Finance (No. 3) Bill

Mark Hoban Excerpts

Tuesday 5th July 2011 Commons Chamber

[Chris Leslie]

The problem is that we should have not either/or, but both. The bank levy and the banker bonus tax would be a fair contribution from the banking sector—[Interruption.] The Minister disagrees, but that is his opinion. The OBR says that the yield of a bonus tax could be £3.5 billion, but even a conservative estimate of, say, £2 billion would mean significant money that could eat into youth unemployment.

[The Financial Secretary to the Treasury (Mr Mark Hoban)]

rose—

[Chris Leslie]

Will the Minister say why he disagrees with the bank bonus tax?

[Mr Hoban]

I will make my remarks in my own time, but I remind the hon. Gentleman that he and his colleagues stood on a manifesto that rejected the bank levy. It is a bit rich for him now to talk of having both a bank levy and a bonus tax, because at the last election he and his colleagues rejected both ideas.

[Chris Leslie]

Let us assume that the Minister is mistaken in his understanding of the Labour manifesto; I certainly would not accuse him of twisting our hope of an international agreement on a bank levy. Many countries are adopting the bank levy idea, and it is often much higher than the one we are pursuing. The Opposition believe that the bank levy is important, and we support it as it is, but—

[Mr Hoban]

rose—

[Chris Leslie]

The question the Minister must answer is this: why is he taking no action at all on banker bonuses, and specifically on repeating the previous Government’s banker bonus? Why does he refuse to do that?

[Mr Hoban]

May I just remind the hon. Gentleman what the Labour party said on the bank levy when it was in government? It said that it should be

“coordinated internationally to avoid jeopardizing the UK’s competitiveness”.

The previous Government were not even thinking about a bank levy—they ruled it out. They said that we should not set the tone of the international debate. This Government have had the courage to do so. It is about time that the hon. Gentleman recognised our willingness to take that tough decision to raise more money from the banks than the previous Government raised from their bank payroll tax.

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[Mr Hoban]

The Finance Bill introduces the bank levy, a permanent tax on banks’ balance sheets that will raise more than £2.5 billion each year. Amendment 13 seeks to reintroduce the one-off bank payroll tax introduced in the previous Parliament, but that would be unnecessary and counterproductive. Amendment 31 seeks to introduce a financial transaction tax, but such a tax would need to be applied globally to prevent the relocation of financial services.

The Government have already set out far-reaching plans for banking reform on regulation, lending, remuneration and tax. That includes the introduction of the bank levy. Both amendments would also place an obligation on the Government to produce a report on how any additional revenues from each tax could be spent and we have already heard many ideas during the debate.

Before I talk about the amendments in detail, we should remind ourselves of the significant contribution to the economy and public finances made by banks operating in the UK. Many hundreds of thousands of jobs across the whole United Kingdom—not just here in London—depend on Britain being a competitive place for financial services. It has been said:

“While the success of the financial sectors in New York and Tokyo has been built largely on supplying large domestic economies, with a smaller domestic economy the success of London has increasingly depended on its global role…The Government recognises that it must ensure that the UK’s tax regime remains competitive”.

The hon. Member for Nottingham East (Chris Leslie) described such an approach as the last refuge of the scoundrel, but the “scoundrel” who made that statement was not me, my right hon. Friend the Chancellor, or the Prime Minister; it was the right hon. Member for Morley and Outwood (Ed Balls), when he was the Treasury Minister responsible for financial services. It is clear that in a short space of time, the Labour party has decided it is no longer important to be globally competitive. That is yet another nail in the coffin of the economic credibility of that party, which voted this morning to scrap the deal obtained by the previous Prime Minister at the G20 summit to increase resources for the IMF.

The financial crisis demonstrated that fundamental reform was needed and that is what the Government are delivering. The Government firmly believe that banks should make a fair contribution to the public finances. In particular, banks should make an additional contribution in respect of the potential risks they pose to the UK financial system and wider economy. Last year, we announced a permanent levy on bank balance sheets, which was implemented from the beginning of this year.

[Mr Umunna]

rose—

[Mr Hoban]

Let me make my point and then perhaps the hon. Gentleman can explain the position of his party when it was in government.

In opposition, we made it clear that the UK should introduce, unilaterally if necessary, such a levy, but just weeks before the general election, the previous Government told us that a bank levy would have to be

“coordinated internationally to avoid jeopardising the UK’s competitiveness.”

Where we and our coalition partners have sought to lead international debate, Labour would hang back and let others make up their mind for them.

[Mr Umunna]

The Minister is extremely fond of harking back to what the previous Government did, but he is in government now and has failed so far to give a single convincing reason to support his position of not adding a bank bonus tax to the levy. Reuters is predicting profits this year of about £51 billion in the sector and there is still an implicit taxpayer subsidy of the sector, so in that context why is it so unreasonable to support the amendment? It simply asks for a review, which is a very reasonable suggestion.

