I beg to move, That the clause be read a Second time.
This is a short new clause, which stands in my name and those of my hon. Friend Kerry McCarthy and my right hon. Friend Mr Hanson. It might be naive of me to expect that the promises made by the Prime Minister in opposition still hold good today, but this debate is necessary because of his rhetoric then, when he said that
"there should be a day of reckoning"
for the banks-
"A day when we would not flinch from spelling out the rightful consequences of irresponsible behaviour...this is a question of fairness...on behalf of working families".
"we show clearly that...there is not one rule for the rich and a different rule for everybody else."
Those are the words of the Prime Minister-before the last general election, of course. Time has moved on, the ministerial cars have become very comfortable, but the Treasury has barely lifted a finger to fulfil the promises to reform the tax regime in which the major banks operate. Perhaps that is a convenient state of affairs for the Conservatives and Liberal Democrats as they desperately try to shift attention from the banks' culpability for the state we are in, but there is still an urgent need to take stock of their contribution to repairing the public purse and to see decisions taken that might help to alleviate the looming crisis of public service redundancies and cutbacks.
The Chancellor's spending review, to which the Opposition obviously take great exception, is based on the pretext that "There is no alternative". In other words, anyone who even dares to murmur that there is any other course of action is somehow using flawed, unreasonable or unrealistic logic. That not only insults the intelligence of the public at large, but is profoundly short-sighted, as there are a great many alternative strategies that the Government should be considering. However, they insist that there is no plan B.
The new clause would shed further light on the facts behind the claim that there are no alternative revenues that could alleviate the burden of service and welfare cuts, which will fall heaviest, as we know, on middle-income families and some of the poorest adults and children in this country. We surely owe it to those people-our constituents-to try harder to find ways to close the tax gap, to create growth and new jobs, to generate new income and to bear down on the tax avoidance that costs billions of pounds each year.
Let us remember why we have the budget deficit. Contrary to the spinology that we will no doubt get from Government Members, who are obviously desperate to politicise the deficit in the hope of providing cover for their ideological scaling-back of public investment, our national debt was caused primarily not by a spending spree, as they claim, but by a dramatic collapse in revenues to the Treasury from income tax, VAT and corporation tax as a result of the global credit crunch and recession. The £132 billion rise in the deficit in the last financial year was, yes, partly the result of £53 billion in extra social protection expenditure, which was necessary, for example, for unemployment benefits. More importantly, however, there was the £79 billion decrease in revenues. It is that collapse in revenues, which was compounded by the need to spend billions shoring up the banking system and preventing its collapse, that the Conservative party consistently and mysteriously want to overlook.
Let us remind ourselves of the banking bail-out, because significant sums were spent, and had to be spent, on it. Those sums included £76 billion to purchase shares in the Royal Bank of Scotland and Lloyds Banking Group, £200 billion to indemnify the Bank of England against losses occurred in providing liquidity support, £250 billion to guarantee banks' wholesale borrowing and strengthen liquidity in the banking system, £40 billion to provide loans and other funding to Bradford & Bingley and the Financial Services Compensation Scheme, and £280 billion agreed in principle to provide insurance for a selection of banking assets. All in all, it was the credit crunch, as we know, that led to the banking crisis and the recession. It is those things, not the public service inflation on which the Conservative party is completely fixated, that were the underpinning factors fuelling the deficit.
The banks owe taxpayers a massive debt of gratitude-that much is clear. They would have gone bust were it not for the deficit facility that we are now grappling with. My constituents are therefore repeatedly asking one simple question: will the banks be made to pay their fair share, getting us out of the deficit that they helped to create because of their business mistakes? Before the election, the Prime Minister gave every impression that that would be so, but so far very little action has been taken.
I do not want to penalise the banking sector to the point of annihilation; nobody wants our economy's financial services sector to fail further. Indeed, it should be resurrected in a more sustainable, diverse and healthy form for the future. However, when the Government are raising VAT on the rest of us, cutting police budgets, for example, by 20%, severely squeezing students and those on housing benefit, and forcing the closure of fire services, libraries and community services-the list goes on and on-we should surely examine more closely the level of taxation that the banks are paying. That is the point of new clause 3.
The Government say that the banking levy is the answer-that is what we will hear from Ministers tonight-but let us explore that point. Although the banking levy is in principle welcome, it is now patently obvious that it has been set at a woefully inadequate level. When the Chancellor unveiled it in the June Budget, it was greeted with relief in the City, which had been bracing itself for a hit of about £5 billion a year. The eventual 0.07% tax that the big UK banks will pay on their assets is less than half the rate envisaged in the United States when it was planning to implement a parallel scheme.
Most City experts know that, in reality, the banks are getting off quite lightly. Citigroup estimated that Lloyds could pay a levy of only about £268 million in 2012, compared with £292 million for RBS and £368 million for Barclays, and that for HSBC the levy for the same year could be £311 million. Deutsche Bank analysts said that the Budget was "a good outcome" for the banks, and a City insider was quoted in the Daily Mail as saying:
"Privately, some banks will have a feeling of glee at the way this has worked out. But none would be stupid enough to say anything openly."
