Finance (No. 3) Bill

Stephen Williams Excerpts

Tuesday 5th July 2011 Commons Chamber

[Stephen Williams (Bristol West) (LD)]

I thank the hon. Gentleman for giving way three times on the same point. My recollection of the Committee stage upstairs was that he and his colleagues did not oppose the Government’s reduction in corporation tax and actually thought it a good thing. Perhaps he will recall that the reason the bank levy was increased was to take account of the fact that some banks might benefit from that reduction.

[Frank Dobson]

They “might” benefit?

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[Stephen Williams]

I want to make some brief remarks on the amendments. The hon. Member for Nottingham East (Chris Leslie), who leads for the Labour party, mentioned that youth unemployment has grown to roughly a fifth of 16 to 24-year-olds. Of course we all deeply regret the wasted talent that that represents, whether of young people who have qualified at school or college or have left university with a degree and cannot find jobs or those who have not acquired any training or education—the so-called NEETs, those not in education, employment or training. Over the years, I have worked with many charities, such as Fairbridge and the Prince’s Trust, which try to help such people in my constituency. I must gently tell the hon. Gentleman that many of his points were made in the previous Parliament when I used to sit where his hon. Friend the Member for Leyton and Wanstead (John Cryer) is sitting now and I spoke for the Liberal Democrats on skills and higher education. The number of NEETs and the rate of youth unemployment increased year on year throughout the previous Parliament; the number just about touched 1 million before the general election.

I am sure the hon. Member for Nottingham East was not trying to give the impression that youth unemployment had reached 1 million purely because of the actions of the Government. It has been a problem in some cohorts of young people for a long time and has seemed intractable for Administrations of many parties, but the Government are trying to do some good things to tackle it, such as investment in apprenticeships and in the Work programme that will come in shortly.

[Bill Esterson]

I am glad the hon. Gentleman has given way, because I cannot believe he has the nerve to say what he has just said. One of the first actions of the incoming Government was to scrap the successful future jobs fund, which was bringing down youth unemployment. If he reads Professor Wolf’s report, he will see that her worry is about what is happening to 16 to 18-year-olds. We are in danger of repeating the mistakes of the ’80s when youth unemployment peaked four years after the middle of the recession.

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[Stephen Williams]

I have spoken on platforms with Alison Wolf, and indeed launched a book with her during the previous Parliament. I think she would be surprised to hear the Labour Opposition citing her in support. Yes, the Government are phasing out some of the previous Government’s programmes, but they are being replaced by the Work programme, which brings together many people who can work with the long-term unemployed or unemployed young people. They have a holistic approach and are bringing social enterprises into the programme, which may be more successful than the many initiatives that took place under the previous Government. I repeat: youth unemployment just about reached 1 million just before the previous Government left office. It is not a new problem created by the present Government.

[Chris Williamson (Derby North) (Lab)]

But does the hon. Gentleman at least acknowledge that as a result of the measures brought in by the previous Government, through the future jobs fund, youth unemployment was falling? Surely, that is something we should celebrate, so was it not a mistake for Government Members to support the move that got rid of the future jobs fund, which was having such a positive impact on youth unemployment?

[Stephen Williams]

As I understand it, the future jobs fund was a temporary measure and it has now stopped. It is being replaced first by the Work programme, which will come in shortly, and by the Government’s investment to create hundreds of thousands of new youth apprenticeships. I hope that the hon. Gentleman has visited in his constituency, as I have in mine, the many employers—including, in my constituency, the city council—who are taking on apprentices for the first time to give those young people a chance. Indeed, the Government have increased the minimum wage some of those people receive; they have also increased the apprentice wage, which the previous Government did not do.

[Chris Williamson]

Of course we all celebrate the fact that some young people are getting apprenticeships. We obviously support anything that helps young people get into employment, because it is a waste of talent for people to languish on the dole, but as my hon. Friend the Member for Sefton Central (Bill Esterson) pointed out, the Government’s Wolf review said that those apprenticeships are not going to the youngest school leavers; they are going to an older cohort, so clearly the Government need to take additional measures to ensure that we do not have a whole generation of 16 and 17-year-olds who are simply thrown on the scrap heap.

