Tax Fairness
Kelvin Hopkins Excerpts(11 years, 2 months ago)
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Alex Cunningham (Stockton North) (Lab)
This is a debate about fairness, as well as a mansion tax. Unemployment in my constituency has been higher every single month compared with the previous year since the coalition Government came to power. There are 4,293 on jobseeker’s allowance, and many more want to work. My local authority, Stockton-on-Tees—we do not have many £2 million mansions—will shed 1,000 jobs before the current massive cuts are fully implemented. Councillors are working hard, but problems persist.
The Cleveland fire authority, which I met on Friday, faces tough decisions that could reduce the number of firefighters in the highest risk area in Europe because of the cuts and a funding formula that does not recognise the risk we face on Teesside. Other hon. Members have mentioned the unfairness of energy prices, train fares and payday loan sharks, and all are unfair, but it is the tax cut for millionaires that sticks in the craw. People see millionaires getting a tax cut at a time when working mothers face a £160 loss in their income. I could go on at much greater length about unfairness.
I hear from a friend of mine up on Tyneside, Ian Wilson, that Champagne Fever won the first race at the Cheltenham festival today. The partner of the horse’s owner earned £44 million in pay and bonuses last year. He is a banker. I am sure he can afford the mansion tax.
Kelvin Hopkins (Luton North) (Lab)
I have some suspicion about anyone who earns £44 million. They may have received £44 million a year, but they did not earn it.
Alex Cunningham
My hon. Friend is much skilled in these debates and I take his point entirely.
Time and again, Government Members have challenged us to make clear what tax changes we would make to rebalance the unfairness in the tax system. I am delighted, therefore, that the Labour Front-Bench team has backed the Lib Dem policy of a mansion tax, while going further by saying that the money could be used to fund a 10p tax rate, which would bring immense benefit to the lowest-paid in our communities. It would be a tremendous boost to many of the lowest-paid people across Teesside and the rest of the country, including all the people who have landed one of these low-paid, part-time jobs that the Government gleefully boast about. Those people are to be praised and helped. Their pay is derisory, yet they want to work hard and be in a job, so we should do something to help them. They already face the prospect of a cut in income from the changes to tax credits from the end of this month, and today the Lib Dems, and others, could join us in helping to correct that unfair tax change and in recognising their commitment to hard work.
We need action to tackle the unfairness in the system, to sort out the big six energy companies, to stop the rip-off rail fares condoned by the Government and to stop the poorest people—the most vulnerable in our society—being ripped off by payday loan companies and loan sharks. Let more of those with the assets, rather than those with none, pay the taxes. There is real poverty in our communities. One illustration is the increasing number of food banks. I will be opening another one on Monday at the New Life church in Billingham in my constituency. We should not have to be doing such things. We should not need food banks. I know that their use increased even when we were in government, but they should not be necessary.If we had a fair income tax system, we would not need food banks.
The mansion tax might mean £5 a week for some families. That would not buy a small glass of wine in a Canary Wharf bar, but it could make a huge difference to the people at the bottom of the earning scales. It would buy enough bread from Asda for a family of four for several days, yet the Tories—and, more shamefully, the Lib Dems—would miss the opportunity to put bread in the mouths of poor families by failing to send a message to the Chancellor that he should adopt this mansion tax in next week’s Budget. I am sure that people who own property worth more than £2 million could afford the extra charge to help the poor. If not, they can move to a less expensive property and dodge the tax. Like my hon. Friend the Member for Edinburgh East (Sheila Gilmore), I see a parallel with the bedroom tax. Thousands of people in my area are facing a cut in their income. The answer, apparently, is to move to a smaller property. Those with homes valued at more than £2 million but who cannot afford a mansion tax should do what the poor have to do and downsize.
I am one of those who supports higher taxes, particularly when people can afford to pay, so I plead guilty as charged. Earlier today, a Minister said that the Government were focused on the causes of poverty, but all the time cash is being shifted from the poorest to the wealthiest, just as the funds available to local authorities in the north of England are being shifted to the richer areas in the south. I said that unemployment was not falling in my constituency, but in some parts of the south it has fallen, albeit owing to part-time, low-paid jobs. The Government’s austerity measures have devastated local authorities in the north-east, and the contractors who build roads and houses and promote and deliver other services are the losers, being forced to pay off skilled workers who want to work and support their families.
Next Wednesday, the Chancellor will deliver his Budget for 2013-14. It is probably his last chance before the general election in 2015 to come up with a set of policies that could make a real difference to people’s lives. The biggest difference he could make would be to abandon his plan A, under which growth has stagnated, unemployment in areas such as mine has grown and deficit and debt reduction has become even harder, but we know he will not do it. He is tied to his ruinous plan A because he has staked his credibility on it—but there is no credibility in it. The Tories still talk about what will happen if the economy turns around, but if we return to growth, will ordinary people suddenly stop feeling the strain of higher costs and less money in their pockets? I very much doubt it.
This ignores the fact that the Chancellor’s plan has already failed on its own terms. Not only is the national debt far higher than it was when he took office, but he has failed, and failed again, on growth. The reason is that without a good level of growth it is difficult to reduce deficits and debt, and as the Chancellor’s own Office for Budget Responsibility pointed out last week, cutting spending and hiking up taxes for ordinary people has slowed and stopped economic growth. As the ratings agency Moody’s pointed out when it downgraded the UK’s credit rating, the country’s lack of growth has made it nearly impossible for the Government to meet the only real goal they set themselves, which was eradicating the structural deficit.
