Rachel Reeves
Main Page: Rachel Reeves (Labour - Leeds West and Pudsey)Department Debates - View all Rachel Reeves's debates with the HM Treasury
(12 years, 9 months ago)
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Mr Jones
I will not give way. We need to be careful that we do not vilify people whom we entrust with such positions—we should not vilify wealth creators, because they are the very people we need to get UK plc back on to its feet.
That brings me on to regulation. The tripartite system given to us by Labour clearly failed; we had banks that were thought too big to fail, with no proper checks or balances on their activity. I am pleased to say that the Financial Services Bill, which had its Second Reading yesterday unopposed, will change that situation of ring-fencing banking, so that we no longer have banks that are considered too big to fail.
That leads me on to other issues, particularly the bailing out of the banks, state ownership of banks and state guarantees for banks. They are all probably undesirable for the taxpayer and it is important that we work to try to reverse the unsustainable position that the taxpayer has been put in. We need to consider carefully how we facilitate our banking and finance industry to ensure that we can try to right the wrongs. One way of doing that is through the regulatory framework, which we are dealing with, but we can also do it through competition. We must be well aware of global competition.
I did not take part in last night’s debate on the Financial Services Bill, but spent some time listening to speech after speech from Opposition Members saying that regulation of our banking system needed to take into account the global situation that our banking industry found itself in. I totally agree, but they must therefore acknowledge in tonight’s debate that our banks must be competitive within that global market. Vilifying our banking and business sectors with an unbalanced argument and approach and putting excessive taxes on those sectors will move us away from having banks that are competitive in that global environment.
That brings me, quite neatly, to the bankers’ bonus tax, which is mentioned by the Opposition time after time. They seem very keen on that tax, which they mentioned before the Government put in place the bank levy, which raises £2.5 billion a year, rather than the £2 billion that the bankers’ bonus tax would have raised. The goalposts seem to have moved again and the Opposition seem now to be advocating that it should be an additional tax for the banks to pay.
Mr Jones
The Opposition’s position is interesting, as we are now trying to encourage our banking sector to lend, particularly to small businesses, to put their balance sheets in good order and to keep bank branches open—we expect them to do an awful lot of things as well as pay additional taxes. We need to be careful about how we approach this matter.
Richard Fuller
I thank the hon. Member for Derby North (Chris Williamson) for what will appear in print as a helpful intervention.
I turn to the mishmash of observations that the Opposition have called a motion. It might, to them, make a motion, but it certainly does not make a policy.
On the key issues, the coalition Government have already taken sensible steps towards reform: they have found an answer to the mess of regulation by centralising it under the Bank of England; they will implement the recommendations of the Vickers report; and they are introducing changes to the compensation culture so that it can get back to supporting enterprise and rewarding merit, which is what we all want.
The shadow Business Secretary did a good job of holding back the hostile anti-business rhetoric. I just hope that the shadow Chief Secretary to the Treasury can restrain herself in her usual anti-business rhetoric when she winds up for the Opposition.
Richard Fuller
I would like to give way very much, because the hon. Lady did not get a chance to comment earlier.
Rachel Reeves
The hon. Gentleman is much more generous than his colleague the hon. Member for Nuneaton (Mr Jones). With long-term unemployment up 157% in Bedford since the start of 2011, does the hon. Gentleman think that the priority should be a tax cut for the banks this year or a programme to invest in youth jobs?
Richard Fuller
That is a very good point. Perhaps the hon. Lady will be interested to know that I am leading the establishment of an enterprise investment scheme fund in Bedford to get local people to invest in jobs and create businesses in Bedford. Government Members believe in practical action to support entrepreneurs and jobs, not the empty rhetoric that we get from Opposition Front Benchers. I invite her to Bedford to see the successes that we are having and from which perhaps her party can learn. The shadow Business Secretary made some interesting points, and I only wish that he had had time to speak more about his idea for moving forward with a UK equivalent of the small business investment company in the United States. That is an interesting direction of travel from the Labour party.
It is always hard in a free society to explain or justify why some people earn more—sometimes fantastically more—than other people. That justification can be secure only when clearly based on merit—the merit that comes from taking a risk that works out or from delivering exceptional performance. It is clear, however, that throughout large swathes of the economy, those two forms of merit have been losing hold in the setting of compensation in our country. My hon. Friend the Member for Halesowen and Rowley Regis (James Morris) spoke eloquently about that disconnect between the financial sector and our entrepreneurs. I know that the Government are committed to changing that.
