Justine Greening
Main Page: Justine Greening (Independent - Putney)Department Debates - View all Justine Greening's debates with the HM Treasury
(14 years, 1 month ago)
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Chris Leslie
It might well be that in that written answer the Exchequer Secretary’s definition of “financial services” extends slightly beyond the banks. I am happy to concede that point. Of course, we framed the new clause in order to explore the tax burden not just on the banks but on financial services more widely. However, even the hon. Gentleman would have to concede that the banks will probably be the principal beneficiaries of the corporation tax cut that he is choosing to give them at a time when he is taking money from young, pregnant mothers—the health in pregnancy grant, to name one example of an incongruous decision that might be questioned by our constituents.
The Economic Secretary to the Treasury (Justine Greening)
I can see that the hon. Gentleman is slightly confused about the written answer, so I want to clarify it for him, as I have a copy of it. The figures he gave relate to “financial sector” companies, so does he accept that he got his figures wrong when he said he was talking specifically about the banks?
Chris Leslie
The hon. Lady has several thousand civil servants—for the time being, at least, before they are made redundant—in the Treasury to help her with the costings for such questions. I can only go with the facts published in Hansard. Perhaps she could save me the trouble of tabling a further written question to find out what the bank cashback arrangement will be on corporation tax. I will give way to her if she has to hand the precise figures on what the UK banks will be gaining from the corporation tax cut. Can she tell us what those figures are? If not, I will table a written question. If she can swiftly answer that, it will be for the benefit of the House. I am pretty sure that it will be a net gain for the banks.
Justine Greening
Will the hon. Gentleman clarify whether the Labour party supports a financial transactions tax?
Chris Leslie
We want to review it. Does the hon. Lady? Is she interested in looking at the proposition, or is she ruling it out completely?
Justine Greening
I note that the hon. Gentleman failed to answer my question. I will respond to him broadly when I have heard the rest of the debate, and when I have a chance to respond to his new clause.
Chris Leslie
I thought it was a simple question. I thought the whole point of a debate was to exchange views. I am happy to review the financial transactions tax. It is an important proposition, and it deserves serious consideration. The Minister does not seem to know whether she is allowed to review it. Perhaps some inspiration has come down from on high. There is scurrying around, and I see that the Chancellor has been paging her officials. I am sure that inspiration will come to her shortly.
Will the Minister say whether there should be a change in tax policy to rectify some of the loopholes, such as those in corporation tax? Should there be a further review of, for example, the bank payroll tax? Should banks have their right to carry tax losses forward limited so that they expire after a specific time, or would that be detrimental? Clearly, the Government’s feeble attempt to recoup something from the banks through the banking levy alone is barely denting their balance sheets and is dwarfed by, for example, the deferred tax assets that the banks are wielding according to the report.
Ministers should concede that the whole matter needs clearing up urgently if they are to have any hope of preventing widespread public cynicism, discontent and anger. In short, as things stand, all we see from the Government is a puny banking levy, banks still using corporation tax loopholes at taxpayers’ expense, promises on bankers’ bonuses unfulfilled, promises on banks’ net lending targets more distant than ever, and inaction on reforms to the banking taxation system. The taxpayers of this country deserve better.
Nic Dakin (Scunthorpe) (Lab)
My right hon. and hon. Friends have asked a number of questions that deserve detailed answers. The new clause calls for a review of the total level of taxation on the banks and the financial services sector before the setting of the 2011 Budget, and at its heart is the simple question of accountability, transparency and openness. It must be made clear to the people of this country that the banks are paying their fair share. It was, after all, the banks that got us into this situation. At a time when this Government are taking so much away from honest, working people—particularly those with families—it is crucial to demonstrate that we are all in this together and that the banks are paying their fair share.
People are facing an increase in VAT, students are facing a trebling of tuition fees, the education maintenance allowance is being taken away, and child benefit is being capped, frozen and even taken away from many people. With all those massive cuts in public spending, it is crucial that we should know for certain that the banks are paying their fair share. That is all that the new clause endeavours to achieve. We want to make it clear that the banks are not continuing with their present bonus culture, and that they are making a fair contribution to the country. After all, it was the taxpayers who delved into their pockets to keep the banks afloat. This is a simple proposal, simply put, about openness, transparency and accountability, and I can see no good reason not to support it. It would give the people of this country great confidence in the Government if they were to accept this proposal tonight.
Justine Greening
The new clause relates to the taxation of the banking and financial services industry, and proposes that the Treasury publish a report before the 2011 Budget examining the level of taxation on those sectors. Before I discuss the new clause directly, I think it would be helpful to set out some of the background and context relating to the Government’s approach to taxation of the banking sector. The Chancellor set out clearly in the recent spending review the Government’s objective in taxing the banking industry. We inherited the largest peacetime deficit in UK history, and, during these difficult times it is only right that steps are taken to ensure that the banks pay a full and fair contribution.