[Mr Hoban]

The hon. Gentleman should be patient. I am just warming to my topic. I have much more to say about the bank levy and about amendment 31 on the Robin Hood tax. There is an issue about the need to reform the banking sector and the coalition Government decided to look at the structure of banking, which the previous Government failed to do. We want to tackle issues around the resolvability of banks and to look at how we can make the banking system much more stable. The measures we are taking forward will tackle some of the issues.

[Chris Leslie]

rose—

[Mr Hoban]

I think I am being tempted away from the bank levy, but I happily give way to the hon. Gentleman, who might just come back to the topic.

[Chris Leslie]

It is very gracious of the Minister to give way.

On the so-called progress the Minister is making on banking reform, can he tell us what progress he has made on the transparency of banker bonuses? That is a critical point. How many other Finance Ministers, worldwide or in Europe, has he spoken to and when will the transparency element of the legislation be triggered?

--- Later in debate ---

[Mr Hoban]

We have one of the most transparent disclosure regimes for banking salaries anywhere in the world. The measures we introduced as part of Project Merlin were more transparent and provide more information than in any comparable regime across the world. The Government have made real progress on tackling that issue.

We decided that we would lead the international debate and act unilaterally if necessary on the bank levy. Since we made our announcement, France and Germany have joined us in announcing such levies, and others have followed, including Hungary, Austria and Portugal. The hon. Gentleman made reference to the fact that the Dutch had announced a similar thing. Apparently, they believe that our design for a levy should be followed.

The hon. Gentleman talked about international comparisons. Even allowing for the larger size of the UK banking sector, the UK levy is larger than that of France or Germany. Different levies cannot be compared by looking just at headline rates; for example, the UK levy is focused on balance sheet liabilities, while the French levy is on risk-weighted assets. Furthermore, unlike the UK levy, the French levy does not apply to branches of foreign banks. Consequently, the French levy is expected to raise between €500 million to €1 billion a year, much less than the £2.5 billion we shall raise in the UK, a difference that cannot simply be explained away by the different sizes of our banking sectors. Moreover, unlike the UK, the French levy is deductable from their corporation tax liability. The hon. Gentleman said that the Government will not review the banking levy. If he looks carefully at the documentation, he will see that we are committed to reviewing it in 2013.

The levy is not the only tough action we have taken to ensure that banks pay their fair share of tax. The right hon. Member for East Ham (Stephen Timms) was a member of the Treasury team when the previous Government introduced the code of practice on taxation for banks, but they utterly failed to get all the banks to sign up to it; only four of the big 15 banks had signed up to it by the time they left office.

While the previous Government talked a good story about tackling tax evasion and avoidance, we acted. By the end of November, all the top banks had adopted the code and by the time of the March Budget this year, 200 banks had adopted it. We have taken tough action to tackle tax planning issues and to ensure that banks pay a fair share in taxes to recognise the contribution they should make, given the risk they pose to the UK economy.

With amendment 13, tabled by the shadow Chancellor, the Opposition seek to reintroduce the bank payroll tax, which was introduced in the previous Parliament as a one-off interim measure ahead of changes in remuneration practices from corporate governance and regulatory reforms, and the previous Chancellor conceded that it could not be repeated. The net yield for the tax, accounting for the impact it would have had on income tax and national insurance contribution receipts, was £2.3 billion, which is less than we will raise from the bank levy this year, and less than we will raise from it next year, the year after and the year after that.

[Andrea Leadsom (South Northamptonshire) (Con)]

Does my hon. Friend agree that the unintended consequence of the payroll tax was to push up salaries versus bonuses in the City, which is something that no Member wants to see?

--- Later in debate ---

[Mr Hoban]

My hon. Friend points out some of the behavioural impacts of the tax. A Labour Member pointed out earlier the reduction in the proportion of remuneration from bonuses and the increased amount from salaries. That is the kind of behavioural change that happens. Those responses are important. Banks and bankers respond to such changes, but the world has moved on. Unlike when the payroll tax applied, the top rate of income tax is now 50p in the pound. The previous Government told us that they would apply the bonus tax only until changes in remuneration practices were in place, and this Government have taken firm action in that regard.

The Financial Services Authority revised remuneration code of practice sets out detailed rules for pay for firms in the financial services sector. The code ensures that bonuses paid to significant risk-takers are deferred over a number of years and are linked to the performance of the employee and the firm. In addition, significant portions of any bonus will be paid in shares or securities. Those revised rules came into force on 1 January 2011. Let us not forget that under the previous Government, bankers could walk away with the cash in their pocket as soon as the bonus was declared. The rules on bonuses have been toughened up: bonuses are deferred and are paid in shares. The previous Government let the bonus culture rip and taxpayers paid the consequences.

[Mr Umunna]

I am grateful to the Minister for giving way a second time. Does he acknowledge that the toughening up of the FSA code resulted from moves in Europe that were opposed tooth and nail by Tory MEPs?

[Mr Hoban]

At times, I wonder what Opposition Members read; we were clear from the outset that we wanted to toughen up the rules on remuneration. [Interruption.] We were very clear about what we wanted to do. The Opposition should hang their heads in shame about the bonus culture they allowed to perpetuate when they were in government. I remind them that Labour gave Fred Goodwin a knighthood for his services to banking.