[Stephen Williams]

I thank the hon. Gentleman for his rather long intervention. As well as the Work programme and investment in apprenticeships, the Government have a growth strategy to develop the new jobs of the future—into which, incidentally, the future jobs fund was not necessarily placing people. For instance, there are many initiatives in the green economy, with the green deal that has come along as well, that will help the young unemployed. I mentioned the situation to emphasise that the problem is not new. The previous Government struggled hard with it as well, as I pointed out in the previous Parliament. I have been consistent in what I have said across both Administrations.

The purpose of amendment 13 is to reintroduce, or at least to examine the case for reintroducing, the bonus tax that the Labour Chancellor introduced in 2009. As I recall, the purpose of that bonus tax was not to raise revenue, but to change behaviour. It was an attempt to persuade the banks that they should not be introducing bonuses at that time, when many of them were dependent on state funds to continue in existence. I also recall that the anticipated proceeds of that bonus tax were about £500 million. In fact, as we have heard on many occasions, it raised in gross terms more than six times that amount, so it did not change behaviour at all. It seems that the Labour party in opposition has switched the underlying purpose of a bonus tax.

I share the moral outrage that many people feel about the level of bonuses being paid by some institutions. I am a free market liberal, so I believe it is up to a company to decide its own remuneration package and justify it to its shareholders, but in the current climate, when many families around the country are facing difficulty, some of the decisions taken by remuneration committees in the City cross the threshold at which it is right that some of us in this place express moral outrage at what they have been doing.

The culture of people paying huge amounts of money to themselves is not a new phenomenon in this Parliament. I remember Lord Mandelson, before he became the Trade Secretary in the previous Parliament, saying that new Labour was “intensely relaxed” about people becoming filthy rich. The hon. Member for Nottingham East looks faintly embarrassed at my reminding him of that phrase, but when the Labour party was in government it encouraged that culture. We should not let Opposition Members forget that.

[Frank Dobson]

I cannot help myself, in these very unusual circumstances, leaping to the defence of Lord Mandelson. If the hon. Gentleman had continued quoting from the sentence, Lord Mandelson went on to say “provided they pay their fair share of tax.”

[Stephen Williams]

I was not aware of the continuation of that quote. However—[Hon. Members: “Withdraw!”] Rather than withdraw, I shall expand on my point and make it more strongly. The previous Government engendered the culture of get rich quick by slashing the rates of capital gains tax and making a virtue of cutting income tax and holding down higher rate taxation. Ironically, it is under the Conservative-Liberal Democrat coalition that capital gains tax has gone up and the 50p top tax rate has been levied in this Parliament.

[Bill Esterson]

The hon. Gentleman called himself a free market liberal. Another Member of the House who described himself as a free market liberal is the right hon. Member for Haltemprice and Howden (Mr Davis), who describes the current arrangements in this country and the way in which capitalism operates as wealth extraction, rather than wealth creation. Does the hon. Gentleman agree with that assessment when it comes to bankers’ bonuses, and will he support the amendment on the reasonable grounds that my hon. Friend the Member for Nottingham East (Chris Leslie) set out?

[Stephen Williams]

I thank the hon. Gentleman for his intervention, but I have already stated clearly for the record that I share the moral and ethical outrage at the level of bonuses being paid by certain firms in the City and elsewhere. The question is whether reintroducing the bonus tax designed by the Labour Government would make any difference, because the evidence suggests that it made absolutely no difference to the bonus culture. It was a handy device for raising rather more than the expected revenue, but it certainly did not change behaviour.