Although a return to growth would be welcome, only strong growth would be enough to make up for the lost years of economic stagnation under this Government and to keep up with the growing and ageing population. Unless economic growth is above population growth, we are all getting poorer. Add to that the fact that the Government are redistributing from the bottom to the top by cutting the top rate of tax for millionaires while capping welfare, increasing VAT and cutting public services, and the scale of their failure becomes all the more apparent.
In Stockton North, we know all too well the impact of the Government’s policies. Long-term unemployment has more than doubled in the past 12 months and youth unemployment remains stubbornly high. Next Wednesday, the Chancellor has a chance to change course, cut spending less quickly and focus on taxing obscene wealth in order to invest in young people. He is very keen to point to the past and the failures—as he sees it—of the Labour Government, but he has been in his role for nearly three years and has failed abysmally. There will be much for a Labour Government to do in 2015 to address the unfairness built into our country by the Conservative-Lib Dem alliance. I have talked about energy, rail fares and housing, and we are already making clear some of the things we would do. Today, Government Members can help us get our fairness agenda under way by backing a mansion tax and helping to fund lower taxes for those who need them most—I hope they will.
Kelvin Hopkins (Luton North) (Lab)
First, I apologise for arriving late for the debate. I had another commitment that was inescapable, but I want to make a contribution to this important discussion. I also congratulate the hon. Member for Eastleigh (Mike Thornton) on his election victory. I heard his maiden speech yesterday, and a very fine speech it was, too. Unfortunately, he left the Chamber—no doubt for a celebratory drink—before I had a chance to congratulate him, as it was my turn to speak. I remember that, on the day of the election, I was knocking on doors for the Labour party, as he would expect. We were delivering leaflets that said that it was a two-horse race. Sadly, Labour was not one of the two horses, but I was slightly comforted by the fact that the Conservative party was not one of them either.
Tax fairness is the subject of this debate, and I very much welcome the moves that our leadership is making in that direction. The decisions on the mansion tax and the 10p rate are important. They might be straws in the wind, but the wind is blowing in the right direction. The mansion tax is perhaps something of a slogan—an eye-catching, or thought-catching, idea—but I believe that property taxes are appropriate in a civilised society. Property has the advantage that it does not move, so we can always find it. As long as we can also find the owner, we can collect the taxes.
Property taxes, as with all taxes, have to be carefully designed. As the hon. Member for Broxbourne (Mr Walker) said, we have to be careful to ensure that such taxes are equitable. If there is inequity between regions, that should be looked at. The taxes have to be carefully designed to ensure that equity. Personally, I would like to go further and talk about a wealth tax. My party used to talk about that some years ago, and I would like to see a more general tax on wealth in order to do something about the grotesque inequalities in our society. Those inequalities have grown enormously during the time I have been active in politics. Had I been told when I was first active in my party in the late ’50s and early ’60s that we would be in this position now, I would not have believed it. We have moved in this direction, however, and it has been a retrograde step.
No doubt some hon. Members will have read a book entitled “The Spirit Level”, which identifies a strong correlation between income inequality and a whole range of social ills. I want to see a society that is much more equal in income terms, in order to reduce those social ills and because it is right in principle. It is interesting to note that that correlation applies in all societies, whatever the income levels. It does not just apply in rich societies or poor ones. In any society, income inequality correlates with greater social ills. I hope that when my party gets into office at the next election—that is when, not if—we will seriously address that question and try to make Britain a much more equal society again.
Tax has to be progressive. We have to tax the better-off, and we should tax the less well-off either very little or not at all. I have to say that I was disappointed in the previous Government. I was one of a small number of Labour Members—I think there were six of us—who voted against the abolition of the 10p rate, and I am delighted that our leadership has now chosen to reverse that decision and to put us back onside when it comes to looking after the less well-off. That decision is very welcome indeed.
Income tax is the most progressive form of tax. It is adjustable and, in the case of most people, it is collectable. Most of us are on PAYE, so there is no problem with collection. There is a problem, however, with collecting taxes from those who try to evade or avoid paying what is rightly due from them. We have heard from the tax justice movement, and from Richard Murphy in particular, an assessment that the tax gap is something like £120 billion. Some suggest that it could be even more than that. Even the Government accept that the figure is in the tens of billions. Small advances have been made in collecting that tax, but if were really to make inroads in that area, we would not need to look at changes in the tax rate because there would be so much more income to enable us to solve our problems.
Sheila Gilmore
We have heard a lot of the language around dealing with tax avoidance and with high-income earners. Does my hon. Friend not find it disappointing that, at almost the first opportunity to take action, the Chancellor went to Europe to argue against a cap on bonuses?
Kelvin Hopkins
Yes, that was absolutely regrettable. I know that my party will commit to introducing a cap on bonuses in our first few days in power after the next election.
Mr Stewart Jackson
The hon. Gentleman always makes a powerful point. Having served on the Public Accounts Committee and on the ongoing inquiries into tax avoidance, I concur with him. I am a defender not of crony capitalism but of popular capitalism. He might not agree with me on that, being slightly on the left. In order to tackle corporate tax avoidance, we need to look at multilateral, bilateral, international and domestic legislation, but would he acknowledge that the previous Government flunked every opportunity to look at those issues over 13 years?
Kelvin Hopkins
We have seen successive Governments going in for what is called light-touch regulation on all fronts. I have never believed in light-touch regulation; I believe in tough regulation. I believe in employing thousands more tax officers to ensure that we collect the taxes. At the beginning of my time in Parliament, I visited our local VAT office, and the inspectors there told me that if they had more tax inspectors, they could collect billions more in tax. Each of those VAT inspectors collected more than five times their salary. I wrote about this to the Chancellor of the Exchequer at the time, and got a letter back from a civil servant saying that the Treasury was trying to reduce costs by reducing staffing levels. That was a completely illogical non sequitur; it was complete nonsense. Reducing the number of tax officers will reduce income by more than the amount of their salaries.
