‘The Chancellor of the Exchequer shall review how a bank bonus tax could be repeated and place a report in the library of the House of Commons by
Brought up, and read the First time .
I beg to move, That the clause be read a Second time.
In this new clause we call on the Government to consider repeating the bank bonus tax, which raised £3.5 billion in 2010-11, and to use the revenue to create 100,000 jobs for young people. It is an understatement that this has not been a good few weeks for the banks. First, there were the disgraceful mistakes at Royal Bank of Scotland that left thousands of people unable to access their own money for up to a week. I am sure that top bankers there managed to get by for a few days, but for people on low incomes it is no laughing matter to be left without a week’s wages.
I will answer the question, but it was rather an insult to the people who have suffered from the situation at RBS, which was caused by administrative failures and poor management. The question put by Gavin Williamson does not address the severity of the matters that I am laying before the House.
Then came the shocking revelations at Barclays: of traders fiddling the markets, cheating with mortgage and lending rates—
The point that I was trying to ask the hon. Lady to explore was that the regulatory system put in place under the last Labour Government has led to market failure and the recent LIBOR problems. Does she not think that the shadow Chancellor should come to the House to explain why he took no action when he was City Minister? Yes or no?
I was talking about the situation at RBS, which was caused by a total administrative meltdown and computer failure; it had nothing to do with regulation. On the subject of regulation, Conservative Members called for less regulation. Politicians on both sides of the House need to consider where we go from here.
Whatever people say about the banks’ responsibility for things that happened in the past, there can be no doubt that what has happened at RBS in the past few days is the responsibility of people running the bank now and of those responsible for the financial sector now, who include the Government.
It is not just those on low incomes who suffer from the damage caused by the difficulties at RBS, which obviously is trying its best to resolve them. Businesses in my constituency have contacted me saying that if the problem is not resolved immediately, they face closure. The Government need to take that issue seriously, but clearly they are not.
I absolutely agree with those sentiments. When discussing the impact that the total administrative failure at RBS had had, particularly on those on low wages but also, as my hon. Friend has just said, on small businesses, I was shocked and taken aback at the political opportunism involved in jumping up and raising a question about regulation, which is entirely irrelevant to the matter that I was discussing.
The issue had an enormous impact on the amount of taxes paid in this country. Why were interest rates being rigged by the previous Government, according to the memo?
Order. The subject before us is what we will be debating, Mr Elphicke; we do not need to be sidetracked at this stage. I call Catherine McKinnell.
I am grateful for my hon. Friend’s patience and tolerance in the face of such provocation. Does she agree that part of the problem that we are trying to address through new clause 13 is the culture of excessive bonuses? Opposition Members recognise that that is part of the problem and we are trying to address it with the bank bonus tax.
I thank my hon. Friend. I have not made much progress yet, but the point that I was trying to make is that a whole series of actions by the banks have let ordinary people and businesses down. It is time that the banks played their part in putting some of that right.
I apologise if I am preventing my hon. Friend from making progress. She need take no lessons from Conservative Members about regulation. They wanted less regulation, not more, and the point that they are trying to make now is disgraceful.
The issue is fairness. People are crying out for a repeat of the bank bonus tax in these tough times. Those with the broadest shoulders should make the biggest contribution in dealing with our problems. Many problems, particularly those faced by young people, could be resolved by the new clause.
My hon. Friend sums up in a nutshell why I am speaking in favour of the new clause.
The shocking revelations from Barclays this week are nothing short of a scandal. Barclays—along with we do not know how many other banks now under investigation —broke the rules to make a profit and put global economic stability at risk. It played fast and loose with rates that affect people’s mortgages and credit cards and, it would appear, gave little thought to how people could be affected.
In another shocking scandal, we found out that thousands of small businesses had been sold expensive insurance products that they did not need and could not use, spending money, which could have been used to protect jobs, to pay for products that never should have been offered to them in the first place. How many businesses have lost out as a result? All those actions on the part of the banks were totally unacceptable. The banks have been taking without giving back. The Government can take action now to put the situation right.
I thank the hon. Lady for being so generous in giving way. I agree that the Government should take action to address some of the issues that have been raised. She mentioned a number of scandals. Will she name, for the record, the years when they occurred and which Government were in power when they occurred?