HSBC's banking analyst said:
"We'd expect most domestically-orientated banks, for example Lloyds, to be better off after four years than they were pre-budget".
This is interesting. I have seen many of these quotes before, and I am certainly minded to support the new clause, if the hon. Gentleman pushes it to a vote. An examination of the level of tax on banking is sensible, but I would like to know what the Labour party proposes for the level of taxation, given that every billion out of the banks is about £10 million to £15 million less to lend in the real economy. I am curious, therefore, to find out how punitive the Labour party would be.
I accept the hon. Gentleman's point. We have to be prudent in how we address these questions, and I hope to come to some of the matters he raises as we explore corporation tax and so on. If he bears with me, I will-hopefully-elaborate.
UBS analysts said that they expected Lloyds and HSBC to benefit by 2012 because of the cut in corporation tax bills, which in their case was larger than the hit they expected to be sustained through the banking levy. It seems, therefore, that the banking levy is playing quite a small part, perhaps a walk-on character-
I would like to put a couple of points to the hon. Gentleman. First, taking the case of Lloyds and RBS, are there not likely to be substantial carry-forward losses in those banks, which will not be paying corporation tax for many years to come, let alone by 2012? Secondly, were they then to face a higher rate of tax, which I believe he is proposing, would the cost on those banks not result in the devaluation of their shares, which are now owned by the public? Surely, it would go round in a circle.
I will come to deferred tax in a moment, because the corporation tax questions require much greater scrutiny. That is one reason we tabled the new clause. I hope that the hon. Gentleman will join me in the Lobby, should we divide on this issue-unless the Treasury concede it-and that he agrees that we should have a review of the level of tax the banks are paying. If they are paying too much, which I doubt, I will be happy to look at the evidence and the facts. However, there is opacity about these questions, and given the hit falling on the shoulders of families and children in this country, it is incumbent on us to ask whether the banks will be paying their fair share. That is all we are asking this evening.
We think that the Government's banking levy has been a limp effort so far. Given some of the corporation tax changes, there is a bit of a cashback arrangement for some of the banks. I would like to touch on three areas of corporation tax that I think require more serious and rigorous review. The first is that cashback boost for the banks resulting from the reduction in corporation tax rates announced in the Budget. The Exchequer Secretary confirmed in a written answer that over the lifetime of the spending review the Treasury expects that the cut in corporation tax main rate from 28% to 27%, and eventually down to 24%, will return £1 billion to the banks-specifically to the banks:
"£0.1 billion in 2011-12, £0.2 billion in 2012-13, £0.3 billion in 2013-14 and £0.4 billion in 2014-15."-[ Hansard, 1 July 2010; Vol. 512, c. 610W.]
It is dangerous to intervene given that I do not have the answer to which the hon. Gentleman has referred in front of me, but my recollection is that the answer to that parliamentary question was in the context of financial services companies as a whole, including insurance firms, not specifically banks.
It might well be that in that written answer the Exchequer Secretary's definition of "financial services" extends slightly beyond the banks. I am happy to concede that point. Of course, we framed the new clause in order to explore the tax burden not just on the banks but on financial services more widely. However, even the hon. Gentleman would have to concede that the banks will probably be the principal beneficiaries of the corporation tax cut that he is choosing to give them at a time when he is taking money from young, pregnant mothers-the health in pregnancy grant, to name one example of an incongruous decision that might be questioned by our constituents.
I can see that the hon. Gentleman is slightly confused about the written answer, so I want to clarify it for him, as I have a copy of it. The figures he gave relate to "financial sector" companies, so does he accept that he got his figures wrong when he said he was talking specifically about the banks?
The hon. Lady has several thousand civil servants-for the time being, at least, before they are made redundant-in the Treasury to help her with the costings for such questions. I can only go with the facts published in Hansard. Perhaps she could save me the trouble of tabling a further written question to find out what the bank cashback arrangement will be on corporation tax. I will give way to her if she has to hand the precise figures on what the UK banks will be gaining from the corporation tax cut. Can she tell us what those figures are? If not, I will table a written question. If she can swiftly answer that, it will be for the benefit of the House. I am pretty sure that it will be a net gain for the banks.
Will the hon. Gentleman give me the figures?
Let me deal with this directly. The Treasury and Her Majesty's Revenue and Customs figures that we have look at hits by sector-in this case, the financial services sector, which includes not only banking but insurance and financial auxiliary services. The hon. Gentleman quoted his figures and suggested that they represent a net gain. In fact, by the time we get to 2014-15, the bank levy will be £2.4 billion. At the same time, the corporation tax cuts in 2014-15 will benefit the financial services sector by £0.4 billion. However we divide £0.4 billion, it is hard to see how it will ever be higher than £2.4 billion.
