New Clause 3 — Bank taxation

Part of Business of the House – in the House of Commons at 5:30 pm on 8th November 2010.

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Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury) 5:30 pm, 8th November 2010

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".

He continued:

"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".