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Clause 1 — Main rate of corporation tax for financial year 2011

Part of Finance Bill – in the House of Commons at 7:45 pm on 12th July 2010.

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Photo of Sajid Javid Sajid Javid Conservative, Bromsgrove 7:45 pm, 12th July 2010

That is a misleading question, and it does not go to the heart of the matter. It is a nice try, but the right hon. Gentleman will really have to try harder than that.

To return to banks and how to get our economy going, as well as restoring incentives we need to get banks lending again. That was the only vaguely accurate or factual point that I could pick up from the speech of Mr Jones. If we are to do that, we need to understand why they are not lending at the moment, and the major reason is a lack of capital for British banks. Banks across the world face the same problem. As a Government, we need to work out a way to restore the capital positions of banks so that they are willing to take the risks that are a necessary part of making lending decisions.

There are only three ways for banks to try to raise capital. The first is through the free capital markets, but today those markets are effectively closed to virtually all banks. Prior to the financial crisis, there were many instruments that banks could use to try to raise capital, including types of subordinated debt, hybrid equity instruments, tier 1 and 2 securities and common equity. Not only are those markets closed to banks today, but if Opposition Members have watched carefully what has happened in the financial markets over the past three or four months, they will know that banks cannot even raise senior debt effectively, let alone capital. Banks throughout Europe-especially those on the continent, but British banks included-are in many cases unable to raise that type of debt, let alone equity. The capital markets as an avenue to raise capital are closed.

The second option is for the Government themselves to give capital to banks. After the £70 billion-odd injection made by the previous Government, I do not believe that any Member of any party is advocating the Government injecting more capital into the banking system.

There is one final way left, which is to allow banks to hold on to some of their profits, if they are in a position to generate profits. No matter what Opposition Members would like to think, unless we create the conditions inside a bank that make it want to lend, there is no way to force it to do so.

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