Were those the only two relevant factors, that might be the case, but of course they are not. There are other tax changes through which the banks will more than benefit from the arrangements. If the Exchequer Secretary had had the patience to wait, I would have elaborated on that. I will come to that quicker.
It is important that the Exchequer Secretary listens to those experts who have talked about the benefit to the banks from the corporation tax change. Lloyds Banking Group plc could gain more from a cut in corporation tax than it loses under the new banking levy, according to analysts at Redburn Partners legal practice. Lloyds, 41% of which is owned by the British Government, might see a 3% rise in its earnings per share in 2012 as corporation tax begins to fall to 24% from 28% over those four years, according to Redburn analyst, Jon Kirk. There will therefore be a net positive for Lloyds. That is one example of a net gain for the banks.
Secondly, the banks have already found a way of minimising their corporation tax liabilities. A report published only last week by the TUC on the corporation tax gap showed a gap between the headline rate of corporation tax paid and the actual or effective rate of corporation tax paid. The TUC's analysis of data on UK corporate returns showed that the larger a company is, the better it tends to be at reducing its effective rate of corporation tax, which fell from 28% in 2000, when the headline rate was 30%, to about 23% in 2009, when the headline rate was 28%. On that basis, the TUC's economists predict that by 2014, the largest companies will be paying corporation tax at a rate of no more than 17% on average, while small companies will still be paying corporation tax at 20% or more.
The hon. Gentleman will know that there are all sorts of reasons why the headline rate of corporation tax may not reflect the rate of corporation tax that is actually paid, which are to do with credits for R and D, and all sorts of things. He keeps quoting what the TUC report says about larger companies, but what does it say about the banking sector?
The TUC says that the effective rate of corporation tax for the banks will fall from 25% in 2000 to below 20% this year, which means that, in reality, they are already paying a rate that is below the headline rate that small firms pay. Those findings are certainly eye-catching. All I am saying in new clause 3 is that they merit further review and consideration, which would be a reasonable step to take. Indeed, those findings suggest that we could even be heading towards a regressive corporation tax system in the UK. Small businesses should be paying less in corporation tax than the banks, but the evidence suggests that that might not be the case.
The third wheeze that the banks might benefit from, in their navigation of the corporation tax system, is known as deferred tax, which can be defined as the tax liability that might be payable at some point in the future because of transactions that have already taken place, albeit where there is no certainty about when it will have to be paid. Deferring the payment of tax is not something that ordinary taxpayers can indulge in with great ease, yet it appears that the banks are playing that game on a gargantuan scale, according to the findings of Richard Murphy, the director of Tax Research LLP. He suggests in his recent report that the banks' deferral of tax reserves are absolutely phenomenal. He calculates that a sum totalling nearly £19 billion, which is nearly half what this country spends on capital projects annually, might not be paid by the banks in corporation tax as a result. He describes that as
"an extraordinary double subsidy going on for these banks."
Not only were the banks underpinned by the taxpayer in 2008-they are still underpinned in the form of the guarantees offered by the Treasury-but they may receive another fillip, he argues, from that deferred corporation tax gain.
Unless my memory is playing tricks on me, at least one of the nationalised banks used those unused or deferred tax assets to pay for the asset protection scheme, which was set up-rightly-by the Labour Government in the previous Parliament. Without those unused tax assets or that deferred tax, the asset protection scheme would not have been possible, thereby imposing an even bigger burden on the banks, so I am not quite sure where he is going with this.
I am not making any particular proposals at this point; I am simply saying in new clause 3 that we should review the level of tax that banks are paying. There may be perfectly good and justified reasons for it, but we are talking about enormous sums of money. If, as some allege, the banks are playing a canny game, with sums of money that might have prevented many of the swingeing cuts that we are seeing to public services, it is incumbent on us, on behalf of our constituents, to ask those questions. If we are indeed "all in it together", as we are constantly told, we should ensure that the banks pay their fair share and do not leave the rest of us picking up all the bills.
Banker bonus season is around the corner. It seems rather than showing restraint, the bankers may be showing a return to form. Last week, Deutsche bank reported its third quarter results, saying that it had set aside £4 billion in the bonus pool for its corporate and investment bank over the first nine months, amounting to around €285,000 per employee. According to the financial services recruitment firm Astbury Marsden, banks and hedge funds are stepping up their bonus buy-out offers, as they try to prise key staff from their competitors. Goldman Sachs, a Wall street bank with a large British operation, has managed to set aside around £236,000 per employee in compensation for the first nine months of the year, which is obviously less than the $527,000 that we saw this time last year, although it still demonstrates that potential pay-outs are being lined up in the City for February, when they are traditionally handed out.