It is sensible to look for measures that focus remuneration more on merit, but that is precisely what the Government’s recommendations seek to do. The problem with the speeches from Opposition Members was that they could not define the problem that they were trying to solve. Were they trying to solve the problem of compensation in state-owned enterprises? Were they trying to solve the problem of compensation in banking? Were they just hostile to high compensation generally in the economy? They could not define the problem owing to the different points of view among Opposition Members. Some call for a return to the rhetoric of the 1980s, attacking people for earning too much money and trying to draw false and upsetting comparisons between people who get paid a lot and those who cannot find a job.
In this country, we need to support the risk takers and the entrepreneurs to create the jobs that people in my constituency and constituencies around the country want. The promotion of an anti-business rhetoric will be harmful. As my hon. Friend the Member for Nuneaton (Mr Jones) said, the reaction to Mr Hester’s bonus sent the unwanted signal to business that this country was anti-business. As many have said today, Members on both sides of the House have a responsibility to make it clear that that is not the case and that we all want business to be strong in our communities.
Strengthening shareholders’ responsibilities will be central to that. One of the perhaps unintended consequences of the raid on pension funds by the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) was to weaken the ability of shareholders, particularly pension fund holders, to hold boards to account over remuneration. There was a change in the ownership of shares, which increasingly went offshore, while those custodians of long-term interests—our insurance companies and pension funds—had their voices and representation weakened on boards. It is right, therefore, for the Government to consider in detail how to strengthen shareholder representation and control over compensation in general.
Several speakers made the connection between banks and support for small business. I ask the Government to be bolder in looking for alternatives to banks in meeting the challenge of financing our small businesses. We need to consider ways of growing bond markets for small business, and we need to go even further than we already have by adopting innovative schemes for promoting equity financing for our small and medium-sized businesses. There is no more honourable a thing for people with money today to do than putting it into equity and our small businesses, and the Government have already provided tax incentives for them to do so. I only encourage the Minister to do more.
On credit easing, will the Minister be cautious about the ability of Governments to stimulate the economy in the short term? By the time that Governments get round to deciding what to do, often the problem has passed. However, credit easing presents another opportunity, which is to use financing, through a credit easing facility, to reduce some of the long-term debt obligations in this country. As the Minister knows, I have spoken before about the possibility of using either some or all of the credit easing financing to create a future fund and unburden the next generation of taxpayers of some of the tax that would otherwise be needed to meet the unfunded public pension liability. We must look to the long term when considering how to fund our small businesses, and not always think that the Government have the answer in the short term. They rarely do.
Rachel Reeves (Leeds West) (Lab)
It is right and proper that we have had this debate in the House this afternoon. Today, we have shown that the concerns of the country are the concerns of this House. But I am sorry and disappointed—notwithstanding the fact that the Business Secretary is at a funeral—that no member of the Cabinet has been willing to attend the debate. I am disappointed—[Interruption.] Oh! I am sorry! The Education Secretary has arrived. I am not sure how long he has been here—[Interruption.] Five minutes, apparently.
Madam Deputy Speaker (Dawn Primarolo)
Order. The Education Secretary has been here for some time, actually, and he has been heckling, even though I have asked him not to. He is also still a member of the Cabinet, and he is in the Chamber.
Rachel Reeves
I am disappointed that the Chief Secretary to the Treasury has not been willing to explain the Government’s failure to follow through on the Walker review’s recommendations on transparency and high pay. I am disappointed that the Chancellor has not been willing to explain why they oppose the inclusion of ordinary workers on remuneration committees. I am also disappointed that no Cabinet Minister has been willing to come to the House to defend the tax cut that this Government are giving to banks this year.
People up and down the country are amazed when they read about individuals receiving bonuses in a single year that amount to more money than most people will see in their entire working life, especially at a time when families are struggling to make ends meet, when small businesses are finding it hard to access finance, when people are finding it hard to get a job, and when many young people are struggling to get their first job.
The “Oxford English Dictionary” tells us that a bonus is
“a sum of money added to a person’s wages as a reward for good performance”.
It goes on to say that a bonus is
“an extra and unexpected advantage”.
It is clear, however, that for a few, bonuses have come to be expected, an automatic part of their pay. Whatever their performance or that of their businesses, bonuses can be cashed, year in and year out. That seems to be the case even when the share price is falling, even when thousands of jobs are being lost and even when lending targets to small businesses are not being met. And this is happening in an industry that is significantly supported by us, the taxpayers, and that risks rapidly losing the trust and confidence of those it is supposed to serve, because of the actions of a few at the top.
Let me speak plainly. Labour Members recognise the importance of the financial services sector to our economy. A high proportion of jobs in my constituency are directly or indirectly dependent on the continued success of Leeds as a financial hub. Private sector employers whom I meet tell me time after time of the critical importance of bank finance to their ability to grow and employ more people.