I have made the point many times—and I shall continue to make it—that we need more tax officers and more rigorous regulation. We need more control over what the corporates and the fat cats get away with. The reality is that ordinary working-class people have to pay tax through PAYE. They cannot escape paying their tax, but the corporates and the fat cats can. So, I have agreed with the hon. Member for Peterborough (Mr Jackson) on one or two issues, and I am pleased about that, although we have different philosophical views when it comes to economics.
I want to talk about the deficit problem, because that is what taxation is about. I do not think that we actually have a deficit problem. We do not even have a spending problem. We have a revenue collection problem. That can be addressed either by collecting tax in the way that we do now, or by changing tax rates, as proposed in today’s motion.
Tax collection is a serious problem, and we could make serious changes there, but I want to look back to a time when taxes were more progressive. During the previous Parliament, I made suggestions in this Chamber about the kind of tax changes that I wanted to see. I went beyond what our leadership is now suggesting, although I welcome its proposals. I think we should go further, however. In the 1970s, Denis Healey was Chancellor of the Exchequer. He said that he wanted to
“tax the rich until the pips squeak”.
I cheered him for that, and we did not lose any votes because of his statement. In fact, a lot ordinary working-class people said, “Quite right too! We want those who can afford to pay more to do so. Those who can only afford to pay less should pay less.”
Mel Stride
Was Denis Healey the same Chancellor who had to go cap in hand to the International Monetary Fund in the 1970s because this country was bankrupt?
Kelvin Hopkins
He did indeed go to the IMF, but I think it has now been recognised that that was unnecessary. We did not need to kowtow to the IMF or to impose those strictures. In fact, remarkably, the economy survived quite well during that time, although a mistake was made at the end. I shall not go into that now, Mr Deputy Speaker, because you would call me to order if I did, but it was the reason why things went wrong in 1979. Nevertheless, we survived the 1970s, although the oil price rose by five times in a very short period, which affected the whole world including Britain.
At that time, I was working for the Trades Union Congress and then in the trade union movement. I was an economist, and was lobbying the Government. I was at the TUC General Council when the £6 pay policy was agreed to. That was an historic moment. I thought it amazing that the trade unions had agreed to a cap on pay increases for everyone, but the reason they agreed to it was that it was fair. Everyone would receive a £6 pay rise. For someone with a low income that was a big rise, while for someone with a high income it was not very much, but it was fair, and was seen to be fair across the board.
Other Members are too young to remember this, but in those days the top rate of tax was 83p in the pound, and there was also a 15% surcharge on unearned income. Some of those whose income was entirely unearned, perhaps in property, were paying a 98% rate on the top part of their income. I thought that was pretty fair, but of course we cannot go back to those days.
Sheila Gilmore
My hon. Friend has been revisiting the 1970s. A remarkable statistic is that in 1979, the inequality gap in this country was at its narrowest since the second world war. Perhaps, if we think that reducing inequality is a good thing, something was right at that time.
Kelvin Hopkins
Absolutely. I remember writing papers about the massive increase in inequality that occurred subsequently, during the 1980s, when there were big tax cuts for the rich along with rapidly rising unemployment. That resulted in the inequality for which we have not really been compensated since.
Mark Reckless
The hon. Gentleman has spoken of persuading Labour Front Benchers to adopt his policy on the 10p tax rate. Does he have similar hopes in respect of the 98% rate?
Kelvin Hopkins
No, no. I live in the real world, and I suspect that even my hon. Friends on the Front Bench will not start considering 98% marginal tax rates.
George Bernard Shaw, a witty man but a socialist, who was paying 98%, said, “I consider myself to be a tax collector for the Government, in return for which I receive a 2% premium.” I thought that that was one way of putting it. Shaw was, as I said, a socialist, who no doubt accepted that wealthy people such as himself should pay substantially more than the poor.
I realise that we will not return to that rate, but I will say that during a Budget debate in the last Parliament, on a cold Thursday afternoon when it was raining and there were about six people in the Chamber, I suggested that we could consider a 50% rate for those on £60,000 a year—this was then!—a 60% rate for those on £100,000, and a 70% rate for those on £200,000. That would have taken us nowhere near where we had been in the 1970s, but it would have been a substantial change from where we were then.
I did not get much of a reaction in the Chamber, but the Deputy Speaker spoke to me privately afterwards. I am giving away no secrets, because she is no longer a Member of Parliament. She said, “I do so agree with you. Why do the Government not just do as you say?” Well, if only; but I had said what I thought, and I thought that would be a reasonable move. I suggested the 50% rate for those on £60,000 because at least it would mean Members of Parliament paying a tiny bit extra on the top part of their income. I thought that was right then, and I still think it is right.
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. I fear that the hon. Gentleman has run out of time. Much as I was enjoying his speech, I must now call Catherine McKinnell.
Financial Services (Banking Reform) Bill
Kelvin Hopkins Excerpts(11 years, 2 months ago)
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Greg Clark
I should have thought that the hon. Gentleman would reflect on the fact that the Chancellor has many serious responsibilities and he is discharging them at the moment.
Let me talk about the process that we have followed, then I will address in some detail the particular aspects of content. The process that we have followed has sought to come up with the best possible way to address the dilemma that I described, and to do so by building, as far as possible, a broad consensus. That may not be there—yet—on every particular, but I think most Members would concede that Sir John Vickers’ commission has come closer to achieving that than many people thought possible.