As a free market liberal, I think that companies should be free to decide their remuneration policies, but they must justify them to their shareholders. One way that behaviour might change would be if shareholders took a more active interest in the bonuses that the remuneration committees award within their companies, whether they are banks or not. As was mentioned in yesterday’s debate, the people on those committees are often executive directors of other companies and so have a vested interest in the magic circle of super bonuses being justified in other companies. If the shareholders of the banks that we own, Lloyds Banking Group and Royal Bank of Scotland, were able to express a view, that would introduce a new dynamic into capitalism.

I hope that the Government will seriously consider giving each citizen a share in RBS and Lloyds Banking Group when the time comes for both banks to be divested from the state—this is another plug for the pamphlet I published in March, “Getting your share of the banks: giving the banks back to the people”. I had an interesting meeting with officials from UK Financial Investments last Wednesday in the Treasury in order to discuss that.

Amendment 31, tabled by the hon. Member for Hayes and Harlington (John McDonnell), proposes a Robin Hood tax. I fully support such a tax, as I have mentioned in many debates in the House. I have spoken with many non-governmental organisations in my constituency and at lobbying events, such as the one that took place last week and has already been mentioned. A Robin Hood tax has three elements. The first is a levy on banks’ balance sheets, and the Government introduced that in the form of a bank levy. We might disagree about the level of the levy, but the important fact is that the coalition Government have legislated for it to exist and said that it will be permanent, in the sense that it will last for the lifetime of this Parliament. The rate has been changed once, as I mentioned in an intervention, and I hope that it might be increased again.

The second element of a Robin Hood tax is a financial activities tax—FAT, as opposed to VAT, which the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards) might have phonetic difficulty with when speaking in Welsh, in distinguishing between an F and a V. I hope that the Minister can update us on what discussions are taking place on that between Finance Ministers across the European Union and what progress has been made on the introduction of such a tax, which is a tax on certain profits of the banks.

The third element of a Robin Hood tax is a financial transactions tax, which is the subject of the amendment. As the hon. Member for Hayes and Harlington said, that has traditionally been called a Tobin tax. It would be the most problematic component of a Robin Hood tax to introduce. It might impede liquidity, which is not necessarily a good thing, and the other barriers he mentioned would be difficult to surmount without international agreement between the major trading nations.

Another problem with a Robin Hood tax is the question of how much it would raise, as I have heard a wide variety of figures for that which are in the billions. The hon. Gentleman referred to the great coalition of NGOs that support such a tax, and many of us support them, but I wish that they would agree a figure for what the different components of the tax could reasonably be expected to raise.

[Mark Durkan (Foyle) (SDLP)]

Does amendment 31 not afford the Government the possibility of coming up with such a figure? They could do the very scoping work that the hon. Gentleman says is needed, and surely that is the Government’s job, not the job of all those NGOs.

[Stephen Williams]

The hon. Gentleman makes a reasonable point, and I am sure that the Minister will tell us what work has been done in the Treasury and his estimate of what the proposal from the hon. Member for Hayes and Harlington might raise.

My point is that it is not helpful to present MPs or our constituents with such a range of sums—from the low billions to in excess of £100 billion—that the Robin Hood tax could raise, because they raise false expectations of what it might actually achieve.

[John McDonnell]

I was encouraged by the hon. Gentleman’s earlier statements, but I was waiting for the “but” and it has come. Amendment 31 simply asks for a report to be prepared exploring all the issues that he has quite rightly and properly set out, so I see no reason why he cannot support it in order, as I said earlier, to move the debate on.

[Stephen Williams]

I have not said, and I hope that the hon. Gentleman does not think, that I do not support what he is trying to achieve. We will have to hear from the Minister what work the Treasury is doing, or may have already done, to produce the facts and figures that we all want.

My final point on the amount that a Robin Hood tax could raise is about what it should be spent on. I have heard about a range of problems at home and abroad that could be solved by such a tax, but I entirely agree with the way in which the hon. Gentleman has refined those objectives down to dealing with poverty at home and abroad. I think we can agree at least on that.

