Finance (No. 4) Bill

Mark Durkan Excerpts

Wednesday 18th April 2012 Commons Chamber

[Mark Durkan (Foyle) (SDLP)]

Does the hon. Gentleman also hope to have clarification from the Government of why, if the measure is about deficit reduction, they have refused to say that it will be reviewed or revised when the deficit is reduced? It will not necessarily be temporary, whereas the Chancellor was very clear that the 50p rate, while he adhered to it, would only be temporary.

[Mr Chope]

Absolutely. The hon. Gentleman makes a very good point. He may be of an age to recall what happened in the 1970s when we had the International Monetary Fund dictating to the then Labour Government what they should do to bridge the fiscal deficit that existed then. One of the measures that was introduced as a result was, in effect, an income tax surcharge which was retrospective for a year, but everybody who had been paying tax at a particular level had to pay a surcharge to help deficit reduction.

It would be possible for the Government to do something similar in this Budget to put a time limit on that, but the problem is that because of the enormity of the mess that the previous Administration made of things, we will not begin to reduce the debt until well on into the next five or seven years. In the meantime our debt will go beyond £1.5 trillion, so I am not sure that if we introduced a time limit, it could be an early time limit. It might have to be reviewed by Government in about 20 years. However, I take the hon. Gentleman’s point. Before he intervened, I was about to conclude my remarks as I know that many more colleagues wish to lay into the Opposition on their wholly misconceived amendment 1.

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[Charlie Elphicke]

I will give the Committee an example. Let us say that I earn £150,000. Obviously, as a Member of Parliament, I do not, but let us assume that I did and that I did not feel like paying the 50p rate. What could I do? People’s response—the market response, if one likes—is to set up things such as personal service companies, and then we will not see the 50p tax rate again. They will shove money into their personal service companies and pay the small companies rate of taxation. They then sit tight and pay a very low dividend rate of taxation when they get the money out as and when they see fit. Alternatively, they do this trick where they loan themselves lots of money and pay an extraordinarily low beneficial loan rate of tax. I think that such behaviour is wrong. The Labour party ought to know about this not just because of Ken Livingstone but because others of them are up to it as well. They should come clean and be a bit clearer with the Committee about their understanding that people will avoid and forestall for good.

[Mark Durkan]

Is the hon. Gentleman trying to tell the Committee that none of those schemes or scams will happen under the 45% rate?

[Charlie Elphicke]

With the 45% rate, there is less utility and less maximisation of revenue from doing so. Of course, it is marginal, but the unacceptability of paying—paying, not avoiding—at 45% is less than it is at 50p. People resent 50p and think, “These people are trying to stuff me and take all my money away.” The 40p rate was well settled and people’s behaviour was sort of booked in. The judgment is that the most revenue will be raised halfway between the two because, on the one hand, people will think it acceptable—they will not go the extra mile to avoid it—and, on the other hand, they will not think they are being fleeced as they were under the so-called temporary 50p rate, which Labour is now saying was not temporary.

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[Mark Durkan]

The Minister has said that the Chancellor wants to work on an evidence basis. He has previously told us that the Chancellor wants to pursue tax avoidance. Will he therefore accept amendment 76, which focuses on ensuring that the House is given the evidence relating to both tax avoidance and the effects of the additional rate of tax?

[Mr Gauke]

We have a report that produces evidence. I can also assure the hon. Gentleman that the Government have made clear their determination to reduce tax avoidance, and have taken a number of steps to do just that.

Amendment 1 has created some confusion. The Opposition Members who tabled it propose that the additional rate for 2013-14 should be left out altogether. Unlike the 45p rate proposed by the Government, the higher rate of 40% would apply to income over the higher-rate threshold. I understand that Labour sources have been briefing this afternoon that the amendment deliberately leaves the top rate undecided. It does not leave it undecided; it abolishes it. The Labour party has found itself in an extraordinary position.

We have heard astonishing suggestions that we should accept the “static” argument, although, to be fair to the hon. Member for Pontypridd, he has been somewhat hesitant about simply quoting the static numbers as if they were acceptable. We must take account of the behavioural impact, and as we have seen more evidence, it has become clear that it has been greater than was anticipated.

The effect of the 50p rate has been damaging not just to the Exchequer in failing to raise the money that was anticipated, but to competitiveness. There has been a 29% increase in Britain’s—[Interruption.]

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[Owen Smith]

My hon. Friend is right. She is talking about the values and priorities that I mentioned at the beginning of my speech. What are our values? What priorities do we set, according to those values, in respect of fiscal and budgetary decisions? At the moment, it is hard to discern that this Government’s values involve anything other than protecting privilege at the expense of hard-working families and of the most vulnerable in our society.

[Mark Durkan]

The amendment represents an attempt to make the bank levy a more articulate tax by incorporating a payroll tax element into it. Would an attempt to ensure that bankers on excessive remuneration did not benefit unduly from the cut in income tax be consistent with the Government’s efforts to increase the levy because they want to ensure that banks do not benefit unduly from the reduction in corporation tax?

[Owen Smith]

That would be entirely consistent. The Minister knows that our amendment merely asks the Chancellor of the Exchequer to review the possibility of incorporating a bank payroll tax in the bank levy, and to publish a report within six months on how the additional revenue might be spent. We have suggested that we would spend it on creating 100,000 jobs for the unemployed youth of our country, 1 million of whom are still out of work today despite the recent small but welcome fall in unemployment. We would also spend the money on building 25,000 affordable homes, which are equally vital at a time when homelessness is rising at a rate that has not been seen for 25 years.

