Finance (No. 4) Bill

Mark Hoban Excerpts

Wednesday 18th April 2012 Commons Chamber

[Owen Smith]

I will keep going for a moment and then happily give way.

The bank levy currently impacts on banks only after the first £20 billion in equities and liabilities is taken into account, capturing, in effect, the millionaires of the corporate world. When the idea of the levy was first mooted—initially by Labour Members and then after being picked up by the International Monetary Fund— [Interruption.] I am afraid that that is true. My right hon. Friend the Member for Kirkcaldy and Cowdenbeath (Mr Brown) first mentioned a bank levy, and then the IMF picked up on it. It is a simple point, but I will happily give way if the Minister wants to intervene.

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

May I point out that the previous Government ruled out a bank levy because they did not want to introduce one unilaterally? This Government had the courage to do that, and to do the right thing so that banks could pay their fair share to the Exchequer, whereas the previous Government ran away from the issue completely.

[Owen Smith]

When the IMF first talked about a bank levy, it thought that an equitable, sensible amount to get from the banks in this country was £6 billion—not the £2.5 billion that the Government claim to be raising. The reality—people out there ought to understand this—is that by the end of the current spending period, the Government will be raising as much from people who eat pasties, buy or sell caravans, sit in caravans, do up listed buildings and do all the other things that have been changed under the VAT rules as they will be raising through the bank levy. That is the real comparison. The right hon. Member for Wokingham (Mr Redwood) laughs, but it is a fairly accurate comparison, and people out there will not think that it is fair or equitable. They will not understand why caravan users and pasty eaters—even if the pasties are not eaten at an ambient temperature—should bear the same degree of pain as the bankers, who, as I think many people would concede, were at the very least involved in the global crisis that paved the way for the recession of recent years.

[Mr Hoban]

The hon. Gentleman said that the VAT changes will raise as much as the bank levy. If he looks at table 2.1 on page 50 of the Red Book, he will see that in 2016-17 closing loopholes and correcting anomalies will raise about £350 million, but the bank levy will raise £2.5 billion. How can he square the two statements that he made?

[Owen Smith]

May I take this opportunity, Sir Roger, to apologise to you, to the Minister and to the House for misleading you all? Of course, I misspoke; I should have factored the granny tax into all the VAT changes. If the Minister does the maths, I am sure he will find that when one adds in pensioners on top of caravanners, those eating pasties, and those affected by the other VAT changes—

[Mr Hoban]

If the hon. Gentleman looks at page 50 of the Red Book, he will realise that he is still £1 billion short. He needs to get his facts right before he makes such statements.

[Owen Smith]

I am afraid that I have been getting my facts right all afternoon: it is Government Members who have been getting their facts wrong. [Interruption.] No, amendment 1 was not wrong; it was absolutely spot on. To say that it was wrong is nonsense.

Let us get to the question of how much the Government are raising through the bank levy and how much the previous Government raised through the bank bonus tax. Just as the fallacious claim that the £100 million that will be lost through the change to the 50p rate will be met fivefold by increases in taxes on the wealthiest has been proven today to be completely false, because the £100 million figure was plucked from thin air, so the Government’s manipulation of the figures in relation to the bank levy and the bank bonus tax will be shown to be false. The independent OBR, which the Government are so fond of quoting when it suits them, states on page 101 of the blue book that in 2010-11, the bank payroll tax raised £3.5 billion.

[Mr Hoban]

Gross.

[Owen Smith]

The Minister gives the lie to the argument that the Government have made about this figure, which allows them to state that it is £2.3 billion, not £3.5 billion, and is therefore lower than the £2.5 billion that they are ostensibly raising through the bank levy. Of course, both the £2.3 billion figure and the £2.5 billion figure are open to question. It is not just me who thinks that; many commentators have said so.

How did the Government manage to reduce the yield of £3.5 billion that is written in black and white on page 101 of the blue book to £2.3 billion? I could tell the Committee, but I will go one better and read out a comment piece from the Financial Times from earlier this year:

“The Treasury reached its £2.3bn figure for last year by lopping off £1.2bn from the original £3.5bn figure—citing the income tax and NI which the exchequer may have lost due to banks paying lower bonuses than they might have done. (A speculative behavioural assumption).”