I listened with interest to Opposition Members, who appear to have a very blinkered perspective of regulatory issues. They skimmed over their own Government’s part in the regulatory failures that led to the banking sector crisis. It is worth going back to some comments made by the previous Prime Minister, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown). I know he is now making speeches in the House again, but it might have been helpful if he had participated in this debate, given his own involvement in these matters. When opening Lehman Brothers’ new European headquarters in 2004, he said:
“I would like to pay tribute to the contribution you and your company make to the prosperity of Britain”.
He also said that Lehman Brothers
“has always been an innovator, financing new ideas and inventions before many others even began to realise their potential.”
The last Government clearly had a huge role to play in that the regulatory system they brought in during their term in power absolutely failed the British public.
Several hon. Members
Justine Greening
I will give way. I see that Labour Members have now perked up from when they were skimming over their past, as they were so clearly intent on doing. It is more difficult for them, is it not, to hear the failures of their Government being set out so clearly? Let us not forget that the last Prime Minister, back in 2007, described this as a golden age. He obviously felt that the regulatory system he had put in place was a great one, but that was subsequently proved not to be the case.
Mr Umunna
Does the Minister not accept that there was a move towards a light-touch regulatory model across the entire political system? I am well aware of this because I used to work in the industry myself, and I do not recall the Economic Secretary or any of her colleagues jumping up and down when the Financial Services and Markets Bill went through this House, complaining that it did not introduce stronger regulation. Secondly, did she, like me, hear the comments of the Governor of the Bank of England, Mervyn King, at the Treasury Committee this summer? He was asked whether, if the new regulatory model championed by the Minister had been adopted, the global financial crisis would have been averted—and he said no.
Justine Greening
If the hon. Gentleman checked the Hansard of our debates on the original tripartite regulatory system, he would see that we did raise concerns about the nature of that system. We were told that our warnings were wrong. It is not acceptable for Labour Members simply to wash their hands of the regulatory system that they now clearly feel absolutely failed.
In fact, we have to respond to the regulatory failures of the past by returning the role of supervising the banks to the body charged with the overall monitoring of the economy—the Bank of England. That is why we have also set up the Independent Commission on Banking to advise on the reforms necessary to ensure that we are better protected against another banking meltdown in the future.
Stewart Hosie
On that point, I entirely agree with the Minister. A fundamental part of this is the new capital requirements under Basel III—some 7% higher for at-risk banks. Does she not agree, however, that a review of bank taxation, along with the Bank commission and the new Basel III regulations, would be sensible to ensure that we have the balance in the round between taxation and capitalisation, risk and regulation, and supervision both at the UK level and with respect to this rather complicated European structure?
Justine Greening
The hon. Gentleman is right that the bank levy itself needs to be viewed in the context of overall policy. He is right that it is not just about the bank levy; we have to look at it in the light of the broader changes around regulatory reform and the work of the Independent Commission on Banking. I will shortly come on to explain what that means for new clause 3.
We know that we have to tackle the regulatory failures of the past. We also know that it is right that banks make a contribution in respect of the risks they pose to the UK economy, but there is no benefit in taking action that would simply drive banks abroad. As the hon. Member for Islwyn (Chris Evans) pointed out, hundreds of thousands of jobs across the UK depend on Britain being competitive in this industry. For the financial services sector as a whole, as of June 2009, it had 1 million employees. The jobs are not just in London and the south-east, as there are nearly 100,000 people employed within the financial services industry in the north-west, while there are between 69,000 and 70,000 people employed by that industry in the east of England and about 90,000 in Scotland. Although there have been serious failures in the past, we also have to remember that many of the jobs that are part of this overall sector do not bring in high incomes, as the hon. Gentleman pointed out.
Chris Leslie
I am following the hon. Lady’s logic. She is saying that we do not want to do anything that would drive the banks away—that old chestnut again—but is she seriously saying that the proposal in the new clause to have a review of the level of taxation would be enough to frighten them all offshore? Is she really saying that?
Justine Greening
I am sure that the hon. Gentleman is following my comments closely. I was setting out the context for the situation in which we find ourselves. I have pointed to serious regulatory failure, which needs to be sorted out, and the fact that we have inherited a huge fiscal deficit, which also needs to be sorted out. In that context, we should recall that the previous Government had said that they would not introduce a bank levy at the national level and that they wanted international agreement before any such levy were put into place. At that time, we argued that we should get on with that, as a Government, and not necessarily wait for international agreement. The Labour Government rejected that.
In our first Budget, we decided to introduce a permanent levy on banks, which we expect to generate about £2.5 billion of revenue each year. The levy reflects the potential risks that banks pose to the UK’s financial system and the wider economy, and it will ensure that banks make an appropriate contribution to deficit reduction that balances fairness with the competitiveness of the UK banking sector. It is also intended to encourage banks to move away from risky funding models that threaten the stability of the financial sector.