Richard Lambert, the outgoing director general of the CBI, has called for a global ceasefire between banks, to stop bonuses spiralling upwards, thereby further undermining the public's trust. In his speech to the CBI's annual conference this month, he said:
"Carrying on with business as normal would seem arrogant and out of touch,"
pointing out that many workers were facing job cuts and pay freezes. Those comments came as a survey found that seven out of 10 bankers expected to take home more pay this year, with half expecting a bigger bonus than last year, according to the website eFinancialCareers. City head-hunters Morgan McKinley found that 48% of financiers are expecting a higher bonus. The Centre for Economics and Business Research has predicted that £7 billion is likely to be paid out this year.
The former Chancellor, my right hon. Friend Mr Darling, wisely instituted a bank payroll tax on banker bonuses while Labour was still in charge, netting some £2.5 billion for the Exchequer. Yet despite the coalition agreement promising to
"bring forward detailed proposals for robust action to tackle unacceptable bonuses in the financial services sector,"
nothing significant has yet materialised from the Government. In fact, worse, the Government now appear to be rowing back from their commitments to tackle excessive banker bonuses. Last Monday, the Treasury Minister in the House of Lords, Lord Sassoon, told peers that
"the Government have taken action to tackle unacceptable bonuses in the banking sector,"
although it was not quite clear what that action was. He continued:
"The Financial Services Authority is updating the remuneration code, which will ensure that bonuses are deferred and aligned with the underlying risks, and significant portions of any bonus will be paid in shares or other securities,"
which was not something that originated with the Conservatives. He went on:
"Employees in this industry will no longer receive all their bonuses in cash while leaving their shareholders, and potentially the taxpayer, exposed to the long-term consequences of the risks they take."
When asked by my noble Friend Lord Myners whether that meant that future bonuses would be "deemed to be acceptable", Lord Sassoon merely reiterated his earlier remark, saying:
"My Lords, what I said was that we have indeed taken action".-[ Hansard, House of Lords, 1 November 2010; Vol. 721, c. 1417-18.]
Has my hon. Friend noticed that in the same package of measures in the emergency Budget-this was also touched on in the comprehensive spending review Green Book-there is also provision for a remuneration disclosure scheme? In the emergency Red Book and the CSR Green Book, we were told that the Government would come forward with details on how they would implement the scheme, which would require greater transparency in the financial services sector, so that the country could see what those in the sector were earning and whether there were irresponsible remuneration packages in place. It seems that the scheme will not now be implemented in time for the bonus round that my hon. Friend has just mentioned.
Absolutely, and it is no coincidence that it is on the first page of promises in the coalition agreement-actually, the reason is alphabetical; the first page starts with b, for "banking"-that many of those promises, including the promise to tackle banker bonuses, were made. The Government have tried to suggest that they are being tough and that they will take action, but that action has not been forthcoming. I want to hear from the Minister whether the Government are now content with the current framework, in which higher banker bonuses look set to continue to be paid. If not, will he say when the Government will bring forward proposals to act? It is a specific and simple question. The House wants to hear what the Minister has to say.
The coalition agreement also promised to use net lending targets for the nationalised banks as a means of getting credit flowing to businesses, as Stewart Hosie has suggested. Yet last week, the Prime Minister again shifted his stance. In a meeting with business leaders in Hertfordshire, he stepped back from that pledge, and indicated that lending targets for banks would not be reintroduced. He said:
"You can go for lending agreements with the banks. The trouble is, what I find with lending agreements is that they will promise to do a certain amount of lending to one sector, but they'll shrink it somewhere else."
His comments were followed by similar remarks from the Minister with responsibility for small businesses at the Department for Business, Innovation and Skills, Mr Prisk. Last Monday, the Government published their response to the Green Paper consultation on financing the economic recovery, and it was conspicuous by its absence that no mention was made of net lending targets. Have the Government softened their position on the pursuit of net lending targets to business?
During the summer, the Chancellor said that he would be exploring the costs and benefits of a financial activities tax on profits and remuneration. He repeatedly said that he would consider such a levy on the total profits and remuneration of financial institutions rather than on individual transactions, and the European Commission backed the financial activities tax, but when it was brought forward for discussion at the EU Council summit on
Many of our constituents will be aware of the proposal from 50 or so charities and other voluntary bodies for a financial transactions tax, which is slightly different from a financial activities tax, and would apply to a wide range of individual capital movements, including equities, bonds and derivatives. That Tobin tax or Robin Hood tax deserves a thorough review, although clearly there are arguments for and against with regard to the details and the relative impact on London as a centre for financial transactions. Nevertheless, the Government have singularly failed to respond to that campaign so far. Any review of banking taxation would need to analyse the case for a financial transactions tax far more rigorously as it is a serious proposition meriting a serious response. All in all, the banks' tax position needs a far more serious review than the piecemeal commitments offered by Ministers so far.
Will the hon. Gentleman clarify whether the Labour party supports a financial transactions tax?
We want to review it. Does the hon. Lady? Is she interested in looking at the proposition, or is she ruling it out completely?
I note that the hon. Gentleman failed to answer my question. I will respond to him broadly when I have heard the rest of the debate, and when I have a chance to respond to his new clause.
