Mark Hoban
Main Page: Mark Hoban (Conservative - Fareham)Department Debates - View all Mark Hoban's debates with the HM Treasury
(12 years, 5 months ago)
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Catherine McKinnell
Then came the shocking revelations at Barclays—[Hon. Members: “Oh!”]—of traders fiddling the markets, cheating with mortgage and lending rates.
The Financial Secretary to the Treasury (Mr Mark Hoban)
Will the hon. Lady not have the courtesy to answer my hon. Friend’s question?
Catherine McKinnell
I will answer the question, but it was rather an insult to the people who have suffered from the situation at RBS, which was caused by administrative failures and poor management. The question put by the hon. Member for South Staffordshire (Gavin Williamson) does not address the severity of the matters that I am laying before the House.
Then came the shocking revelations at Barclays: of traders fiddling the markets, cheating with mortgage and lending rates—
Mark Lazarowicz
I want to say a few words in support of a bank bonus tax. I emphasise that I am supporting that not to bash the bankers, but to end the unacceptable face of banking in the form of an excessive bonus culture that is still far too widespread.
As I said earlier, the vast majority of people who work in financial services certainly do not get vast bonuses; many thousands of people in my constituency work hard behind bank counters or in bank offices serving customers, and they are often on modest incomes. Many have paid with changes in working conditions, while others have paid with their jobs, when redundancies flowed from the financial crisis caused by the irresponsibility of senior executives. We are not targeting those people; we want to do something about the small minority who are still getting excessive rewards.
A study published at the end of June showed that average pay for chief executives at 15 leading banks in the US and Europe increased by 12% over the last financial year. That may be less than the 36% increase in the previous year, but whatever the increase—it is about 50% when we add both increases—it is wildly out of line with falls in profits and share prices that have frequently characterised the sector. That is not performance-related pay in any sense that most people would understand and it is certainly not a performance that would justify what is effectively a further tax cut on top of a tax cut for the highest paid.
A tax targeted on bank bonuses is necessary because the existing attempts to curb the bonus culture have so obviously failed. That is the key point. The issue is not about saying that people should not be very well paid at the top of banks and financial institutions, but we want to get away from a position in which sums wildly in excess of anything that could be said to be deserved are paid as a matter of course. None of the steps taken so far has changed that culture, even in an era of financial crisis among the banks and beyond.
The second reason why we want a bank bonus tax is that it would raise money for some valuable purposes. The issue of jobs for young people affects all our constituencies. My constituency normally comes in the middle range of unemployment across the UK, and we have seen a substantial increase in youth unemployment. I certainly want that issue to be tackled in my constituency.
We are also saying that the bank bonus tax would be used to provide affordable housing. That, of course, would bring two benefits. First, it would bring more housing into the sector. Constituencies such as mine have to some extent, although on a lesser scale, experienced the same phenomenon as happened in London, where high rates of pay in certain sectors such as financial services have pushed up house prices and made it harder for people on lower incomes to get affordable housing, so this proposal would be important for those people as well. Of course, building affordable housing and new homes also gives a boost to the economy through providing new jobs in the construction sector and helps people who have been out of work because of the collapse of that sector in many parts of the country.
Our proposal of a bank bonus tax would not only tackle the excessive bonus culture but provide jobs for our young people and affordable homes, giving a boost to the construction sector. I therefore hope that the House will support it.
Mr Hoban
We have heard a series of slightly strange speeches by Labour Members. We have become accustomed to their belief that they left us a golden economic legacy, but the reality is that when they left office unemployment was higher than when they came into office. They seem to believe that the problems of youth unemployment started under this Government. At least the right hon. Member for South Shields (David Miliband) has the good sense to recognise that it is a long-standing and deep-seated issue and that its growth started under the previous Government.
Labour Members seem to forget that when they left office the deficit was out of control. We have tackled that and reduced the structural deficit by a quarter.
Bill Esterson
Youth unemployment is higher than when Labour left office, unemployment generally is higher than when Labour left office, and the economy was growing when Labour left office whereas now we are back in recession. Will the Minister confirm all three of those facts?
Mr Hoban
The challenge that we face is dealing with the economic legacy left by Labour, with the huge boom in financial services and the huge bust that followed.
We have heard Labour Members’ story that they presided over a golden age in the financial services sector. The hon. Member for Newcastle upon Tyne North (Catherine McKinnell) could not bring herself to admit that the scandal over LIBOR fixing took place between 2005 and 2008 or that the interest rate mis-selling that affected so many small businesses took place in the same period leading up to the financial crisis.