As anybody who has read “The Exchequer effect of the 50 per cent additional rate of income tax” will know, highly speculative behavioural assumptions are the bedrock of this Government’s economic policies. The article went on to forecast that the bank levy, which was meant to reach £2.5 billion in 2012, would actually reach only £1.3 billion. In truth it reached £1.8 billion, but it certainly did not reach the £2.5 billion that is claimed repeatedly by Government Members.

--- Later in debate ---

[Owen Smith]

At the danger of being ruled out of order for repeating today’s earlier debates—[Interruption.] The Financial Secretary says from a sedentary position that I am on the back foot, but I am absolutely not. I have been pointing out to his colleagues for the past couple of hours that the volume of behavioural change anticipated in the Exchequer analysis is fundamentally flawed. The taxable income elasticity point chosen by the Exchequer to derive that volume of behavioural change is completely outwith the normal delta used by economists to assess the elasticity of top incomes. [Interruption.] No, we are talking about the future. We are talking about what behavioural change there will be and what the yield will therefore be in future.

That takes us to the central question of the Government’s competence. There are questions to be asked about the competence of the way in which they set up the bank levy. Why on earth did the Government choose in the first instance a rate of 0.045%, only to have to increase it five times in the past 18 months to hit their annual yield target of £2.5 billion? I would be delighted to hear the Financial Secretary explain that to us. Why did the Government do it that way around? It does not make any sense to me. It would have been more sensible either to have stuck with the payroll tax, as we suggested, or to have arrived at a hard figure and allowed the yield to set the rate, not the rate to set the yield.

Thus we come to the question of how the Government can keeping saying that they are certain that the bank levy will yield £2.5 billion each year. It did not in its first year, when it hit £1.8 billion. The reason the Treasury team is continually having to tweak the rate is that it is not certain how much money it is going to yield.

[Mr Hoban]

Is the hon. Gentleman against the rate going up or in favour of it?

[Owen Smith]

I am absolutely not against the rate going up. My question is about the Government’s competence and whether they know what they are doing. They clearly do not know what they are doing about the granny tax, the 50p rate, VAT—

[Mr Hoban]

He’s all over the place.

[Owen Smith]

No, you’re all over the place, with the greatest respect, as this car crash of a Budget has shown not just to the House but to the whole country over the past three weeks. As an editorial in The Times said on Monday, when the Budget is still leading the headlines three weeks after the Chancellor has sat down, we know something has gone wrong, and it ain’t just one thing that has gone wrong but just about everything.

--- Later in debate ---

[Mr Bailey]

I believe that the right hon. Gentleman introduced a paper on reducing regulation which subsequently disappeared and sank without trace in the light of the financial crisis.

In conclusion, we can argue about the behavioural changes but one thing that is absolutely certain is that the bank bonus tax raised a lot of money, that it was consistent with the principles of responsible capitalism and that it may well have affected the behaviour of bankers in the long-term if they had known that the tax would be in place as long as their behaviour justified it. The fact that the Government have removed it has meant that the bonus culture has continued. There is still a sense of unfairness and outrage within the community at large that they will have to pay for the excesses of the banking community and that the Government are not prepared to do anything about it. Even at this late stage, if the Government believe that we are all in it together, that is one thing they could do that would both benefit the Treasury and demonstrate their commitment to that principle.

[Mr Hoban]

This has been a useful debate and the clause and schedule that we are debating legislate for a change in the rate of the bank levy, increasing the full rate to 0.088% from January 2012 and making a further increase to 0.105 % from 1 January 2013. The rate changes are intended to ensure that the levy will raise the £2.5 billion a year that we said that it would and ensure that the additional corporation tax rates do not benefit the banks, a point that the hon. Member for Pontypridd (Owen Smith) did not seem to recognise.

The amendment looks remarkably familiar, as it was proposed last year, and it is good to see it being given another outing this year, but in the shadow spokesman’s 43-minute speech we heard remarkably little about it. We saw him dig himself out of a few holes of his own making, but we did not hear anything about whom it was targeting, what measures would be taken into account or, indeed, how much it would raise.