The Independent Commission on Banking was established as soon as possible after the general election, in June 2010. It took extensive evidence before publishing an issues paper in September 2010 and an interim report in April 2011, on which it consulted, before publishing its final report in September 2011. The Government gave, and consulted on, an initial response in December 2011, before issuing a White Paper for consultation in June 2012. In the light of the responses to the consultation, a draft Bill was published last October and the Parliamentary Commission on Banking Standards was asked to subject it to pre-legislative scrutiny. The parliamentary commission’s report was published on 21 December last year and many of its recommendations were accepted in the Bill published in February and laid before the House.
At the time of introduction, I made it clear from the Dispatch Box that we would table further amendments in response to the commission’s future recommendations as the Bill proceeds through both Houses. I hope that Members on all sides would agree that this has been an exceptionally extensive process of both policy development and scrutiny of emerging proposals, and I repeat what I said to the right hon. Member for Wolverhampton South East (Mr McFadden) last month, that I will personally insist on taking a constructive and open-minded approach to the views of this House throughout the Bill’s passage. To the extent that the Bill reflects the unanimous views of Parliament, it is immeasurably strengthened.
Kelvin Hopkins (Luton North) (Lab)
Does the Minister accept that one of the major factors in the 2008 crisis was the complete failure of the auditing sector to get a grip on what banks were doing? Will he be putting forward proposals for strengthening audit for the future?
Greg Clark
That was not a set of particular recommendations in the reports that were commissioned, but I know that it is of some interest to members of the parliamentary commission and, as I will go on to say, we stand ready to consider their further recommendations, and I dare say they might have something to say in that respect.
Mr McFadden
The hon. Gentleman neglects to mention RBS, a universal bank, which needed major intervention to bail it out.
The Minister has said that he does not want wider separation because the Bank of England does not want it. It is true that the Bank of England has expressed some reservations about the power if it were to be wielded by the regulator. I took the opportunity to ask the Governor about it last week when he appeared before the commission. He replied that
“a provision so important that it affects the entire sector is one that both de facto and de jure will and should be taken by Parliament.”
When I explained to him that it had never been the commission’s recommendation that this be a policy decision taken purely by the regulator, and that all along we had been clear that it was a decision for Government, he said:
“As long as the decision is taken by Government, we would have no objection to that.”
I hope that we will no longer hear Ministers saying that they are rejecting this power because the Bank of England is opposed to it. This should of course be a decision taken by Government. As for the Chancellor’s point that it would be “undemocratic”, what is undemocratic about holding a proper review into legislation passed by this House as the Banking Commission suggests, or about taking a reserve power the exercise of which would involve the parliamentary process of debate and approval? The truth is that it would not be undemocratic at all.
Mr McFadden
I am afraid that I want to make some more progress.
This is not, as the Minister argued, about introducing two policies at once; it is about introducing a policy and making sure that it is adhered to. As the hon. Member for Wyre Forest (Mark Garnier) said in this House a few weeks ago, the banks have nothing to fear if they adhere to the spirit and letter of the Bill. It need not introduce uncertainty, as some have argued; in fact, it ought to provide certainty that we are serious about the ring fence.
On capital and leverage, it is absolutely true that in the run-up to the crisis banks were over-leveraged, and that is because they held too little capital against the risks that they had. The Vickers commission was very clear about that. It recommended a future leverage ratio of 25:1, which is still quite high in historical terms, while the Government are recommending 33:1 because that is the internationally accepted Basel outcome. Without going into any more detail, I just say to the Minister that this goes back to the one-way trade to which I referred. It is a really important question running through all these reforms. If, every time we rub up against an issue, we say that we cannot damage the industry because it is so big here in the UK and we therefore have to stick to the lowest common denominator of international reforms, we will not be doing our duty to the UK economy or to UK taxpayers. If we have learned anything from the crisis of 2007 and 2008, it ought to be that there is a case for taking particular measures here in the UK precisely because of the size of the sector in relation to our wider economy. That is the basis on which we should judge the correct degree of leverage for the banks that operate in the UK.
Then there is the question of resolution and bail-in: in other words, what happens when a bank fails, and who is on the hook for that failure? In 2008, it was the taxpayers, not the bondholders, because a resolution mechanism was not in place in law that could allow for normal insolvency procedures were those to whom the banks owed money to take the risk. A very important part of the reforms is to change that situation. Bail-in is signed up to by the Government, but, like my hon. Friend the Member for Nottingham East (Chris Leslie), I am very curious as to why the Government are pursuing this through the European resolution and recovery directive. I would have thought, particularly after last week, that the Government might be somewhat nervous about pursuing a major financial services reform through a European directive. I return again to the one-way trade argument. Surely, because of the importance of this industry here in the UK, we should legislate to make sure that bondholders take a future risk and not UK taxpayers, and we should not leave it to the very uncertain process of a European directive negotiation. That might work out fine; there might be spontaneous agreement among the 27 member states. However, I am sure that the Minister agrees that that there is a very real possibility—this is not uncommon—that that would not be the case. I ask him to think again on the bail-in regime and to ensure that a proper UK decision is taken rather than leaving it all to a European directive. I would have thought that Government Members would support such a suggestion.
In conclusion, I want to reiterate the point about time. The parliamentary commission, which was set up by the Chancellor, has spent six months taking in—the chairman, the hon. Member for Chichester has done more totting up than me—60-odd oral evidence sessions and much written evidence. It is simply not good enough for the Minister to say that he will take the Bill out of Committee by the end of April, before we issue our final report. The Opposition supported the establishment of the parliamentary commission after the House had voted on the issue. We expect its recommendations to be properly considered by the Government, not swept out of the way by the timetable. I hope that the Minister will think again, because the structural issues under discussion are not the only issues. Important changes still need to be made to banking culture, standards and corporate governance, so that this very important industry contributes positively to the UK and does not put the economy and taxpayers at risk.