The financial services industry is, and must remain, a strong part of the British economy. It offers an opportunity for Britain to play a positive role in the global economy and it plays a critical part in supporting the small businesses that could be and should be the driving force of our economic recovery. That makes it all the more important that Members are not afraid to approach the banking sector as a critical friend—not afraid to deliver home truths or the views and perspectives of the people we represent.
In expressing public concerns about excessive bonuses, we must remember that the vast majority of people who work in banks earn modest salaries. Those I know in Leeds are on salaries of £20,000 or £30,000 a year, and they find these six or seven-figure bonuses as shocking and alien as the rest of us do—especially a few years after failures in the banking sector brought the global economy to its knees.
These are the concerns we have heard in contributions to today’s debate. It must be a matter of regret that throughout this afternoon, save for the Education Secretary, no Cabinet member has been here to hear them. It is a shame that no Cabinet members were present to hear the passionate speeches by, for example, my hon. Friend the Member for Scunthorpe (Nic Dakin), whose constituents are fearful this evening for their jobs. It is a shame that no Cabinet Minister is going to respond to the concerns expressed in the passionate speeches of my hon. Friends the Members for East Kilbride, Strathaven and Lesmahagow (Mr McCann), for Edinburgh East (Sheila Gilmore) and for Bolton South East (Yasmin Qureshi) or of the hon. Member for Brighton, Pavilion (Caroline Lucas). Those Members spoke about the increasing disconnection between a small number of people at the top of the banking sector and the experiences and values of the rest of the country. This disconnect must be repaired if we are to strengthen the national purpose and shared interest that we need to get through these tough economic times.
It is a shame, too, that no Cabinet member will respond to the contributions about struggling businesses—especially to the thoughtful contributions of my hon. Friend the Member for West Bromwich West (Mr Bailey), who spoke about the dysfunctional relationship between banks and industry, which grossly impedes our ability to grow out of the recession, and of my right hon. Friend the Member for Oldham West and Royton (Mr Meacher), who forcefully rebutted an intervention suggesting that the banks are lending. That suggestion was totally out of touch with the experience of small businesses in all our constituencies. The reality is that many businesses are being refused the loans they need to tide them over or to keep people in work. We all need a banking sector that lends, supports small businesses and acts as a sector that we can trust and rely on.
We also heard contributions from the hon. Members for Halesowen and Rowley Regis (James Morris) and for Bristol West (Stephen Williams), which I thought added important dimensions to today’s debate. I want to pick up on the contribution by the hon. Member for Nuneaton (Mr Jones), as he would not let me intervene when I tried to do so earlier. Both he and the hon. Member for Stourbridge (Margot James) seem to disagree with the decision of the RBS chief executive to hand back his bonus, when I had thought that every Member of every party would welcome that. The fact is that the chief executive of RBS earns a salary in excess of £1 million a year—46 times more than the average worker. That should be reward enough for doing his job; he should not be getting a bonus of £963,000 on top of that when few others could expect to earn that sort of salary in a lifetime.
Richard Graham (Gloucester) (Con)
Will the hon. Lady explain the Opposition’s policy on creating growth in the financial sector? We have heard a great deal of criticism about everything, about how dreadful bonuses are and all the rest of it. That is fine, but what is Labour’s policy for growth, for being creative and for going forward?
Rachel Reeves
We have argued a five-point plan for jobs and growth—to put money in the pockets of ordinary families with a VAT cut and a national insurance holiday for small businesses that are struggling to take on new workers. Those are the sort of policies that will get the economy moving again and will protect jobs in all our constituencies.
We should welcome the RBS chief executive’s decision to hand back his bonus. The reality is that, over the last year, the RBS share price has fallen, it failed to meet its lending targets and it laid off workers. As I said, I would have thought a salary in excess of £1 million reward enough.
Today’s debate, however, is not about one man or one bonus or one bank; it is about the need for an overhaul of the way in which bonuses and pay are structured. As my hon. Friend the shadow Business Secretary has spelled out and as many contributions have highlighted, issues of pay and performance—of individuals and of the banking industry as a whole—cannot be separated.
Banks need to show that they recognise the need to change, the need to reform their business models, the need to rebuild their relationships with small businesses and customers and, most of all, the need to restore public trust. The British people deserve a banking system that they can believe in and respect—a banking system that inspires trust and is seen as a responsible custodian of our earnings, our savings, and our pensions. I know that the majority of people who work in banks at all levels also want to feel proud of the job they do, so today’s debate is about beginning to restore that trust and integrity.
Opposition Members have set out clear, constructive proposals in three key areas: transparency, accountability and fairness. [Interruption.]On transparency, the Labour Government legislated for the implementation of David Walker’s recommendations on high pay, including for rules to disclose the numbers of employees paid over £1million a year. [Interruption.]