I thought it was a simple question. I thought the whole point of a debate was to exchange views. I am happy to review the financial transactions tax. It is an important proposition, and it deserves serious consideration. The Minister does not seem to know whether she is allowed to review it. Perhaps some inspiration has come down from on high. There is scurrying around, and I see that the Chancellor has been paging her officials. I am sure that inspiration will come to her shortly.
Will the Minister say whether there should be a change in tax policy to rectify some of the loopholes, such as those in corporation tax? Should there be a further review of, for example, the bank payroll tax? Should banks have their right to carry tax losses forward limited so that they expire after a specific time, or would that be detrimental? Clearly, the Government's feeble attempt to recoup something from the banks through the banking levy alone is barely denting their balance sheets and is dwarfed by, for example, the deferred tax assets that the banks are wielding according to the report.
Ministers should concede that the whole matter needs clearing up urgently if they are to have any hope of preventing widespread public cynicism, discontent and anger. In short, as things stand, all we see from the Government is a puny banking levy, banks still using corporation tax loopholes at taxpayers' expense, promises on bankers' bonuses unfulfilled, promises on banks' net lending targets more distant than ever, and inaction on reforms to the banking taxation system. The taxpayers of this country deserve better.
Since coming to the House, I have seen a lot of history being rewritten. We are told whenever we stand in the Chamber that we must apologise for the economy, but to coin a phrase from The Sun on the day after the general election in 1992, "It was the banks wot did it." There is widespread public anger with the banks, and people believe that they are getting away scot-free.
At my surgeries, in my local Labour party and out in the streets, people ask me why our nurses and teachers are bearing the brunt of the deficit-what about those casino bankers? If it were not for their reckless practices, why did the then shadow Chancellor just before the general election commit to follow Labour's spending plans for two years if we were so bad at running the economy? The simple fact is that the banks have not paid the price for the deficit that they helped to run up.
The new clause is not about destroying the banking system; it is about strengthening it, which means changing it and making it mixed. I know that this is outwith the amendment, but I would like a mutual element in the banking system, and that could start with Northern Rock. The simple fact is that the banks received £1 trillion. Can anyone imagine what £1 trillion looks like? Can anyone imagine what public works we could do with £1 trillion? Projects in my constituency are crying out for money. The Newbridge Memo, the memorial hall, needs restoration. So much could be done with a tiny part of that £1 trillion. But the bankers remain blasť and people think they are plain arrogant.
If no one believes me, let them look at Lloyds TSB, which this week appointed a chief executive. I will not embarrass myself by trying to pronounce his Spanish name, but we are told he will receive a package of £8 million. Who is worth £8 million, and what message does that send to people who are struggling to get by? It sends the message that the Government do not care how much damage bankers have done-they can carry on as they have been. When we read about such figures, what are we saying to people on the ground? They are the ones who must pay.
My hon. Friend Chris Leslie talked about bankers' bonuses, and I wholeheartedly agree that something must be done to rein them in. However, I have been a High street banker. I worked for Lloyds TSB, and I know for a fact that someone working as a personal account manager or personal banker is desperate for their bonus at the end of the month, because it makes up their wage. If we rein in the big City bonuses, we must think about the people on the ground. Let us not rein in their bonuses. They still have to pay their bills, and we must think about that. I ask the Government to consider the new clause because the banks really must pay their fair share.
Opposition Members are not under any illusion that banker-bashing, as it has been called, or reining in bonuses alone will sort out the problems with the financial services sector. It is important to reform the way it operates generally, which is why I welcome the banking commission that the Government have set up. Its terms of reference are sensible and, as a member of the Treasury Select Committee, I look forward to providing some input to that.
There are legitimate questions to be answered on whether the financial services sector is doing what the Chancellor said in the emergency Budget he would require it to do. He said:
"I believe that it is fair and right that in future banks should make a more appropriate contribution, reflecting the many risks that they generate."-[ Hansard, 22 June 2010; Vol. 512, c. 175.]
That is why I welcome the new clause. We should reflect on the huge contribution that the British public have had to make to the financial services sector since September 2007 and before.
Of course, some banks were taken into public ownership, including Northern Rock, Bradford & Bingley, Royal Bank of Scotland and Lloyds HBOS, but we are not talking only about the measures implemented by the previous Government on the eve of the financial crisis to nationalise or take a public stake in those banks. A package of measures was also put in place for the many other banks that were not taken into public ownership, as my hon. Friend Chris Leslie has mentioned. In addition to the special liquidity scheme, there were the inter-bank lending guarantees and the banning in 2009 of short selling practices.
All those factors contributed to helping the entire sector and, as a result, those banks are still operating today. Their balance sheets are looking far healthier and, during the summer, the five biggest players in the sector reported half-year pre-tax profits of more than £15 billion. So the good times are back in the City. My hon. Friend also mentioned the predictions of the bonuses that are likely to be paid in the current round. Over the weekend, for example, we read that at RBS some £2.1 billion has been accrued to pay staff salaries, benefits and bonuses, compared with £2.2 billion a year ago, at a time when revenue has dropped from £9 billion to £6.3 billion.
