Youth Unemployment and Bank Bonuses

Stephen Williams Excerpts

Monday 23rd January 2012 Commons Chamber

[Stephen Williams (Bristol West) (LD)]

The motion links the issue of bankers’ bonuses and youth unemployment. With my constituents in Bristol West, I agree that the levels of both are currently excessive.

I shall deal with bonuses first. Executive pay is meant to be the reward for company growth and shareholder return. Over the past decade, executive pay has gone up by an average of 13.6% each year, but the growth in the index of the top 100 companies on the London stock exchange has gone up by only 1.7% each year. Executive pay has vastly outstripped the underlying growth in the companies over which the directors have presided.

Bonuses, of course, are usually the worst manifestation of spectacular reward—sometimes for just modest return for the company’s shareholders, or even a paltry return. Even worse, they can be a pay-off for corporate failure. Today my right hon. Friend the Secretary of State for Business, Innovation and Skills announced the Government’s action to deal with that excess in the boardroom. The boardroom is the place where that excessive behaviour should be tackled and reined in, and shareholders need to take action in shareholder meetings.

The coalition Government will implement or consult on 10 of the recommendations of the High Pay Commission. Taxes, of course, have a role to play, but it is a subsidiary one. The behaviour itself needs to change. Under the previous Chancellor of the Exchequer, the right hon. Member for Edinburgh South West (Mr Darling), the bonus tax was a failure according to the terms that he used to describe it when he announced it in the Budget. It was meant to curtail behaviour in the boardrooms of banks, but it failed completely.

At that time, the underlying rate of income tax and national insurance on the recipients of bonuses was 41%; under the coalition Government, the figure is 52%. When we factor in employers’ national insurance, we see that roughly two thirds of the value of a bonus comes back to the Treasury. In addition, the permanent bank levy will raise £2.6 billion for each subsequent year of this Parliament, which is more in net terms than the bonus tax raised under the Labour Government.

The previous Government were, of course, in office for 13 years. They had ample opportunity to do something. I sat through five Queen’s Speeches, in each of which a raft of legislation was announced by Her Majesty, but not once did I hear of an attempt to tackle corporate greed. Indeed, I would say that the Labour Government, certainly for their first eight years, positively encouraged corporate greed. We just heard from the right hon. Member for Wolverhampton South East (Mr McFadden). The Cabinet Minister to whom he reported in the latter years of the Labour Government, Lord Mandelson, said famously that he and new Labour were

“intensely relaxed about people getting filthy rich”.

It was the Labour Government who gave a knighthood to Mr Goodwin.

[Mr McFadden]

I have heard that quotation twice today and I think that it is time to complete it. Lord Mandelson went on to say,

“as long as people pay their taxes”.

--- Later in debate ---

[Stephen Williams]

That makes it all right, does it? Is it okay to encourage the culture of corporate greed and excessive behaviour as long as people pay their taxes? Of course, the former Chancellor, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), reduced the rate of income tax that those people were paying. All that Labour promised for shareholders was an advisory role to rein in such behaviour, whereas the Government have today announced binding votes for shareholders so that they have some control over the executives who are supposed to report to them for the value of their companies.

Youth unemployment needs to be set in the overall context of unemployment in the United Kingdom and in other developed economies. The overall unemployment rate in the United Kingdom is 8.2% of the work force. In the United States it is 9.1% and in the eurozone it is 10.1%. In many eurozone states, the rate is much higher than the average. Youth unemployment tends to follow the same trend. It tends to be roughly double the rate in each country. What is happening in this country is not unique among our main competitors.

Youth unemployment is also not a new problem. At least the right hon. Member for South Shields (David Miliband), who was with us earlier, has had the grace to acknowledge that under the Labour Government youth unemployment rose, even during times of strong economic growth and the longest sustained boom since the second world war. In the more than 20 years since 1992, the rate of youth unemployment among 16 and 17-year-olds has remained stubbornly flat and has barely changed, whatever the underlying economic conditions. [Interruption.] The hon. Member for Edinburgh East (Sheila Gilmore) is shaking her head. I suggest that she looks at the Library’s statistics on this matter, specifically for 16 and 17-year-olds.

[Sheila Gilmore]

In the early years of the Labour Government, did not youth unemployment fall far below the level inherited from the previous Conservative Government because measures were taken?

[Stephen Williams]

Before the hon. Lady intervened, I repeated that I was talking specifically about 16 and 17-year-olds. The Library’s youth unemployment statistics show that from 1992 to the current year the rate of youth unemployment has remained stubbornly at about 200,000, whatever the underlying economic conditions. For 16 to 24-year-olds, the broader group, the unemployment figure did not fall below 600,000, even at the height of the boom.

[Sheila Gilmore]

rose—

[Stephen Williams]

I will not give way again because the time would count against me.

Youth unemployment is a long-term problem and we need long-term reform to tackle it. That is why the coalition Government are right to introduce the pupil premium, which will enable young people from disadvantaged backgrounds who are on free school meals, as I was, to get a leg-up in life. It is right that the coalition Government are embarked on a programme of welfare reform. We already have in place the Work programme, which offers assistance to people who are unemployed after nine months or, for 18-year-olds, after six months. It is right that we are raising the threshold at which people start to pay income tax. It is when people enter the jobs market for the first time that they are likely to be on the minimum wage or on low average earnings if they are working part time. The rise in the income tax threshold will disproportionately affect young people who are entering the labour market. It is also right that the coalition Government are massively expanding the number of apprenticeships. However, we also need short-term help for people who, through no fault of their own, find themselves unemployed because of the economic circumstances. I am therefore pleased that my right hon. Friend the Deputy Prime Minister has announced the youth contract, which will start in April, with 410,000 places over the rest of this Parliament, 160,000 of which will be wage subsidies of £275 per new job created.

What will help the young unemployed most is economic stability and recovery, together with the confidence that this coalition Government are putting in place the policies to deliver those two things. The low rate of interest that we currently have helps not only households but businesses that are seeking to expand. The Government have a clear focus on stable finances and growth. We should contrast that with Labour’s somersaults, U-turns and ever-elastic bonus tax, which has no credibility as it seems to have funded every single promise that the party has made since the general election.

As the hon. Member for Wigan (Lisa Nandy) said, unemployment is a tragedy for every young person who has experienced it. I grew up in a community scarred by youth unemployment. I witnessed it among my friends—I even experienced it myself at one point in my career—and I do not want another generation to be blighted by it. The Government are taking action, and credibility is a key part of that.