Banking: Bonuses

Lord Eatwell Excerpts

Tuesday 11th January 2011 Lords Chamber

[Lord Eatwell]

My Lords, I am most grateful to the noble Lord for repeating as a Statement the Chancellor’s reply to an Urgent Question asked by my right honourable friend Alan Johnson in another place, although it is notable that the Chancellor’s Answer had very little to do with the Question asked, which was about the Government’s view on the level of bonuses to be paid in the current round.

Is the noble Lord aware that the Government’s cut in taxation of the banks and the Chancellor’s rather obvious evasion of the substance of the Urgent Question will be received in the country with a mixture of despair and indignation, but not with any surprise? There will be despair because it was the reckless behaviour of the banks and others in the financial sector that imposed economic hardship, even misery, on millions of British people, particularly the most vulnerable. Does he agree with the Financial Services Authority that the bonus policies of the banks encouraged that reckless behaviour? Would he agree that the payment of large bonuses at this time is morally indefensible? Of course, there are lots of things in economic life that are morally indefensible, but the payment of large bonuses now is not just immoral but also against the national economic interest. That is why despair will be laced with indignation.

I believe that no one in Britain objects to the view that those who work hard and take risks with their own money deserve substantial rewards, but would the noble Lord agree that the profitability of the banks over the past year is due less to hard work and more to the financial support provided by the Government and to the low interest rate policies and other policies of the Bank of England? Is it not the case that the banks were reckless with our money, then we bailed them out and then they hoovered up the funds to pay themselves bonuses? Would the Minister agree with me that socially responsible banks will be using their profits to rebuild their balance sheets, strengthening their underlying finances, rather than frittering away our money in excessive bonuses?

Turning to the question of the taxation of bonuses, will the Minister tell the House whether the Government are considering following the practice in the United States, where remuneration in excess of $1 million is not allowable as an expense against corporation tax? The Chancellor asked for ideas and there is one. Members of the House will be aware that in the United States there is not a single non-dom, so will the Minister tell the House his estimate of the proportion of bonuses paid here to residents claiming non-dom status? What proportion of bonuses to non-doms is paid via non-UK jurisdictions? More generally, is the Minister able to tell the House what proportion of gross value added is paid in tax by the financial sector as compared to other major sectors of the economy?

Of course, once issues of taxation are raised, the bankers seek to hold the British people to ransom by claiming that they will simply leave these shores rather than pay their fair share. Will the Minister tell the House what proposals Her Majesty’s Government have made to the G7, the G20 or the European Union for a concerted international policy on financial sector remuneration?

The truly distressing factor about this Statement is that there is really nothing surprising in the Chancellor’s reply, other than his flagrant disregard of the heartfelt and legitimate concerns of the British people.