Frank Dobson
Yes, but if we are to get the changes we need, we also need to change the culture in both sectors.
The banks have never competed with one another, or at least not in trying to get customers. Rather, they have tended to compete by copying one another. When one bank comes up with a wheeze that swindles money, the bosses of the other banks say, “Why are they getting all this money in through this swindle? Can’t we do the swindle as well?” That is presumably how PPI started off at one bank and then went to all the others. Interest rate swap agreements certainly started at one bank and were then taken up by the others, because people in those banks felt they had to compete with the other swindlers down the road.
These people—this collection of money launderers, gun runners, drug money launderers, people who swindle small businesses and people who lose billions in their normal day-to-day business—are still paying themselves huge amounts of money. I know that the Prime Minister has a difficulty with facts, but I did not realise that he had a problem with adjectives, because when the Royal Bank of Scotland announced that it was paying £600 million in bonuses this year, he commended it—this bank of losers —for its restraint. That is not my definition of restraint. “Excess” is probably a better word in the circumstances. Restraint involves cutting the benefits of poor people and the pensions of the police, the nurses and the teachers. Restraint involves capping the pay of public employees. They have certainly been losing out. In 2009, I said that the two banks that were being semi-nationalised should have the normal public sector pay policies applied to them, and I think most people in this country would agree with that.
Kelvin Hopkins
I am greatly enjoying my right hon. Friend’s speech, and I agree with every word of it. Does he not find it interesting that Lord Lawson has recently suggested that the Royal Bank of Scotland should be brought completely into public ownership? That would involve only a small amount of money, and we would then have a bank that was publicly accountable and responsible.
Frank Dobson
I entirely agree with that. I also agree with my hon. Friend the Member for Bassetlaw that it would be good to see the Halifax building society separated out from Lloyds HBOS, so that what was the country’s leading firm could be relocated and its decisions could once again be made in Halifax, rather than in the City of London.
Let us remember that while the people who are nursing the sick and carrying out operations in hospitals, the people who are teaching our children, the people who are policing our streets and the people who are risking their lives to fight fires are being restricted, HSBC is paying 204 people more than £1 million a year, Barclays is paying 428 people more than £1 million a year and RBS is paying 95 people more than £1 million a year. They are being paid those sums to play with other people’s money. That is all they are doing; if they lose but cannot go broke, they are clearly not playing with their own money. But not everyone at Barclays is getting £1 million a year; 100,000 people working for that bank are paid at a level that entitles them to child tax credit. What is more, it is people such as them all around the country who have been losing their jobs while that collection of losers at the top carry on.
Then we have the Prime Minister and the Chancellor, whose top priority in Europe is to prevent those horrible Europeans from imposing a limit on bankers’ bonuses. We used to be told that if we imposed such limits, the bankers would go elsewhere. We were told that they would go to Switzerland. Well, they will not be doing that since the referendum in that country, because they would now be worse off there than they would be here. Would they perhaps go to the United States? Some of them would have to think very carefully about that, because money launderers can be locked up over there, and that has indeed happened, even to Brits.
What all this boils down to is that the banking industry does not need mild tinkering; it needs a total worldwide transformation. Instead of acting as the back marker in the convoy, we ought to be out there banging a drum and getting a grip on the world banking industry, for the benefit of ordinary people in virtually every part of the world.
Kelvin Hopkins (Luton North) (Lab)
That was a fascinating speech by my good friend the hon. Member for Wycombe (Steve Baker). I cannot compete with his erudition; I have a much smaller speech on a smaller issue.
In 1983, I stood for Parliament on a manifesto that called for the public ownership of large sections of the banking system. It is an irony that large sections of it are now in public ownership, having been put there by people who profoundly disagree with and disbelieve in that process, but who were forced to do so or to let the system collapse. That is interesting. I certainly wish to see public ownership go further, as well as public regulation and accountability, as the risk in banking is being underwritten not by the borrowers but by the Government, by the state and by the citizen, and if risk is not and cannot be transferred, the ownership and accountability should be in public hands as well.
During the Minister’s opening speech, I mentioned audit and the appalling failures of the audit industry during the banking crisis. The hon. Member for Chichester (Mr Tyrie) said that more needs to be done, and much more certainly needs to be done. I hope that some component of the Bill, when it is amended, might deal with audit.
There is a need for radical reform of the rules governing audit. The Financial Reporting Council is undertaking a consultation on the new rules that will compel auditors to write what is called a commentary, flagging problems, risks or disagreements with management at audited companies and institutions in clear and comprehensible language so that shareholders can understand. That will be seen as controversial by company management, but will be welcomed by shareholders and, by the same token, by bank depositors and customers.
We should of course remind ourselves that auditors, above all, represent shareholders—or at least they should. In reality, however, they are taken on by managers so power is effectively in the hands of managers and shareholders, or bank depositors, and customers simply have to trust them. When an audit contract comes to an end, auditors are unlikely to be critical of managers for fear of failing to be re-engaged. The inevitable cosy relationship between auditors and managers lies at the heart of what has gone wrong in the banking sector.
If auditors had been doing their job properly and their audit reports had not been so opaque and impenetrable, the financial crisis would not have happened as it did. The fact that banks were gambling with worthless bits of paper based on sub-prime mortgages was the fundamental cause of the banking crisis, and it is not over yet. Auditors did not do their job in relation to the practice of bankers such as those at Northern Rock before and until it collapsed. If they had, we might have prevented that catastrophe.