[Mr Robinson]

It is interesting—if not more than that—to follow the hon. Member for Bristol West (Stephen Williams), who calls himself a free-trade liberal, or words to that effect. He is a “good doer”, in other words, and he means that he is in favour of every good sentiment expressed in this House but believes that neither he nor any Government can do anything at all about this issue, other than consult the shareholders. If the shareholders—the electorate—were consulted at the moment, his party might not be as pleased with the idea as it seems to be.

Nothing can be done, it is said, and the hon. Gentleman, while agreeing with every sentiment, will not even vote for amendment 31, spoken to by my hon. Friend the Member for Hayes and Harlington (John McDonnell), who I think is going to press it to a vote if he can catch your eye, Mr Deputy Speaker. It calls for exactly what the hon. Member for Bristol West wants, and he would not have to listen to his new masters in the Treasury, because we would be able to have an independent inquiry.

I had the luck to study with Tobin at Yale university when he first advanced these ideas, and they generated a lot more attention and interest in those days, but if the hon. Gentleman is serious about his wishes, and about the good will that he bears towards every serious intent to put things right, including bankers’ bonuses—which we are discussing in relation to amendment 13, of which I am speaking in support—he should vote with us, and also for amendment 31, in the name of my hon. Friend the Member for Hayes and Harlington.

The strange thing about this debate is that before the election, and even during it, the current Financial Secretary to the Treasury and the current Chancellor spoke with great vehemence and passion about how offensive the whole banking culture was and how, once they were in office, they were going to get tough with the bankers.

As in other matters, however, the Chancellor talks a good talk but does not walk a good walk: one puff of wind from the Governor of the Bank of England and the Chancellor gives in on regulation. One meeting with the bankers and he says, “Okay, we’ll do Merlin, but meanwhile we’ll agree with you on the level of bonuses: I won’t tax your bonuses; we’ll go for a corporate bonus tax instead.”

Of course, we wholly endorse the effect of that tax and fully support the bank levy, but it has an impact on banks’ balance sheets, because as we are asking them to build themselves up, we are taxing them, quite rightly. We can achieve both, however, given the unusual and inexplicable profitability in the banking sector. The joy of what we would do, through amendment 13, is that we would tax the bankers—and so we should—but not impact on the business per se.

My hon. Friend the Member for Nottingham East (Chris Leslie), who introduced amendment 13, said that under this Government about £40 million had been paid in net remuneration—or it may be even gross, I am not sure—to the top five employees of Barclays bank. Some £40 million has been paid in bonuses alone. If anything is offensive, that is, and yet the Government refuse to do anything about it. What they should do is staring them in the face. We are not, in the amendment, asking them to agree with every single purpose to which we would dedicate the use of the funds. They may disagree with us on regional development or on the growth fund for new jobs; they can disagree on any number of items. However, surely no one in this House who is serious about tackling the bonus culture that has become so poisonous in the banking industry, and is spreading increasingly to the rest of the commercial and private sector, can disagree with the need to tackle those bonuses.

We heard the hon. Member for Bristol West speak for the Liberals, but it is interesting to note that there is not another Government Back Bencher anywhere in the House. When my hon. Friend the Member for Nottingham East spoke to the amendment, not a single Government Member, Liberal or Conservative, rose to oppose it. Not only have the Chancellor and his Financial Secretary caved in to the banks, but the whole coalition has fled the Chamber in fear and trembling of saying something that will offend the bankers. There is not one Member there—where have they all gone? What has happened? Are they, like the Chancellor and his Financial Secretary, afraid of offending the banks? I do not know; all I can see is that the serried ranks have fled and the Financial Secretary is left on his own to defend the indefensible—of which he is no doubt perfectly capable.

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[Stephen Williams]

I am quite proud to call myself a free-market liberal, but just to make it clear and to differentiate myself from the right hon. Member for Haltemprice and Howden (Mr Davis), who was mentioned earlier, I am also a social liberal. I wonder what label the hon. Lady would apply to herself. Is she a socialist, a democratic socialist or perhaps a social democrat?