Labour Members deplore the bonus culture, but let us not forget that when they were in government, bonuses were paid out in the year that they were earned and paid out in cash. That was the hallmark of the age of irresponsibility that characterised their time in office. This Government are taking action to tackle the bonus culture. This Government have introduced rules to ensure that bonuses are not paid out in the year they are earned but spread over a three-year period, that they are not paid out in cash but in shares, and, crucially, that they can be clawed back where there have been problems in the business or where there has been wrongdoing. This Government have tackled the bonus culture in the UK whereas the previous Government let it run riot, and we have seen the financial consequences of their so doing.
Mark Lazarowicz
The bank bonus tax was first introduced by the previous Government. In fact, I think that our Government should have done much more about the bonus culture in the banks in the past and was wrong not to do so. However, will the Minister at least accept that at no stage did his Government suggest any action whatsoever to tackle the bonus culture? He should not suggest that the responsibility lies only with Labour but accept his share of the responsibility as well.
Mr Hoban
We have taken action to tackle the bonus culture by ensuring that the interests of shareholders and management are aligned and that where there is wrongdoing bonuses can be clawed back. That is a significant change that has happened since this Government came to office. In the same way that we are remedying the regulatory failures left behind by the previous Government, particularly by the shadow Chancellor, the inquiry set up into the fixing of LIBOR will ensure that in future LIBOR is regulated to fill the hole in the Financial Services and Markets Act 2000 and ensure that there are criminal penalties for manipulating LIBOR—again, filling the hole left by the shadow Chancellor when he designed the regulatory system.
Mark Durkan
The Minister refers to what the Government have done since coming to office. What did the then Opposition suggest in the previous two Parliaments by way of concrete proposals on regulation or bonus culture or amendments to any of the flawed measures that the previous Government introduced?
Mr Hoban
When the previous Government brought forward the Financial Services and Markets Act 2000, we voted against the decision to transfer the supervision of the banks from the Bank of England to the FSA. We are putting right that failure by the previous Government. We criticised the financial services reforms brought forward by the previous Government in the aftermath of the financial crisis. We said that they were tinkering around the edges and did not address the fundamental problems at the heart of regulation. The work that we did in opposition laid the foundations for a much tougher, more intrusive and more interventionist regulatory regime to tackle the problems left by the previous Government.
Mr Campbell
When the Minister talks about the economic mess, does he mean the £600 billion that the Labour Government had to give to the banks to bail them out and keep them afloat?
Mr Hoban
The UK economy has suffered hugely as a consequence of the financial crisis. It has lost £140 billion in growth. We have to tackle the causes of that failure, as well as tackling the deficit that the previous Government left behind. That is what we are doing through the Financial Services Bill, which is passing through Parliament at the moment.
John Hemming
In December 2008, the then Chancellor said:
“The measures that I announced in October have stabilised the banking system, and inter-bank lending rates have fallen. The three-month LIBOR rate halved to just over 3 per cent. this week.”—[Official Report, 18 December 2008; Vol. 485, c. 1213.]
Does the Minister think that that was a fantasy, like much of what the Opposition propose?
Mr Hoban
The last Prime Minister had a problem recognising his responsibility for the problems that befell the economy.
One way in which we have sought to get the balance right in the taxation of businesses is by introducing the bank levy. We took that decision in opposition. We thought that it was right to ensure that banks paid their fair share towards dealing with the risks that they pose to the economy. The measure was opposed by the previous Government. They did not want to introduce a bank levy on a unilateral basis. We had the courage to make that decision and to ensure that banks pay their fair share.
The bank levy is a tax on the balance sheets of banking groups and building societies. It complements the wider regulatory reforms that are aimed at improving financial stability, such as the higher capital and liquidity standards. It thereby ensures that the banking sector makes a fair and substantial contribution that reflects the risks that it poses to the financial system and the wider economy. The levy is also intended to encourage banks to move away from risky funding models.
From the outset, the Government have been clear that we intend the levy to raise at least £2.5 billion each year. The Opposition should get their facts right. They have trotted out the gross figure that was raised by the bank payroll tax. They must bear in mind that the tax also reduced pay-as-you-earn and national insurance receipts. That is why the actual yield of the bank payroll tax was only £2.3 billion. Our levy will therefore raise more, year after year, than was raised by their one-off bank payroll tax.