Madam Deputy Speaker (Dawn Primarolo)
Order. I am sorry to interrupt the hon. Lady, but Members are holding conversations in the Chamber, but they expected others to listen to them when they made their speeches. I expect Members who want to conduct private conversations to do so outside the Chamber and not in it.
Rachel Reeves
Thank you, Madam Deputy Speaker. I think that some Members do not want to hear the truth.
Transparency would give shareholders the vital information they need to rein in excessive remuneration, but what have we seen from the Government? No answers and no action. On accountability, the High Pay Commission has recommended the inclusion of an employee on company remuneration committees. We have called on the Government to legislate, but what have we had? No answers and no action. Yet again, on the matter of fairness, when banks continue to award bonuses beyond most people’s imagination at a time when everyone else is being squeezed, why will the Government not do what is right and tell the banks that if they continue to pay out large bonuses, they will impose a tax to ensure that some of that money comes back to the taxpayer? Hundreds of thousands of young people have been looking for work for months and even years now, struggling with the consequences of a crisis that was caused by the financial services sector for which they are paying the price. That is the real crisis our country is facing—the crisis of more than 1 million young people out of work, but what do we see from this Government? We see no answers and no action.
On transparency, on accountability and on fairness, our constituents want answers and they want action, so why do the Government not take responsibility? At the end of the day, it comes down to priorities. Labour’s priorities are those of the British people: of families facing a squeeze in living standards, of the 1 million young people trying to find work and of the thousands of good businesses trying to stay afloat.
By contrast, this Government’s priorities are increasingly clear: a tax cut for the banks and a quiet life for the Cabinet. Well, we can tell the Government that this issue will not go away. We will continue to raise the concerns of voters and if this Government will not take the necessary action, the public will draw this conclusion—that this out-of-touch Prime Minister just does not get it, that his Cabinet colleagues do not get it either and that the Labour party is the only party that does.
Mr Prisk
I will not give way. The hon. Gentleman spoke for 45 minutes, which meant that Back Benchers did not have a chance to contribute to the debate.
I understand—we understand—that to the 25% of SME employers who do not obtain that loan or overdraft, the fact that 75% do will be no consolation. That is why the Chancellor is taking decisive action to provide some £21 billion, £20 billion of it under the national loan guarantee scheme, which will be available over two years and will allow banks to offer lower-cost lending to smaller businesses. [Interruption.] Notwithstanding the chuntering of Opposition Members, that scheme is supported by the Federation of Small Businesses, the British Chambers of Commerce and the CBI. The details will be made clear in the next few weeks.
Mr Prisk
No, I will not give way to the hon. Lady. We heard a diatribe of clichés from her, but we heard no policy, no original ideas and no original thoughts.
We are also making available an initial £1 billion through a business finance partnership that will allow small businesses to invest through non-bank channels. My hon. Friend the Member for Bedford was absolutely right to say that we should not just consider the bank channels, but should ensure that other players in the market can come forward. My hon. Friend the Member for Halesowen and Rowley Regis—who, unlike many Opposition Members, has actually run a business—was also right to draw attention to the importance of choice and competition. I agreed with the shadow Business Secretary when he said that we should think about the business model and the return of relationship management. I hope that we shall hear some positive contributions about that from Labour, and not just the usual flannel.
The Opposition motion refers to the need for a reform of banking, and to the need for more regulation and responsibility. The motion is right to refer to responsibility; it is just a shame that that was not one of Labour’s policies when it was in government. However, I suppose that it is nice to have a convert, even if the conversion is late in coming.
Yesterday the Chancellor introduced the Financial Services Bill, demonstrating that we would overhaul the regulatory environment that we had inherited. The Bill’s principles are important: responsibility, prudence—I think we may remember that word—and sustainability. That means addressing the old system of excessive and irresponsible levels of pay.
As we have heard this evening, under the new FSA remuneration code we have ensured that bonuses will be deferred by at least three years and linked to the performance of employees and companies. Through the disclosure regime, we are providing more transparency than we ever saw from the Labour party when it was in government. Bonus levels are already starting to fall. As we heard earlier, last year they stood at £6.7 billion, just half as much as when the shadow Chancellor was the City Minister in the last Government.
This evening’s debate has also dealt with the wider issue of executive remuneration. The Government strongly believe that successful people who work hard should be properly rewarded. It is vital that, in a debate about the excesses of a few, we do not give the impression that enterprise and endeavour are unwelcome in Britain; but, sadly, quite a few Opposition Members simply do not understand that. We need to make our message clear. The Government are determined to work with businesses to reform executive pay, and to do so in a way that strengthens business in Britain in the long term. As was alluded to but never actually examined by the hon. Member for—