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[Karen Bradley]

I entirely agree. Clearly 50% of nothing is not as much as 45% of something, It is important for us to tell the world that the UK is open for business, and to say “Bring your business to the UK”. That applies very much to the financial services sector.

We have already discussed how much money the banks might or might not pay towards reducing the deficit. What we are considering now is just the additional amount that they are paying as a result of the increase in the bank levy. They are, of course, paying an awful lot more to the Exchequer. I believe that the financial services sector contributes about £32 billion to our economy, and I think it important for us to retain and increase that amount of revenue. I firmly believe that we should have taxes that raise the maximum amount of revenue to be spent on our schools, hospitals and police officers, and that ideology should not determine how we set our tax rates.

The main point that I want to make about the bank levy is that it will raise the money irrespective of the amount of bonus paid. I remember when the previous Chancellor announced, in his 2009 pre-Budget report, that the banks would pay

“a special one-off levy of 50 per cent.”—[Official Report, 9 December 2009; Vol. 502, c. 367.]

At that time I was working in a large accounting practice, and was analysing the Budget. The biggest surprise came when the then Chancellor said that the Treasury expected the bonus tax to raise £500 million. Those of us who were in that firm at the time—it was one of the big four—were staggered that the Treasury should think that only £500 million-worth of bonuses would be paid, given that the tax meant that an equal amount would be paid to the Exchequer, and I think we have now seen that that did not happen.

The purpose of the levy was to drive behaviour. The point of it was that the banks would not pay the bonuses. The then Chancellor said that the Treasury expected a reduction in the level of bonuses that would be paid that year, but that simply did not occur: the bonuses were still paid. I personally believe that tax is a very blunt instrument for the purpose of driving behaviour, and that people will behave in the way in which they wish to behave, whether it involves charitable giving, buying pasties or paying bonuses. Tax is something that businesses “manage around”. They do not think of it as a behaviour driver, and it clearly did not drive behaviour in the way that the Treasury expected in that instance.

[Mark Durkan]

Has the hon. Lady not just contradicted what she said a couple of minutes ago? She suggested then that if we entertained this idea, we would ensure that banks became financial refugees in all sorts of other places in the world.

[Karen Bradley]

I do not agree about the contradiction. If it is suggested to the banks that the rate of tax will be at a certain level and that there will be a bonus tax, that will discourage them from remaining in the UK but it will not stop them paying the bonuses, which is what the Treasury wanted the special one-off tax to do.

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Alongside action to curb excessive risk taking and strengthen balance sheets, we are taking action to increase transparency and power for shareholders, including implementing the most comprehensive remuneration transparency and disclosure regime among the major jurisdictions; introducing ambitious reforms to the UK’s corporate governance regime to give shareholders the powers to hold directors accountable for remuneration decisions; and putting in place a wide range of policies to tackle the structural and tax distortions that are the source of unacceptable bonuses.

[Mark Durkan]

rose—

[Mr Hoban]

I am trying to deal with the point that the hon. Gentleman made. It is clear that the bank payroll tax had a negligible impact on bonuses paid, whereas this Government’s action has led to bonus pools falling year on year. For example, RBS’s bonus pool fell by 40% compared with the previous year’s, and Barclays’ bonus pool was down by 25% compared with that in 2010. Real changes in remuneration practice are coming through as a result of measures that this Government have championed.

[Mark Durkan]

I wanted to ask about a previous point that the Minister made. He said that he hoped there would be shareholder activity to help to restrain bank bonuses. Would putting a bank payroll tax window into the permanent bank levy that the Government are introducing not be an aid to shareholders’ interests, because it would mean that the level of bank bonuses affected the overall levy that the bank was paying?

[Mr Hoban]

I think shareholders are well aware that bonus pools affect banks’ profitability and the amount that they are able to pay to their shareholders by way of dividends. I am demonstrating that the reforms that we have introduced since we have been in office have been far more effective in curbing behaviour in bank boardrooms than the bank payroll tax.

Let me deal now with youth unemployment, which is highlighted in the Labour amendment. The Government have introduced a wide range of measures to tackle the problem. We have improved the support that is available to jobseekers. We have introduced a more flexible jobseeker’s allowance regime better to support a jobseeker in the search for work. In June last year, we launched the Work programme, providing specialist support over the next five years to help to support the longer-term unemployed and help the most vulnerable jobseekers to keep in touch with the labour market. Later this year, we will run a pilot to find the best way to introduce a programme of enterprise loans to help young people to set up and grow their own business. We are taking other actions to tackle the problem.

We are strongly of the view that it is right that banks should make a fair contribution that reflects the risks they pose to the UK financial system and the wider economy. That is why we introduced the permanent bank levy—a move that Labour Members chose to disregard when they were in government. We need to balance fairness and competiveness and raise the revenue that we need. The actions that we are taking demonstrate that we have a clear strategy in place to enable economic recovery and create jobs. The bank levy is the right course of action. I ask the hon. Member for Pontypridd to withdraw his amendment, and I move that clause 209 and schedule 33 stand part of the Bill.