I am puzzled by the package of measures in the CSR Green Book that tell us that the banking sector will be required to make a greater contribution. If we look at the banking levy, for example, we see the sum of £2.5 billion being bandied about as the amount that we can expect the banks to pay. However, I have been told in an answer to a written parliamentary question that the amount coming in from them will be £1.15 billion in 2011-12, that it will be £2.32 billion in 2012-13, and that it will reach £2.5 billion only in 2013-14 before falling back to £2.4 billion in 2014-15. My right hon. Friend Alan Johnson has pointed out that, by the end of that four-year period, the banks will be paying less than all the parents who are giving up their entitlement to child benefit, thanks to the measures announced by the Chancellor at the Conservative party conference on
I would also be interested to hear the Minister's comments on the fact that the banking levy is to be implemented in such a way that the banks will not have to pay it on the first £20 million of taxable liabilities. It is extraordinary that they appear to be receiving a tax break before the tax has even been introduced. Will she also comment on the views expressed by the International Monetary Fund on the rate at which the levy is to be imposed? The IMF is clearly of the view that the banking industry in general has been under-taxed, and it has called for the levy to be tripled so that it could bring in at least £6 billion a year. Just think what we could do with the extra moneys! We could reinstitute the future jobs fund, for example.
The IMF's proposal is quite moderate when we consider what Oxfam is proposing, however. It argues that the levy should be imposed in such a way that it raises £20 billion. That is not even being proposed by Opposition Members at present. I ask the Minister to reflect on whether the measures that appear in the CSR Green Book under the heading "Everyone making a fair contribution" will do as they say they will do-namely, require the banking sector to make a contribution that is proportionate to all the problems it has caused for our constituents.
The Prime Minister will be attending the G20 summit in Seoul this week. Looking back at the G20 summit in April 2009, I believe that we as a country can be proud that we hosted that summit, and that it resulted in a package of measures that had a major effect on the way in which the financial services sector operates. Lord Turner introduced proposals on remuneration in the industry, which were tabled to all the G20 countries. Many of those proposals were adopted. The tax havens that had been operating around the world were clamped down on, and I believe that the banking levy was first proposed in an international context at that summit. Will the Minister tell us what leadership we can expect from the Prime Minister at Seoul this week? What measures will he argue for, and what can we expect to come out of that G20 summit that will make the financial services sector cease the reckless behaviour that led to the global financial crisis and, above all, contribute to paying down the deficit, on which the Chancellor is so fixated?
My right hon. and hon. Friends have asked a number of questions that deserve detailed answers. The new clause calls for a review of the total level of taxation on the banks and the financial services sector before the setting of the 2011 Budget, and at its heart is the simple question of accountability, transparency and openness. It must be made clear to the people of this country that the banks are paying their fair share. It was, after all, the banks that got us into this situation. At a time when this Government are taking so much away from honest, working people-particularly those with families-it is crucial to demonstrate that we are all in this together and that the banks are paying their fair share.
People are facing an increase in VAT, students are facing a trebling of tuition fees, the education maintenance allowance is being taken away, and child benefit is being capped, frozen and even taken away from many people. With all those massive cuts in public spending, it is crucial that we should know for certain that the banks are paying their fair share. That is all that the new clause endeavours to achieve. We want to make it clear that the banks are not continuing with their present bonus culture, and that they are making a fair contribution to the country. After all, it was the taxpayers who delved into their pockets to keep the banks afloat. This is a simple proposal, simply put, about openness, transparency and accountability, and I can see no good reason not to support it. It would give the people of this country great confidence in the Government if they were to accept this proposal tonight.
The new clause relates to the taxation of the banking and financial services industry, and proposes that the Treasury publish a report before the 2011 Budget examining the level of taxation on those sectors. Before I discuss the new clause directly, I think it would be helpful to set out some of the background and context relating to the Government's approach to taxation of the banking sector. The Chancellor set out clearly in the recent spending review the Government's objective in taxing the banking industry. We inherited the largest peacetime deficit in UK history, and, during these difficult times it is only right that steps are taken to ensure that the banks pay a full and fair contribution.
I listened with interest to Opposition Members, who appear to have a very blinkered perspective of regulatory issues. They skimmed over their own Government's part in the regulatory failures that led to the banking sector crisis. It is worth going back to some comments made by the previous Prime Minister, Mr Brown. I know he is now making speeches in the House again, but it might have been helpful if he had participated in this debate, given his own involvement in these matters. When opening Lehman Brothers' new European headquarters in 2004, he said:
"I would like to pay tribute to the contribution you and your company make to the prosperity of Britain".
He also said that Lehman Brothers
"has always been an innovator, financing new ideas and inventions before many others even began to realise their potential."
