Finance Bill

Natascha Engel Excerpts

Tuesday 8th September 2015 Commons Chamber

Question proposed, That the clause stand part of the Bill.

[The Second Deputy Chairman of Ways and Means (Natascha Engel)]

With this it will be convenient to consider the following:

Clause 17 stand part.

That schedule 2 be the Second schedule to the Bill.

Amendment 3, in schedule 3, page 74, line 4, leave out “8%” and insert “the relevant percentage”.

This amendment would replace the 8% rate of surcharge in the Bill with a new rate to be set in regulations.

Amendment 4, page 74, line 7, at end insert—

‘(1A) For the purposes of subsection (1), the “relevant percentage” is a percentage of the company’s surcharge profits for the period, not exceeding 8%, which the Treasury shall specify in regulations; and such regulations may specify different percentages in respect of different levels of surcharge profits.

(1B) Regulations under subsection (1A)—

(a) shall be made by statutory instrument, and

(b) may not be made unless a draft has been laid before and approved by resolution of the House of Commons.”.

This amendment would require the Treasury to set the level of the surcharge in regulations, and would allow for different tiers of surcharge. The regulations would be subject to approval by the House of Commons.

That schedule 3 be the Third schedule to the Bill.

New clause 1—Impact of changes to the bank levy rate and of the banking companies surcharge—

“(1) The Chancellor of the Exchequer shall, within three months of the passing of this Act, undertake a review of the overall impact of the changes made by sections 16 and 17 of, and schedules 2 and 3 to, this Act, on:

(a) the structure of bank balance sheets;

(b) the long-term tax revenue from the banking sector; and

(c) competition and diversity within the banking sector.

(2) The Chancellor of the Exchequer must lay a copy of the review before both Houses of Parliament.”.

[Harriett Baldwin]

What a pleasure it is to serve under your Chairmanship this evening, Ms Engel.

Clauses 16 and 17 and schedules 2 and 3 make changes to the banking tax regime. They will ensure that banks continue to make a fair contribution to the economic recovery in a way that does not harm the UK as a global financial centre or affect banks’ ability to support the economic recovery.

It might be helpful if I set out the background to the Government’s approach to taxing the banking sector. In his first Budget in 2010, my right hon. Friend the Chancellor announced the introduction of the bank levy, an entirely new tax on banks’ balance sheets, equity and liabilities. The levy had two objectives. First, at a time when banking profits were low, it was designed to ensure that banks made a fair contribution to the taxman to reflect the risks that they pose to the UK economy —risks that were made very clear in the extraordinary events of 2008. Secondly, the levy was designed to complement the developing regulatory regime by providing incentives for banks to reduce the size of their balance sheets and support their activities with more stable forms of funding.

Measured against those objectives, the bank levy has undoubtedly been successful. It raised more than £8 billion across the last Parliament and is forecast to raise a further £17 billion by 2021. It has played a key role in increasing the stability of the UK banking sector, with banks now holding more capital against their assets and being less reliant on short-term risky funding. It has helped to satisfy the UK’s resolution financing obligations under the EU bank recovery and resolution directive, thus supporting the more orderly resolution of banks in crisis. Despite those successes, the Chancellor has been consistent about the need for balance in ensuring that banks pay a fair contribution, while ensuring that this supports the UK as a global financial centre and banks’ ability to support the wider economy.

The Government believe that, as the sector returns to profit, a change is required to maintain that balance. The reforms in the clauses achieve that over the coming Parliament and beyond. The first change is a gradual reduction of the bank levy. Clause 16 reduces the bank levy rate to 0.18% from 1 January 2016 and sets out further reductions to the main rate over the following five years, resulting in a rate of 0.1% from January 2021. The Government have committed to exclude non-UK subsidiaries from the bank levy charge from January 2021, a change we are committed to legislate for in this Parliament.

Clause 17 introduces a surcharge on banking sector profit from January 2016. That is a new 8% tax on the corporation tax profits of regulated banking entities within banking groups. It will apply to profits that exceed £25 million across a group, disregarding the losses that banks have carried forward from periods before the surcharge’s introduction. The first £25 million will benefit from the reductions in the main rate of corporation tax—from 20% today to 19% and then to 18%—included elsewhere in the Bill, giving the UK the lowest rate of corporation tax in the G20. It means that the overall rate of corporation tax will be slightly lower for banks than it was in 2010.

The OBR forecasts that the surcharge will raise £6.5 billion from the sector by 2021. That revenue more than offsets the cost of reductions to the bank levy rate. It means that banks will pay an additional £2 billion in tax over the period, increasing banks’ total additional contributions beyond £23 billion.