Frank Dobson
Does my hon. Friend agree that it is a trifle irksome to listen to the radio or watch television and to hear someone from PricewaterhouseCoopers telling us what we ought to do for the future when PricewaterhouseCoopers audited Northern Rock and did not spot anything going wrong, or to hear about the famous Ernst and Young ITEM Club when the biggest item in the firm’s history is that it did not spot that Lehman Brothers were broke?
Kelvin Hopkins
I thank my right hon. Friend for that intervention, and I am just about to mention those great companies.
As if to reinforce the case for radical reform, on 22 February the Competition Commission published a report that was deeply critical of PricewaterhouseCoopers, Ernst and Young, Deloitte and KPMG—the big four—for a deep “misalignment” with shareholder interests. The commission made it clear that auditors and company executives had acted as a cabal to their mutual benefit and to the exclusion of the interests of investors. Under the definition of investors, we can include depositors and retail customers in the banking sector.
The commission concluded that the relationship between auditors and management has been too cosy and must be overhauled. The big four audit nearly 90% of all blue chip companies. One suggested remedy has been for the mandatory rotation of tendering so that after, for example, five years or so an audit company would have to relocate to other companies and could not be re-engaged. The companies engaging auditors would then be required to ask new auditors to compete for business. That would go some way towards breaking the unhealthy link between auditors and the companies they are supposed to be auditing.
Whatever new rules might be introduced, it is vital that auditors are compelled to ensure that their loyalties are to shareholders, depositors and customers and not to banking and company managers. Auditors failed to raise the alarm before the financial crisis and that must never happen again.
John McDonnell
I most probably will not even take 10 minutes.
I am very pleased that the plane of the hon. Member for Caithness, Sutherland and Easter Ross (John Thurso) did come in, because he always makes complex issues simple and entertaining. There is a consensus in the House around regulation as the approach to take towards resolving the banking crisis and ensuring that, if we do not prevent a future crisis, we at least stave it off for, as the hon. Gentleman suggested, possibly another 70 years. The degree of positioning is around Glass-Steagall-type full separation, a ring fence, and then, as he said, the novelty of an electrified ring fence. There must be different power levels of electricity on this ring fence, as well.
I stand outside that debate, because I do not think that regulation will work. I was the first Member to raise the issue of Northern Rock in this House. At that time, I completely underestimated what Northern Rock was up to. I thought that it was all about an offshore tax scam that was part of its link with the organisation that it called Granite; I had no idea of the scale of the problem that would be unravelled. I can remember the then Chief Secretary to the Treasury, I think, leaving the Chamber after I had talked about Northern Rock, to obtain a briefing about what I was talking about. I realised that what I was talking about was a crisis that was being created in the City by greed, primarily, and by speculation and casino banking. I remember being at the Labour party conference in the 1980s, around the time of big bang, and organising the launch of a book called “Big bang: the launch of a casino economy”, authored by the then Member for Hackney and my hon. Friend the Member for Bolsover (Mr Skinner), which predicted some of the outrageous potential that there was for speculation as a result of big bang.
When I raised Northern Rock, I completely underestimated the levels of casino banking and the corruption that was taking place. In the previous debate a few weeks ago, I described the City as a “cesspool of corruption”, which it was. However, what was also revealed was the absolute incompetence. It was like “The Wizard of Oz”—when the curtain was pulled back, there was not a wizard but someone scrambling with various levers. We discovered then that the hierarchy of British banking did not even understand the instruments with which they were working because they were so complex. Then it all started to unravel, and we discovered scales of greed, incompetence and corruption that none of us expected.
At that time, we were assured that the regulatory system was not at fault, but we soon discovered how inoperable it was. The result, as we all know, is that the then Government intervened to borrow and they used taxpayers’ money to bail out the system. At its peak, taxpayers’ exposure to the bank collapse was on the scale of £1.2 trillion. I understand that so far we have retrieved only £14 billion of that taxpayers’ money. The second wave was the austerity programme introduced to pay for the Government intervention to save the banking system. Mervyn King estimated the cost of that to be £1 trillion. Anthony Haldane, who is probably more accurate in his assessment, estimates that we have lost the equivalent of between one and five years’ GDP. Those absolutely staggering sums are the result of a crisis brought about by incompetence and greed. The majority of people are 7% poorer than in 2007, and their living standards have fallen, according to the latest estimate, by 13.2% since 2008. The median household income in 2015-16 will be the equivalent of that in 2002-03. These are the implications of what this wealth of greed brought about: mass unemployment, welfare benefit cuts, food banks, and parents missing meals so that children can eat. It is absolutely staggering.
I find it extremely difficult to come to terms with an issue that was raised by my right hon. Friend the Member for Holborn and St Pancras (Frank Dobson). Since the crisis occurred—since I first stood up in this House and mentioned Northern Rock—and we went on to the nationalisation of banks, and then to quantitative easing on a scale that we had never seen before or could even comprehend, the scandalous practices have not gone away: they have continued. As my right hon. Friend said, the bonuses have continued, fraud has continued, LIBOR interest rate fixing has been investigated, and we have seen tax evasion and money laundering. This is happening even when the bankers are in full public sight. At a time when the eyes of the country are on them, they are still manipulating the system.
I find it astounding—I have raised this in the House three times, and 10 days ago I received a letter from the Minister about it—that when quantitative easing was introduced, we discovered through press reports that bankers even then sought to profiteer from it. The letter from the Minister confirmed that at one point the Bank of England had to intervene and withdraw from the market because there were suspicions of price fixing and manipulation of the market during quantitative easing.
