of course I understand that they are not the same thing. However, in my remarks about corporation tax reductions, I did point to some of the causal links. The two causal links that I cited were, first, encouraging investment and, secondly, companies choosing to move their domicile—for example, from Switzerland back to the UK. Therefore, there are two causal explanations as to why a reduction in the rate of tax might lead to an increase in the tax yield.

--- Later in debate ---

[Chris Philp]

There is no allegation; they were said publicly. I will of course convey the hon. Gentleman’s comments in a spirit of reciprocation, but I dispute the remarks about Brexit. We saw fantastic progress before Christmas and are moving on to the next stage. I look forward to the series of speeches by my Cabinet colleagues in the coming days and weeks that I appreciate are on a different topic to the one at hand.

[Jonathan Reynolds]

I must defend the Leader of the Opposition. The comments that he made to the EEF national manufacturing conference were simply that finance must serve industry and that this country has to find ways to increase lending to businesses, to have more productive outcomes for the economy and to lower regional inequality—all things that were previously said by the former Chancellor of the Exchequer, who now finds work as the editor of the Evening Standard. I do not think that that is unreasonable in any sense. The feedback I have had from that conference is that the reception in the room was very favourable.

[Madam Deputy Speaker (Dame Rosie Winterton)]

I call Chris Philp—on new clause 3.

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[Rachel Maclean]

I am sorry, but I cannot take any more interventions, because time is short.

I hope that, when he winds up the debate, the Minister will touch on the important issues of cryptocurrencies and bitcoin which, I believe, are not currently covered by regulation. I think we would all like to be assured that the Treasury is ensuring that no loopholes can develop that might allow tax evasion and avoidance. There are some alarming reports of people being arrested for money-laundering billions of pounds by that means.

The hon. Member for Walthamstow (Stella Creasy) is very well informed. I recognise the hard work that she has done, and I share a number of her concerns about the private finance initiative. A hospital in Worcester serves my constituents in Redditch. It is in special measures, and it has a financial issue. All of us in Redditch are very worried about that. I do not think that the new clause is the right way of dealing with the situation, but I should like to know what action the Minister will take to reassure my constituents that no one is reaping profits that they should not be reaping.

May I ask the hon. Member for Walthamstow to clarify the position of Labour Front Benchers? Do they not intend to take all the PFI contracts back into public ownership? She said that it would cost £220 billion, but I believe that that is the official position of the Labour party. It is a little confusing. It is difficult to know what the Labour party supports—whether it is the proposals of the hon. Lady or those of the Leader of the Opposition—so some clarity would be welcome.

Coming to my final point, Brexit was mentioned earlier, and we heard remarks about Brexit and the Labour party’s position, with claims that somehow Brexit is damaging our economy. [Interruption.] Well, Brexit was mentioned in a sedentary intervention. In my experience, businesses fear the spectre of a Labour Government more than Brexit, as a Labour Government would damage jobs and business investment. That is what businesses are worried about.

[Jonathan Reynolds]

There must be an objective assessment, given the strength of the economic risk that we face from Brexit. In terms of financial services, Brexit could diminish market access; it could take it away and make a situation where there is not a legal right to do the kind of business that currently takes place within the United Kingdom. There is no comparison between that and differences of political opinion over policies, and the Government and Conservative Back Benchers must take the economic risks of Brexit seriously.