The last Government clearly had a huge role to play in that the regulatory system they brought in during their term in power absolutely failed the British public.
I will give way. I see that Labour Members have now perked up from when they were skimming over their past, as they were so clearly intent on doing. It is more difficult for them, is it not, to hear the failures of their Government being set out so clearly? Let us not forget that the last Prime Minister, back in 2007, described this as a golden age. He obviously felt that the regulatory system he had put in place was a great one, but that was subsequently proved not to be the case.
Does the Minister not accept that there was move towards a light-touch regulatory model across the entire political system? I am well aware of this because I used to work in the industry myself, and I do not recall the Economic Secretary or any of her colleagues jumping up and down when the Financial Services and Markets Bill went through this House, complaining that it did not introduce stronger regulation. Secondly, did she, like me, hear the comments of the Governor of the Bank of England, Mervyn King at the Treasury Select Committee this summer? He was asked whether, if the new regulatory model championed by the Minister had been adopted, the global financial crisis would have been averted-and he said no.
If the hon. Gentleman checked the Hansard of our debates on the original tripartite regulatory system, he would see that we did raise concerns about the nature of that system. We were told that our warnings were wrong. It is not acceptable for Labour Members simply to wash their hands of the regulatory system that they now clearly feel absolutely failed.
In fact, we have to respond to the regulatory failures of the past by returning the role of supervising the banks to the body charged with the overall monitoring of the economy-the Bank of England. That is why we have also set up the Independent Commission on Banking to advise on the reforms necessary to ensure that we are better protected against another banking meltdown in the future.
On that point, I entirely agree with the Minister. A fundamental part of this is the new capital requirements under Basel 3-some 7% higher for at-risk banks. Does she not agree, however, that a review of bank taxation, along with the Bank commission and the new Basel 3 regulations would be sensible to ensure that we have the balance in the round between taxation and capitalisation, risk and regulation, and supervision both at the UK level and with respect to this rather complicated European structure?
The hon. Gentleman is right that the bank levy itself needs to be viewed in the context of overall policy. He is right that it is not just about the bank levy; we have to look at it in the light of the broader changes around regulatory reform and the work of the Independent Commission on Banking. I will shortly come on to explain what that means for new clause 3.
We know that we have to tackle the regulatory failures of the past. We also know that it is right that banks make a contribution in respect of the risks they pose to the UK economy, but there is no benefit in taking action that would simply drive banks abroad. As Chris Evans pointed out, hundreds of thousands of jobs across the UK depend on Britain being competitive in this industry. For the financial services sector as a whole, as of June 2009, it had 1 million employees. The jobs are not just in London and the south-east, as there are nearly 100,000 people employed within the financial services industry in the north-west, while there are between 69,000 and 70,000 people employed by that industry in the east of England and about 90,000 in Scotland. Although there have been serious failures in the past, we also have to remember that many of the jobs that are part of this overall sector do not bring in high incomes, as the hon. Gentleman pointed out.
I am following the hon. Lady's logic. She is saying that we do not want to do anything that would drive the banks away-that old chestnut again-but is she seriously saying that the proposal in the new clause to have a review of the level of taxation would be enough to frighten them all offshore? Is she really saying that?
I am sure that the hon. Gentleman is following my comments closely. I was setting out the context for the situation in which we find ourselves. I have pointed to serious regulatory failure, which needs to be sorted out, and the fact that we have inherited a huge fiscal deficit, which also needs to be sorted out. In that context, we should recall that the previous Government had said that they would not introduce a bank levy at the national level and that they wanted international agreement before any such levy were put into place. At that time, we argued that we should get on with that, as a Government, and not necessarily wait for international agreement. The Labour Government rejected that.
In our first Budget, we decided to introduce a permanent levy on banks, which we expect to generate about £2.5 billion of revenue each year. The levy reflects the potential risks that banks pose to the UK's financial system and the wider economy, and it will ensure that banks make an appropriate contribution to deficit reduction that balances fairness with the competitiveness of the UK banking sector. It is also intended to encourage banks to move away from risky funding models that threaten the stability of the financial sector.
We were the first country in the G20 to take such action-Mr Umunna talked about leadership, and I think this is leadership-and we have been joined by France and Germany, which made announcements on bank levies in June. Germany's plans for its bank levy have been before Parliament there, while France outlined the details of its bank levy at its budget in September. Hungary, Portugal and Austria have since also outlined plans to introduce bank levies, while Sweden has already introduced a levy. Our bank levy is a permanent one and a regular source of revenue-unlike the one-off bonus tax of the previous Administration.
What does the Minister say to the International Monetary Fund? I have already mentioned the IMF's views on the level at which this levy should be imposed. Conservative Members are fond of quoting the IMF to us time and again, yet the IMF takes the view that at least £6 billion a year can be raised from this levy. Does she agree with the IMF and, if not, why does she think it is wrong?