[Alison McGovern]

That is probably the easiest intervention that I will ever get. In so far as I believe in the needs of society above the needs of capital, I am a socialist. However, as a socialist, I think that it is important to consider how the economy actually works, because unless we understand the functioning of the economy and what makes our society work well, we will not be able to live up to the needs of society or the demands of our fellow people. As my hon. Friend the Member for Coventry North West (Mr Robinson) mentioned earlier, something has gone wrong when we see such large bonuses and when a small group of people in the City of London can arrange extremely high salaries for themselves.

However, this is not just a market imbalance; it is a power imbalance too. Something is going on that enables a small group of people to argue for a much higher salary than anyone else in society. As someone who cares about how the economy works, I call that market failure. Something is going on, and the situation needs to be questioned, thought through and rebalanced. That needs Government intervention. There could be an insider-outsider problem, in which some people are outside the small group who are able to arrange bonuses for themselves in this way and use their position as insiders to argue powerfully for the maintenance of their position, while others remain unable to enter the market. That is what makes me think that Government action is important in this regard.

My hon. Friend the Member for Nottingham East (Chris Leslie) said that there was also a failure of transparency. Markets work well only in conditions of perfect information, but we do not have perfect information, and we have seen the lengths to which some people have gone in order to prevent transparency over pay and bonuses. The case for Government action on bonuses has been well made today by other hon. Members. I would argue that that, too, is politically uncontroversial. In fact, the Secretary of State for Business, Innovation and Skills told the BBC earlier this year that the coalition Government were “fully signed up” to “robust action” on curbing bonuses. Well, that is great. Our amendment should therefore be pretty uncontroversial, and I hope that hon. Members on both sides of the House will support the principle of what we are trying to do.

My worry is that the Government have just not done enough. They have straightforwardly not lived up to the public’s expectations on bankers’ bonuses. I am also worried that the corporation tax cut that they have introduced will effectively hand money back to the profitable banks, and that not enough action is being taken to rebalance our economy. I could talk for many hours about manufacturing and the fact that the financial service sector should serve the productive economy, rather than the other way round, but my hon. Friends have already done that subject justice, so I will not detain the House further on that.

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[Stephen Williams]

I shall make some brief remarks in this Third Reading debate on yet another Finance Bill. Unlike the hon. Member for Nottingham East (Chris Leslie), who is lucky not to have sat through every stage of the Bill, I have endured all of it, from the Budget and Second Reading right the way through to the upstairs and downstairs stages. I too congratulate my hon. Friend the Minister on being named tax personality of the year, which is indeed an exalted position. The tax personality of the year should, of course, know that 5 July is the end of a tax month; in fact, it is also the end of the first quarter of the traditional tax year, so he could have mentioned that too. I can only assume that the judges made their decision before they heard his Bananarama joke. Unfortunately you were absent at that point, Mr Speaker, so you will have to look in Hansard to see what I am talking about.

In the spirit of cross-Chamber harmony, I too briefly congratulate the right hon. Member for Delyn (Mr Hanson) on his birthday. He has also been with us for all stages of the Finance Bill, apart from this one. I can only assume that he has thought of somewhere better than the Chamber of the House of Commons from which to watch the final stage of the Bill.

This is a good opportunity to weigh up the credibility of both the official Opposition and the coalition Government, after all the various stages of the Bill. We have heard many times that the Labour Opposition believe that fiscal tightening and a reduction in the budget deficit are needed. However, although we have heard from many Opposition Members about the cuts that they oppose, we have not heard from any of them about the cuts that they favour. We have also heard about their difficulties with the various tax changes that the coalition Government are making. As my hon. Friend the Minister pointed out, the Opposition pulled a rabbit out of the hat in the middle of our proceedings when the shadow Chancellor announced a great new policy with a flourish. His policy was that the Opposition would, after all, oppose the VAT increase to 20%. However, first the Scottish National party gave the Opposition an opportunity to vote against the increase and they abstained, and then Plaid Cymru gave them another opportunity and they abstained again. Indeed, the Opposition could have given themselves an opportunity to vote against the increase, but they failed to get their amendment in on time. That is two official abstentions and one botched attempt to oppose the Government’s policy, so the next time any Labour MP says that they oppose the rise in VAT, they will not have much credibility.