We were the first country in the G20 to take such action—the hon. Member for Streatham (Mr Umunna) talked about leadership, and I think this is leadership—and we have been joined by France and Germany, which made announcements on bank levies in June. Germany’s plans for its bank levy have been before Parliament there, while France outlined the details of its bank levy at its budget in September. Hungary, Portugal and Austria have since also outlined plans to introduce bank levies, while Sweden has already introduced a levy. Our bank levy is a permanent one and a regular source of revenue—unlike the one-off bonus tax of the previous Administration.
Mr Umunna
What does the Minister say to the International Monetary Fund? I have already mentioned the IMF’s views on the level at which this levy should be imposed. Conservative Members are fond of quoting the IMF to us time and again, yet the IMF takes the view that at least £6 billion a year can be raised from this levy. Does she agree with the IMF and, if not, why does she think it is wrong?
Justine Greening
The IMF has expressed its own views around levels of taxation. In the broader international context, which the hon. Member for Nottingham East (Chris Leslie) mentioned, there are questions about the introduction of a financial transaction tax and a financial activities tax. Unlike the hon. Gentleman’s party, we were prepared to introduce a bank levy nationally, but there are also discussions taking place about international measures that might be taken.
In fact, over and above the bank levy, the Government are taking a tougher approach to tackling tax avoidance by the banks. Prior to the spending review, only four of the top 15 banks had adopted the previous Government’s code of practice. We have asked Her Majesty’s Revenue and Customs to work with banks to make sure they adopt and implement the code by the end of this month, thereby making the commitment to comply with both the letter and the spirit of the law, and not to engage in or promote tax avoidance.
New clause 3 provides:
“The Treasury shall publish a report before the 2011 Budget examining the level of taxation on the banking and financial services industry.”
We have had some sort of rationale for it, but I have to say that I see little merit in making such a report in isolation. The report itself would be no substitute for the overall strategy for improved regulation and the complementary bank levy ensuring banks make a contribution in respect of the risk they pose to the financial system and wider economy. As set out in the spending review, the Government will continue to monitor tax receipts from the banking sector to ensure that banks make a fair and growing contribution to the public finances as the economy recovers.
In addition, there are, of course, already statistics available on the amount of tax revenue derived from the financial services sector. Historical figures for corporation tax receipts paid by several broadly defined business sectors are regularly updated and published on the HMRC national statistics website. To improve predictability, it is important that the Government provide clarity on the direction of tax policy, and the vehicle through which that is best delivered is the Budget itself. The new clause would require the Government to produce a superfluous report in advance of the Budget and therefore in advance of any announcements that the Chancellor might wish to make about tax policy generally that might impact on the banking and financial services industries.
The Opposition want a report on the banking industry. What the Government want, and what we have, is a strategy to ensure that the financial services sector pays its fair share. We have been clear about what we want to achieve, not only through the bank levy but through the code of practice, and by fixing the banks’ ineffective regulatory system—the system established by the last Government, who let our country down so badly. The new clause does nothing to support those aims, and I ask the hon. Member for Nottingham East to withdraw it. If he is not willing to do so, an apology to the British people for the mess of a regulatory scheme that he left behind would not go amiss.
Chris Leslie
What cheek the Minister has to start claiming, in that revisionist way, that her party was always saying that it wanted heavier regulation of the banks in the 1980s and 1990s, and that the Labour party was always advocating the lightest of light touches.
The Minister has completely failed to address the substance of the new clause. We were not even arguing for a change of policy, although I think that we may deal with that on another occasion; we were simply asking for a review of the levels of tax paid by the banks. The Minister did not address that. Nor did she address the issue of bankability. My hon. Friend the Member for Islwyn (Chris Evans) rightly distinguished between lower-paid employees in the banking sector and the high-rolling, highly paid bonus recipients who are in a league of their own.
The Government have taken no action on banker bonuses, despite all their rhetoric. As my hon. Friend the Member for Streatham (Mr Umunna) pointed out, although the Government had claimed earlier that they wanted to see the banks paying their fair share, they were quite happy to set the banking levy at a puny level. It was interesting to note that the Minister body-swerved the point about the IMF’s suggestion that the levy should be higher, and I think that we should examine that methodology on another occasion.
My hon. Friend the Member for Scunthorpe (Nic Dakin) rightly observed that new clause 3 simply seeks transparency and accountability, which must be an important part of proving that we are genuinely all in it together, as the Government like to claim. The Government are going to hit the public generally, cutting services, abolishing education maintenance allowances, taxing child benefit and raising VAT; yet they are unable to do anything about the banks.
We accept that the Independent Commission on Banking is investigating the matter and that regulatory reform is needed, but why can we not have a review of the level of taxes? That is all that we are asking for. What are the Government scared of? They have not given us an answer, and I think that we should divide the House.