The IMF has expressed its own views around levels of taxation. In the broader international context, which Chris Leslie mentioned, there are questions about the introduction of a financial transaction tax and a financial activities tax. Unlike the hon. Gentleman's party, we were prepared to introduce a bank levy nationally, but there are also discussions taking place about international measures that might be taken.
In fact, over and above the bank levy, the Government are taking a tougher approach to tackling tax avoidance by the banks. Prior to the spending review, only four of the top 15 banks had adopted the previous Government's code of practice. We have asked Her Majesty's Revenue and Customs to work with banks to make sure they adopt and implement the code by the end of this month, thereby making the commitment to comply with both the letter and the spirit of the law, and not to engage in or promote tax avoidance.
New Clause 3 provides:
"The Treasury shall publish a report before the 2011 Budget examining the level of taxation on the banking and financial services industry."
We have had some sort of rationale for it, but I have to say that I see little merit in making such a report in isolation. The report itself would be no substitute for the overall strategy for improved regulation and the complementary bank levy ensuring banks make a contribution in respect of the risk they pose to the financial system and wider economy. As set out in the spending review, the Government will continue to monitor tax receipts from the banking sector to ensure that banks make a fair and growing contribution to the public finances as the economy recovers.
In addition, there are, of course, already statistics available on the amount of tax revenue derived from the financial services sector. Historical figures for corporation tax receipts paid by several broadly defined business sectors are regularly updated and published on the HMRC national statistics website. To improve predictability, it is important that the Government provide clarity on the direction of tax policy, and the vehicle through which that is best delivered is the Budget itself. The new clause would require the Government to produce a superfluous report in advance of the Budget and therefore in advance of any announcements that the Chancellor might wish to make about tax policy generally that might impact on the banking and financial services industries.
The Opposition want a report on the banking industry. What the Government want, and what we have, is a strategy to ensure that the financial services sector pays its fair share. We have been clear about what we want to achieve, not only through the bank levy but through the code of practice, and by fixing the banks' ineffective regulatory system-the system established by the last Government, who let our country down so badly. The new clause does nothing to support those aims, and I ask the hon. Member for Nottingham East to withdraw it. If he is not willing to do so, an apology to the British people for the mess of a regulatory scheme that he left behind would not go amiss.
What cheek the Minister has to start claiming, in that revisionist way, that her party was always saying that it wanted heavier regulation of the banks in the 1980s and 1990s, and that the Labour party was always advocating the lightest of light touches.
The Minister has completely failed to address the substance of the new clause. We were not even arguing for a change of policy, although I think that we may deal with that on another occasion; we were simply asking for a review of the levels of tax paid by the banks. The Minister did not address that. Nor did she address the issue of bankability. My hon. Friend Chris Evans rightly distinguished between lower-paid employees in the banking sector and the high-rolling, highly paid bonus recipients who are in a league of their own.
The Government have taken no action on banker bonuses, despite all their rhetoric. As my hon. Friend Mr Umunna pointed out, although the Government had claimed earlier that they wanted to see the banks paying their fair share, they were quite happy to set the banking levy at a puny level. It was interesting to note that the Minister body-swerved the point about the IMF's suggestion that the levy should be higher, and I think that we should examine that methodology on another occasion.
My hon. Friend Nic Dakin rightly observed that new clause 3 simply seeks transparency and accountability-which must be an important part of proving that we are genuinely all in it together, as the Government like to claim. The Government are going to hit the public generally, cutting services, abolishing education maintenance allowances, taxing child benefit and raising VAT; yet they are unable to do anything about the banks.
We accept that the Independent Commission on Banking is investigating the matter and that regulatory reform is needed, but why can we not have a review of the level of taxes? That is all that we are asking for. What are the Government scared of? They have not given us an answer, and I think that we should divide the House.
On a point of order, Mr Deputy Speaker. I have never seen you in the gym, although you may visit it regularly, but when I was there earlier this evening, the Division Bell did not ring. I do not know whether it did not ring in other parts of the estate, but I hope that it will ring on this occasion-although I am here now.
Funnily enough, that is a point of order for me. It may be the first that I have taken.
I do go to the gym, although I do not go to the one to which the hon. Gentleman has referred. I thank him for giving me notice of his point of order. I have asked for someone to be in the gym in time for the next Division in order to ascertain whether the bells are working normally. The hon. Gentleman should be reassured that the matter is being investigated as we speak.
Question put, That the clause be read a Second time.
The House proceeded to a Division.
Mr Deputy Speaker: Order. It has been brought to my attention that there is a problem with the Division bells not only in the gym, but in other parts of the parliamentary estate. I am therefore giving Members a further two minutes to vote in the current Division. In the meantime, may I ask that the bells be investigated in Norman Shaw North as well as in the gym? I also advise all Members to be attentive to the monitors as well as the Division bells, because there may be more Divisions this evening.
The House having divided: Ayes 213, Noes 306.