Members of the public will find this distasteful. We all share concern about the situation with the banks and the terrible events that have come to light in the past week or so. Government Members should be taking the lead on putting the situation right, but all they are interested in is scoring party political points. They need to be careful if they are not to lose all the public’s trust in their ability to start putting things right.
The Government can take action today. Stephen Hester, chief executive of RBS, has rightly said that he will decline his bonus this year in recognition of the serious damage that his bank has caused. Bob Diamond, chief executive of Barclays, resigned this morning over the currently developing scandal. It is right that those in charge take responsibility.
However, the banking industry as a whole is still benefiting from a tax cut this year—a tax cut, when their incompetence has cost thousands of people days of frustration, inconvenience and hardship. They have a tax cut when champagne swaps and dodgy dealing have been used to fiddle internal lending rates and when small businesses have been ripped off in yet another mis-selling scandal.
Our bank bonus tax would set that right, making the banks pay their fair share in tax instead of letting them get away with it. We want the money to be used to create 100,000 jobs for young people who are risk of becoming the next victims of this double-dip recession made in Downing street. Labour’s bank payroll tax raised £3.5 billion in 2010-11 but this Government replaced it in 2011-12 with a levy raising just £1.8 million—barely more than half. Those are the Office for Budget Responsibility’s own figures, set out on page 101 of its economic and fiscal outlook paper in March this year.
The autumn statement in November last year had forecast a higher first take, but that turned out to be over-optimistic. That could be the case with future forecasts. The levy is supposed to raise £2.8 billion in 2014-15, but we cannot be sure of getting that. The OBR has had to keep revising all forecasts down and down, apart from those for Government borrowing, which keep going up and up. It is clearly inadequate to introduce a levy on banks with only half the yield of the previous tax. Along with the richest 1% of the country who have benefited from the scrapping of the 50p tax rate, this is one of the only parts of the Budget where the Government have given handouts. What does that tell us about their priorities? It tells us that they are not on the side of working people hit by the banks’ recent malpractice, but on the side of banks and millionaires. That shows just how out of touch this Government are.
We want to take tough measures to make the banks pay their way, and bringing back the bonus tax on top of the new levy is the fairest way to do that. It is clear where that extra money needs to go. We would use our double bank tax to plug the gaping hole in jobs and growth left by the Chancellor’s omnishambles of a Budget, which contained not one mention of the word “jobs”.
It is nice to receive a considered intervention from a Conservative Member. The 100,000 jobs would be created through support from the future jobs fund. They would be guaranteed jobs paid at the national minimum wage for six months to give young people a real chance of getting on to the employment ladder.
This is about not only providing those jobs but creating economic growth and putting money into people’s pockets to create those opportunities. That aspect was absent from the Chancellor’s Budget speech, which is all the more shocking because of the seriousness of the problem. At Christmas, the number of young unemployed people reached 1 million for the first time since comparable records began, and long-term youth unemployment is rocketing too. Across the UK, the number of people aged 24 and under who are claiming out-of-work benefits for more than six months has increased by 60% since May 2010, while the number claiming for more than 12 months has more than doubled by over 125%. In this double-dip recession, young people cannot find work because between five and 10 people are chasing every vacancy. Depending on which part of the country they are in, it could be, and often is, a lot worse. The jobs are simply not there for young people to go into.
Yet the Government recklessly cancelled the very programme that was designed to create youth jobs. We want to use money raised from banks to put that right. In opposition, the Government supported Labour’s future jobs fund, which got young people into real, paid jobs. The Prime Minister called it “a good scheme”, and the Conservatives said that they had
“no plans to change existing Future Jobs Fund commitments”.
I apologise to Bob Stewart for my response to his intervention; in fact, it is through the real jobs guarantee that we would look to invest in new job opportunities for 100,000 young people. The future jobs fund was the successful scheme that the Prime Minister heralded as “a good scheme” but it was scrapped as soon as this Government took power.
I see that no Liberal Democrats are here for this debate. That is a crying shame and a shocking indictment of their commitment to young people and to making sure that bankers pay their way. The Liberal Democrats also pledged their support to the future jobs fund but swiftly supported the Government in scrapping it as soon as they got into power. In April 2010, in a letter to the Association of Chief Executives of Voluntary Organisations, their then work and pensions spokesperson —now the Minister of State, Department for Work and Pensions, Steve Webb—said:
“We have no plans to change or reduce existing government commitments to the Future Jobs Fund. We believe that more help is needed for young people, not less”.