We do not need a bank payroll tax. We have demonstrated that the bank levy we have introduced will ensure that banks pay a fair share in relation to the risk they pose to the wider economy. The right actions have been taken.

Amendment 31 was tabled by the hon. Member for Hayes and Harlington (John McDonnell). He is right to highlight the importance of funding international development, on which there is cross-party consensus. The Government agree that we should move to ensure that 0.7% of gross national income should be for aid. The hon. Gentleman is also right to highlight the importance of achieving the millennium development goals. He mentioned talking about education in a school in his constituency. On Friday, I met a group of pupils from Portchester community school who were very much behind the “Send my sister to school” campaign. These are important issues, but we need some discussion about whether the financial transaction tax model offers a stable and efficient mechanism to raise revenue. Such taxes remain the subject of ongoing debate at international level, and the UK continues to take an active role in the discussions.

--- Later in debate ---

[Frank Dobson]

The Minister recently told me that the Government had made no assessment whatever of the money that might be raised by a transactions tax, as proposed by my hon. Friend the Member for Hayes and Harlington (John McDonnell)—a Robin Hood tax. If the Government have made no assessment of the money likely to be raised, how can they have meaningful discussions with international bodies about what the impact of the tax would be?

[Mr Hoban]

Significant studies have been done by both the EU and the IMF on such a tax, how it would work and the pitfalls in the proposals. We will see an impact assessment on that emerging shortly. We have not ruled out a financial activities tax. We are engaged in discussion with our international partners and we have pressed for the Commission to consider such a tax. It is working on that. We are making progress. Another review is not needed; there is sufficient work going on to explore the issue in significant detail. The amendment would impose more burdens on the Treasury and it would be better to allow that work to take its course.

[John McDonnell]

rose—

[Mr Hoban]

I would like to give way to the hon. Gentleman, but I want to try to wind up the debate because there are other important matters to be discussed this evening.

On Government amendments 32 to 50, since our proceedings in Committee, it has been brought to our attention that in one area the Bill as drafted may not fully achieve the intended policy ambition. These are the rules relating to netting and in particular the rules concerning multi-lateral netting agreements in groups. These are essentially agreements that allow different members of the same banking group to enter into a net settlement agreement with the same counterparties.

We have sought as a public policy objective to ensure that banks should be able to net off certain liabilities against assets, and that the levy is charged only on the remaining balance of liabilities. The amendments clarify the purpose of the Bill and ensure that the netting rules apply so that some banks are not adversely affected. We want to make sure that we keep the provisions under review. That is why we have put into the amendments a power to allow the Treasury to amend the rules applying to netting arrangements.

The hon. Member for Nottingham East asked whether there would be an impact on yield as a consequence of the amendments. There is no impact on yield, as the amendments reflect the policy objective that we have pursued.

In conclusion, we think it is right that banks should make a contribution reflecting the risks they pose to the UK financial system and the wider economy. That is why we introduced the bank levy. We expect the levy to raise more each and every year than the bank payroll tax did under the previous Government. All the Opposition have to offer in the debate is a tax that did not work the first time round. We have put in place a clear strategy to reform the banking sector. I believe that the actions we are taking are right, and I ask my right hon. and hon. Friends to oppose the Opposition amendments.

[Chris Leslie]

I repeat my congratulations to my hon. Friend the Member for Hayes and Harlington (John McDonnell) on at least getting the debate on the financial transaction tax on the table. We on the Front Bench also want to keep it on the table. It is appalling that the Government have ruled it out. My hon. Friend and I have already spoken about how we should revisit the issue in future legislative opportunities. The Front-Bench team has a qualm about the fact that the amendment does not mention sufficiently the need for international agreement on the subject, but broadly we agree that the matter needs to be taken forward. Unfortunately, we will not be supporting his amendment on this occasion, but it is an important topic which we must keep under review and keep a close eye on as it develops.

My hon. Friends the Members for Coventry North West (Mr Robinson), for Sefton Central (Bill Esterson) and for Derby North (Chris Williamson) and my right hon. Friend the Member for Holborn and St Pancras (Frank Dobson) highlighted the fact that there is no good reason for the Government’s inaction on bonuses. My right hon. Friend the Member for East Ham (Stephen Timms) and my hon. Friend the Member for Wirral South (Alison McGovern) spoke about the massive blow to the self-esteem that young people in particular feel, and the sense of their role in society and of their value that they lose, if they do not have the opportunity of jobs and employment.

The Minister says that our amendment 13, which would repeat a bank bonus levy, is unnecessary and counterproductive. The Government seem content with the lack of transparency on bonuses. They are happy with high and growing remuneration for executive bankers. They think the banks are paying a fair share, and they scoff at the £2 billion that could be raised by a tax on bank bonuses. We feel that the public disagree with the Government. The amendment would be a fair approach and it would help to create employment. That is why I urge the House to support amendment 13.

Question put, That the amendment be made.