The Opposition also even opposed tightening a tax avoidance measure in Committee, and this morning the last vestige of Labour credibility—if Labour had any—in dealing with the economy was stripped away by the hon. Member for Nottingham East, when Labour refused to support the extension of special drawing rights arising from Britain’s contribution to the IMF. Of course, that was part of the initiative launched by the former Prime Minister, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), when he supposedly saved the world—I think that was the phrase—at the London G20 summit in 2009. And today, his successor spokespersons for the Labour party refuse to support the spirit of internationalism in dealing with bail-outs around the world.

[Chris Leslie]

I hope the hon. Gentleman will allow me to put on record something that he admits has been conspicuous by its absence—namely, the fact that the UK’s subscription to the IMF is rising from, I think, £10.7 billion to more than £20 billion. I hope he will explain that figure to his constituents and tell them, at a time when we are also on the hook for the other European bail-out arrangements, why we should be paying twice in that regard. I would be interested to hear his point of view.

[Stephen Williams]

I would be happy to invite the hon. Gentleman, as well as any other hon. Members and my own constituents, to read my blog, where I explained exactly that point straight after this morning’s debate. The explanation is of course a movement between the Government’s reserves and the reserves that we denominate in special drawing rights at the IMF. That does not involve additional Government borrowing or additional cuts, as the hon. Gentleman very well knows. What we saw this morning was the Labour party making a cheap, opportunistic point on a very serious issue.

[Chris Leslie]

I am grateful to the hon. Gentleman for being so nice about me just a moment ago. The Minister refused to tell us this morning, but does the hon. Gentleman know how much British taxpayers’ money is on the hook, via our IMF support for Greece? How many pounds sterling are on the hook? Does he know what our liability is?

[Stephen Williams]

The hon. Gentleman will have heard exactly what I heard this morning from the Financial Secretary to the Treasury, which was that, in its whole history since 1945, the IMF has never lost its money because it is always the first creditor to be paid. Our money is therefore not at risk, but our providing it is essential in order to ensure that the international economy stabilises. That is also in our own national interest.

I have dealt with the Labour party’s credibility, but what about that of the coalition Government? The points that the hon. Gentleman has just made lead me neatly to compare this country with Greece. During the passage of the Bill, we have seen the sad events in Athens, with the Greek Government having to make difficult and unpopular decisions. Greece’s bond rating, which reflects people’s willingness to lend to it, is CCC, while ours is AAA, even though our budget deficit is much higher than that of Greece. The difference is that our Government have a credible plan for repairing our public finances, and that is what gives us credibility in world markets and at home.

The Finance Bill and the Budget have also confirmed one of the most important measures that the coalition Government will introduce—namely, making the income tax system fairer. That was the No. 1 commitment that my Liberal Democrat colleagues and I stood on in the general election. We believe that work should pay, and that the lowest-paid employees in this country should be shielded from income tax. I am therefore pleased that the Bill takes another step towards making our pledge of £10,000 of tax-free income come true during the lifetime of this Parliament.

The Bill also puts in place a bank levy, so that the bankers will pay something back towards the problems that they helped to create during the last Government’s period in office. The budget is now under control. That is why the coalition Government were formed in the first place. Many of us might have thought at the time that it was a somewhat unlikely coalition, but it was put together to take these difficult decisions, to repair our public finances, to bring back international confidence and to give confidence to our own constituents that our country could get back on track. The difficult decisions have now been made, and we will see the job through.