The target yield for the levy was set out in the Government’s first Budget. We also announced our intention to make significant cuts to the main rate of corporation tax. Let me deal with another red herring from the Opposition. We were clear at that time, as we are now, that the bank levy yield will far outweigh the benefits that banks will receive from the corporation tax changes. Other sectors, including manufacturing, will benefit from the reduction in corporation tax, but banks will not benefit because of the bank levy. In the 2011 and 2012 Budgets, the Chancellor has gone further and announced two more cuts in the main rate of corporation tax. It now stands at 24%. The increase in the bank levy announced in the Budget offsets the benefit of those additional cuts to maintain the incentives on banks to move towards less risky funding.
New clause 13, tabled by the shadow Chancellor, is, in the words of Yogi Berra, the great American baseball coach,
“déjà vu all over again”.
This is at least the fifth time in this Parliament and the second time in the passage of the Finance Bill that we have debated the bank payroll tax. We have heard no new arguments from the Opposition and nothing to persuade us to vote for it.
Yet again, we have to point out to the Labour party that such a tax would be counter-productive and unnecessary. The bank payroll tax was introduced as a one-off interim measure in the last Parliament ahead of regulatory reforms and changes to remuneration practice and corporate governance. The previous Chancellor, the right hon. Member for Edinburgh South West (Mr Darling)—somebody the hon. Member for Newcastle upon Tyne North should listen to and learn from—said that it could not be repeated. He pointed out that it was a temporary measure until bank remuneration practices were changed, and we have changed those practices.
The new clause calls for the proceeds of the tax to be used to help employment, but I should take some time to remind the House of the measures that we are already taking to do that. We have introduced the youth contract and are investing £1 billion over the next three years in supporting half a million young people into employment and educational opportunities. We will provide 160,000 wage incentives worth up to £2,275 each to employers who recruit an 18 to 24-year-old through the Work programme. There will be an extra quarter of a million voluntary work experience or sector work academy places over the next three years and a further 20,000 incentive payments to encourage employers to take on young apprentices, taking the total to 40,000.
We are also providing additional support through Jobcentre Plus and the opportunity for people to be referred for a careers interview with the national careers service. We are already providing more apprenticeship places than any previous Government, with a record 457,000 apprenticeships delivered in 2010-11 and a commitment to delivering 1.2 million over the entire spending review period. That is a quarter of a million more than the previous Government’s commitment.
The hon. Member for Newcastle upon Tyne North says that the bank payroll tax should be used to help youth employment, but let us consider the number of ways the Labour party has already announced it would be used. The Leader of the Opposition was asked where the money would come from to reverse the increase in VAT, and he said:
“I said for example we should have a higher bank levy.”
It was also suggested that it be used to pay for higher capital spending of about £7.5 billion in 2010, which would have required £6 billion from the bank levy. The Leader of the Opposition said that reversing child benefit changes could be afforded by using the bank payroll tax—yet another use for it.
The bank payroll tax is the tax that continues to give, the tax that the Opposition always turn to when they want to find a way of plugging the black hole in their figures. They used it to explain how they would reverse tax credit savings, spend more money on the regional growth fund, cut the deficit and turn empty shops into community centres. We have heard a remarkable number of ways in which something that the previous Government said was a one-off would be used to fill the black hole in Labour’s economic thinking.
Charlie Elphicke
How many times over have the Opposition spent that money so far?
Mr Hoban
My hon. Friend is right to ask me that question. About 15 times. Every time there is a tricky question, what is the answer? Let us reintroduce the one-off bank payroll tax. That demonstrates the emptiness at the heart of Labour’s economic policy. It has no concrete ideas to tackle what happened in the financial crisis or the economic problems that it left behind. The Opposition are reduced to trotting out the same stale arguments for the fifth time running, and I urge the House to reject them once again.
Catherine McKinnell
We have heard some passionate speeches from Labour Members, but I am concerned about the lack of contributions from Government Members. Only one, the hon. Member for Dover (Charlie Elphicke), contributed in the entire debate. He put forward some interesting views and theories, and I commend him for engaging in the debate, because there is little of more importance right now than youth unemployment.
The hon. Gentleman concluded his speech, however, by hailing a return to the 1980s. I do not know about other Opposition Members, but it sent a shudder of fear through me, because although some people had the time of their lives in the 1980s—we have fond images of the City, the champagne flowing, the pinstripe suits and the brick-sized mobile phones—for many the 1980s were not pleasant or a time of growth but devastating, particularly for youth unemployment. Parts of the UK, including my region of the north-east, other English regions, Scotland and Wales, suffered dreadful decimation of their traditional manufacturing industries, and in many ways are still paying the price. We risk repeating that fate today, which is why we are proposing to impose a bank payroll tax on the very institutions that played a large part in causing the international financial crisis that led first to the recession and then to today’s double-dip recession.