I say that because I have been going through some transcripts of radio interviews, and so far the Opposition have claimed that their measure would be used to finance £29.6 billion of additional spending or taxation. That is 10 times the amount the bank payroll tax raised when the Labour party was in government, but that is not just protestation on my part. The Leader of the Opposition, when quizzed by Jeremy Vine on 6 January 2011 about how the Labour party would pay for its VAT rise reversal, replied:

“I said for example we should have a higher bank levy.”

He was asked in a Fresh Ideas question and answer session—we have not heard many fresh ideas in today’s debate—on 25 March 2011 about how to cut the deficit, and he said that there should be “another bankers’ bonus tax”.

That is not a concoction; those are the words of the hon. Gentleman’s party leader, and I am afraid to say that the starting bid is £29.6 billion—[Interruption.] The hon. Gentleman should not question people’s arithmetic when his own was earlier found to be flawed. He should be very careful what he says. I suggested to him last night that he should have spent more time on his speech and less time in the Members’ Dining Room, but he ignored that advice. He should have followed it, shouldn’t he, really?

So we do not know how much the Opposition’s proposal would raise or at whom it would be targeted, and there is a stark difference between it and the levy that we introduced when we came into office. The bank levy is a tax on the balance sheets of banks, banking groups and building societies, and it complements wider regulatory reforms aimed at improving financial stability, including higher capital and liquidity standards. The levy ensures that the banking sector makes a fair and substantial contribution, reflecting the risks that it poses to the financial system and to the wider economy. The levy is also intended to encourage banks to move away from risky funding models.

From the outset, the Government have clearly stated that they intend the levy to raise at least £2.5 billion each year. That is an appropriate contribution, which was set with consideration to the wider environment, and it reflects the international programme of regulatory reform, the global economic conditions and the need to maintain the competitiveness of the UK financial sector.

The forecasts produced by the Office for Budget Responsibility implied that, if we did not adjust the rate, receipts for future years would fall short of the expected £2.5 billion. We will undertake a full assessment, before next year’s operational review of the bank levy, of the reasons why there is a shortfall, but fragility in the eurozone will inevitably have had a greater than the previously expected impact on last year’s balance sheets. The rate increase introduced in the clause puts us back on track to ensure that from 2013 and in future years the levy will raise at least £2.5 billion.

The target yield was set out in this Government's first Budget, when we also announced our intention to make significant cuts to the main rate of corporation tax. We were clear at the time, as we are now, that the bank levy yield far outweighs the benefit that banks receive from the corporation tax change. Other sectors, including manufacturing, will benefit from the reduction in corporation tax, but the banks will not benefit because the bank levy rate increase will offset it.

Since our first Budget, we have gone further: we have announced additional reductions in the main rate of corporation tax, so that it now stands at 24%; and we will continue with the two further cuts planned next year and the year after. As a consequence, Britain will have a 22% rate of corporation tax—the lowest in the G7. To offset the benefits to the banking sector, and to maintain the same incentives on the banks to move to less risky funding, the increase in the levy rate in this clause takes into account additional cuts in corporation tax.

The Opposition’s amendment seeks to reintroduce the bank payroll tax, and, as I said earlier, this is not the first time that we have heard it suggested. The House disagreed with it last year, and now, as then, the Government believe that such a tax would be counter-productive and unnecessary. The tax was introduced in the last Parliament as a one-off interim measure ahead of changes in remuneration practices from corporate governance and regulatory reforms. As the previous Chancellor clearly stated, it could not be repeated. The net yield of this one-off tax, accounting for the impact that it would have on income tax and national insurance contribution receipts, was £2.3 billion—less than our annual target for the permanent bank levy. The previous Government told us that they would apply the bank bonus tax only until changes in remuneration practices were put in place.

--- Later in debate ---

[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.

[Owen Smith]

There are still 1 million unemployed young people in this country. That is the highest rate since records began. Long-term youth unemployment is growing as never before. In my constituency of Pontypridd, there has been a 333% increase in long-term youth unemployment in the last year alone. The point of the amendment is to highlight that problem in the real economy. We are trying to connect this out-of-touch Government to the reality of youth unemployment, and to get them to do something to tackle it and to get growth in our economy. I have not been persuaded to withdraw the amendment and we will press it to a vote.

Question put, That the amendment be made.

The Committee proceeded to a Division.