Kelvin Hopkins
I am very interested in and admire what my hon. Friend is saying. There is a suggestion that the recent surge in share prices is simply the effect of quantitative easing and that it bears no relation to what is happening in the real economy.
John McDonnell
Exactly. I accept that point, but the relatively simple point that I am trying to make is that a group of people who have, in effect, been caught with their hands in the till are trying to use the money that has been used to bail them out to profiteer at the taxpayers’ expense. That is staggering and it says to me that regulation will not work with these institutions. Even when they are absolutely shamed, subject to public opprobrium and under the acute gaze of the public eye, they still try to profiteer.
Infrastructure
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Rachel Reeves
Close to 1 million young people are out of work, and one third of them are now long-term unemployed—a waste of their potential and a waste to our economy, as we are losing out on their skills. We so desperately need that economic recovery.
There is still no sign of the Government sharing the country’s sense of urgency. Only 14% of the 576 projects listed in the Government’s infrastructure pipeline have started and just 1% of those are said to be operational. The Government’s record on infrastructure is a complete and utter shambles. Wherever we look, the strategy is failing to deliver—a perfect storm of uncertainty, incompetence and delay.
Kelvin Hopkins (Luton North) (Lab)
My hon. Friend is making an excellent speech. She is talking about projects. One project that might be considered seriously is the GB freight route—the building of a dedicated rail freight line from the channel tunnel to Glasgow, linking all the industrial areas of Britain and able to take lorries on trains. Will she give that serious consideration?
Oral Answers to Questions
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Danny Alexander
As my hon. Friend will know, when we took office we found a situation in which sixth-form colleges were considerably less well funded for that group of pupils than schools. We are taking steps, year by year, to equalise the funding arrangements, and we will look again at that in the spending round in the first half of this year.
Kelvin Hopkins (Luton North) (Lab)
As a governor of Luton sixth-form college for 20 years and a former teacher of A-levels, I am convinced that sixth-form colleges are the most successful institutions in our education system. Is it not time for the Government to stop punishing them for their success?
Danny Alexander
I dare say that the hon. Gentleman’s comments on sixth-form colleges will be echoed by many Members of the House. That is why, as I said in answer to the earlier question, the Government are taking steps year by year to equalise the funding arrangements. I am sure he will welcome that.
Public Service Pensions Bill
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Sajid Javid
We discussed that earlier. Transfers from local government are currently covered by an equivalent policy to fair deal. The Government are considering how most appropriately to apply the principles of the new fair deal policy to the LGPS, but our commitment on fair access to transferred staff stands and applies, including to members of the LGPS.
People are now expected to live significantly longer than the generation that went before them—an average of 10 years more than someone retiring in the 1970s. The increasing numbers of people with public service pensions and improvements in longevity have led to significant increases in the number of pensions that are being paid. Consequently, the cost of paying pensions has increased to £32 billion per year—an increase of a third in the past decade.
Kelvin Hopkins (Luton North) (Lab)
Other, similar European countries have a younger retirement age and more generous pensions. Why are we so different?
Sajid Javid
The hon. Gentleman perhaps has Greece in mind. Many countries that fit his description are suffering significant problems. To take another example, retirement ages in Germany, which is one of the largest countries in Europe, are in many cases higher than those in Britain.
The employer, and therefore the taxpayer, has borne nearly all the additional cost, which has led to an imbalance in the sharing of costs between members and other taxpayers. The imbalance will be corrected only by the reforms we have introduced.
Bank of England
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Mr Osborne
The very short answer is yes. Paul Tucker has been an excellent deputy governor, and I hope he continues to do his excellent job at the Bank of England.
Kelvin Hopkins (Luton North) (Lab)
Mervyn King’s predecessor Eddie George said that the single currency should be kicked into the long grass and left there. Will the new Governor continue to support the independence of Britain’s currency?
Mr Osborne
I will not speak for the new Governor, but I am sure he could be asked that question. I am pretty clear that he would support the pound, because he has seen at first hand through the Financial Stability Board some of the problems that have arisen in the euro. I reassure the hon. Gentleman that any decision to ditch the pound would be one for the Government of the day and the House of Commons, and while this Government are in office we will keep the pound.
Oral Answers to Questions
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Kelvin Hopkins (Luton North) (Lab)
The Minister talks—it might be wishful thinking—about bringing in an extra £7 billion a year, but the tax gap is at least £120 billion a year, and some people think it is more. Is it not time that the Government took chasing billionaire tax dodgers more seriously and stopped cutting public spending and squeezing the poor?
Mr Gauke
The hon. Gentleman will be aware that the figure of £120 billion does not have much support from anyone who knows much about statistics. The actual figure is £32 billion. That is the number we inherited from the previous Government and we are determined to bring it down.
Banking Union and Economic and Monetary Union
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Kelvin Hopkins (Luton North) (Lab)
I wish to speak briefly in support of the amendment, which I have signed, and to applaud everything the hon. Member for Stone (Mr Cash) said, apart from his comments about the Labour party. I believe strongly that banking regulation should be determined by national Governments and Parliaments and that, if there are to be international agreements, they should be bilateral or multilateral agreements between Governments and not determined by the European Union.
I am certain that my views on banking regulation are very different from those of Government Members, but I agree that we should determine what it is, not the European Union. The most damaging change for Britain was when Mrs Thatcher abandoned exchange controls in 1979, which was the most serious act taken by the Conservative Government in those years. Since then, we have seen all the crises arising from globalisation. We cannot put the genie back in the bottle, although I think that in time we might have to try, but it would take another massive crisis before that happens.
