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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 8:00 pm on 12th July 2010.

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Photo of David Gauke David Gauke The Exchequer Secretary 8:00 pm, 12th July 2010

Amendments 21, 34 and 50 relate to the impact of the corporation tax cuts on the banking sector. Amendment 21 would leave the

"main rate of corporation tax for financial year 2011...at 28%" for

"banking institutions", disapplying the 1% decrease, and amendments 34 and 50 ask for an assessment of the impact of the rate reduction on banks.

The proposals are helpful. Understandably, there is a frustration with the banking sector and a desire that it pay a fair share. The Government share that belief. We think that banks should make a fair contribution in respect of the risk that they pose for the UK financial system, which we have seen in the past few years. That is exactly why we announced in the Budget the introduction of a bank levy from 1 January 2011. Tomorrow, my hon. Friend the Financial Secretary to the Treasury will announce a public consultation with a view to implementing the levy on that date, and the measure will be included in next year's Finance Bill.

The levy is a surgical approach, intended to encourage banks to move to less risky funding profiles, and a contribution reflective of economic risk. A tax based simply on profits, such as corporation tax, is not related to risk and will not create the behavioural effect that we believe the banking levy will achieve.

The overall impact on banks of the proposed reduction in corporation tax depends on a number of factors, and I will provide some details in a moment. None the less, I should like to put it on record that it is entirely right that hon. Members ask such questions. My hon. Friend Andrew George made a thoughtful and probing speech, and I was also interested to hear the comments of Stephen Timms. However, I wondered, given his concern about the impact on the banking sector, precisely which angle he was coming from. Those who remember the debate prior to the general election will recall, for example, the remarks of the then Chancellor, Mr Darling who, in an interview on "The Andrew Marr Show" on 21 March, argued against proposals for a unilateral bank levy, saying that he thought it could work only if there were international agreement, as my hon. Friend Matthew Hancock said.

Of the Conservatives' policy of introducing a unilateral bank levy, which was also a policy of the Liberal Democrats, the then Chancellor said that we were taking a hell of a risk, given that the banking industry employs more than 1 million people in this country. He seemed to be somewhat concerned that we were going to far and too hard. I do not know whether the shadow Minister is worried because the proposals are too tough on the banks, or because they are not tough enough.

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