With regard to the euro, I have always been wholly opposed to economic and monetary union and wrote my first paper about it in 1979, when I opposed the European monetary system. I wrote another paper about the exchange rate mechanism and predicted its crash, and I opposed Maastricht. I have written and spoken thousands of words on these matters over many years, and I am afraid that I have been proved right. The crisis now affecting us is quite appalling. In Greece there is now a fascist party infiltrating the police and threatening to undermine democracy while the Greek economy disappears into a black hole, and that is the result of a mad economic policy and strategy. Countries should have their own currencies and should be able to determine their own parities relative to other countries.
The Government ought to go into the negotiating room at any time feeling strong, because the European Union needs Britain much more than we need it. We buy vastly more from the EU than it buys from us. With Germany and France now predicted to be going into recession, they will need our trade even more. Our exports, compared with our imports, are tiny. The German economy is heavily dependent on massive exports to Britain, so we can negotiate from a position of strength and say, “If you make life very difficult for Britain, we could make life very difficult for you as well.” We do not want to do that; we want to be comradely and internationalist. But let us not think of ourselves as a weak country, because we are very strong.
Multiannual Financial Framework
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Greg Clark
Every budget negotiation under the seven-year framework has resulted in an increase. That must now stop. The next seven years must see an end to the perpetual ratcheting up of EU spending. The Prime Minister will be looking to achieve precisely that. As far as the Government are concerned, what remains of the rebate, after the predations of the Labour party, is absolutely non-negotiable. That means that even talking about it is a waste of time. Without it, our net contribution would be by far the largest in the EU, twice as big as that of France and more than one and a half times that of Italy or Germany as a percentage of gross national income.
Kelvin Hopkins (Luton North) (Lab)
Earlier in his speech the Minister said that the Government are opposing a real-terms increase. The figure involved would be significantly different from a money-terms increase. Would the Government not do better by asking for a freeze in money terms, not real terms?
Greg Clark
Our position is very clear: we want to see a cut in the EU budget. That is what all of us on the Government side of the House want. I will come on to explain the negotiating mandate that the Prime Minister has agreed with European leaders.
Kate Hoey (Vauxhall) (Lab)
I support the amendment standing in the name of the hon. Member for Rochester and Strood (Mark Reckless); as a signatory to it, I am delighted to do so. I am also delighted that members of my Front-Bench team are, for a change, on the same side as me and my hon. Friends the Member for Luton North (Kelvin Hopkins) and Blackley and Broughton (Graham Stringer), among others. It is nice to see so many people in the Chamber.
We sometimes say, “This shows Parliament at its best.” If this amendment is not passed tonight, we will be showing Parliament at its worst, because a lot people here will not be doing what they really want to do. A lot of people here, on both sides of the House, will be doing what their party has asked them to do. I believe, fundamentally, that the issue of Europe has reached the point where party is not as important as the issue. I genuinely believe that we, in this Parliament, are way behind the public on the question of Europe. I am pleased that things seem to be moving in the direction of the Labour Members and the Government Members who see things as I do. Many of us have worked together on this for many years, going back as far as the time of the Maastricht treaty, when the same pressure was applied by the Labour Whips to vote on it as is probably being applied to Government Members now.
I do not believe that the public would understand the nuances being used here. I refer to the weeny words of the Minister, who was not prepared to give way to me for some reason—I do not know what I have done to upset him—on the issue of why the Government could not support the amendment. He said that it was because the amendment did not contain any criticism of my party when it was in government. We have made criticisms of my party when it was in government—I have done so, as have my hon. Friend the Member for Luton North and various others. Many Labour Members and many others within the Labour party did not support the rebate being removed.
Kelvin Hopkins
Many of us have been critical of the giving away of the rebate, both publicly before the last election and since. The Government make much of that event, but I have said to them in this Chamber, “If you feel so seriously about it, why haven’t you demanded it back?” They have had two and a half years to do that.
Kate Hoey
I thank my hon. Friend for that intervention. Tonight, we have an opportunity to make it public that there is a united Parliament, for whatever reason and motive. The reality is that we are a united Parliament and we are saying, “We do not want one penny extra spent. We want to see a cut in what the European Union is spending.” I want to see more than that. I want a referendum on our relationship with Europe. I want an end to this nonsense, which we keep putting up with. We could make a decision tonight that says, “We do not want to see an increase—we want to see a cut.” However, come the end of the process, by majority voting, we could be outvoted, no matter how many diplomatic skills we use. I am sure that many hon. Members think that they could do better if they were negotiating, but no matter how good our negotiating skills we may not get what we have asked for. My view is that we should veto at that point and then, when we are sent our bill, we should say no and tell them that we will send what we agreed. We should tell them that we will not send them an increase.
Public Service Pensions Bill
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Rachel Reeves
It could be reversed so that dividends were not treated in such a way in the future, but the Government have no intention of doing that. I do not think the hon. Lady understands the real crisis: some people are not saving at all for their pensions and have no occupational pension to save into, and the 20% of people who earn less than a living wage do not feel that they can put money aside every month. That is the real crisis we face and the Government excluded 1 million people from automatic enrolment and have done nothing to tackle the excessive fees and charges automatic enrolment schemes can charge. The Government should be focusing on that challenge to bring up the quality of pension provision for everybody so that nobody risks retiring into poverty and having to rely on means-tested benefits.
Improving governance and reducing costs across private pension schemes while cracking down on the excessive fees and charges that erode pension income should be the Government’s priority, but it is not. Instead, to address disparities they want to level down the pensions enjoyed by those who work in the public sector.
Kelvin Hopkins (Luton North) (Lab)
My hon. Friend is right to draw attention to the pathetic performance of private sector schemes. Is not the answer a compulsory state earnings-related pension scheme for everyone in the private sector?