The future jobs fund was scrapped just one month after that letter was sent.
Let us remind ourselves of what that scheme achieved. It offered every young person up to the age of 25 a job if they had been out of work for six months, with penalties for anyone who refused the opportunity. The jobs were real jobs, paid at the minimum wage, that lasted for six months—and that was guaranteed.
I absolutely agree. It is not just about giving opportunities to young people where so few exist, but about this desperately concerning period in which we risk creating an entire lost generation, because young people are coming out of school, higher education and college and finding no opportunities at the other end. Once they fail to get on to the ladder of work and opportunities, the consequences can be long term and cause a lifetime of damage. The Government need to factor that in and grasp it now before it is too late to make sure that these opportunities are provided and that too many young people do not miss out. That is why it is so important that we use this opportunity to make sure that the bankers who caused much of the global economic and financial meltdown take responsibility for that and pay their way, giving young people real chances and opportunities.
My hon. Friend is making a powerful case for repeating the bank bonus tax. Does she agree that the Government should be considering the evidence from the 1980s about the effect that long spells of youth unemployment had on young people and how hard it was for many of them ever to find decent jobs and catch up? As a result of the Government’s delay and refusal to adopt this policy, they are in grave danger of repeating exactly the same mistakes, with all the misery that that will cause.
My hon. Friend makes a powerful intervention and reminds me particularly of my own region, the north-east, where too many people lost out on opportunities in the 1980s and never quite recovered from the experience. When I talk to young people today, I find that some of the brightest are coming out of school and choosing not to go to university or college but instead to try desperately to find whatever work opportunities might be available to them because, apart from the fact that they are put off by the tuition fees, they are so worried that if they did step on the ladder and go to university they would come out at the end to find there were still no opportunities. There is a deep sense of anxiety among young people that the Government need to be seriously aware of.
That is what is so concerning about the scrapping of the future jobs fund, which was not only providing real opportunities for young people and breaking the cycles of lack of opportunity, but helping businesses to open up and take on young people in particular. The Government replaced it with the work experience scheme, which they eventually rolled out last year and which offers only eight-week, unpaid placements. There is nothing to say that that is not valuable in itself, but it is simply not doing enough for enough young people. It is also available only for people under 21, so it does not cover unemployed people who have left further or higher education. Again, that compounds some of the anxieties that young people are expressing to me when they say that if they go on to college or university they will be no better offer at the end and they will instead be saddled with a lifetime of debt.
It is worth remembering, is it not, that this younger age group, who will no longer be getting jobs under the future jobs fund, but only its successor, will also be one of the main targets of the Government’s cuts in welfare benefits?
Yes. I think that we all shuddered when we heard the proposals put forward by the Prime Minister which will mean that under 25-year-olds must either live at home or become homeless.
The youth contract, which was introduced only in April this year—too little, too late—offers very little extra, with no guarantee of a job, no guarantee of the minimum wage, but what the Government call “personalised support”, which we know from leaks could be little more than a weekly text message.
I am surprised that Government Members are not jumping up to proclaim the Government’s success with apprenticeships. Even with apprenticeships, it is difficult to believe the figures on the tin, particularly after McDonald’s recently revealed that it had spent £10 million of Government funding but had not created a single new job. The money was used to fund career progression for existing staff. That may be a worthy aim, but this is not the dawn of the apprenticeship revolution that the Government would have us believe.
I am happy to confirm that it would be in addition to the levy. We raised £3.5 billion from the bank bonus tax in 2010-11 and would like the same amount to be raised again.
I am going by the OBR’s figures. I suggest that the Government do the same if they want to take advantage of this opportunity.
It is clear that we need action on jobs for young people. The bank bonus tax would bring in the money that is needed to create the real, paid jobs that will give under-25s the start that they need to get into the job market. That money could put £100,000 young people into jobs. Austerity on its own clearly cannot do that. The cuts are going too far and too fast, are choking off the recovery and are making it harder for people to get into work. We need an extra stimulus.
Rather than give the banks a tax cut this year, we want to make them pay their fair share of tax. We would use that money to give young people the start that the Government’s hotch-potch of schemes is failing to provide. That is what the new clause would achieve and I urge hon. Members to support it.
I am extremely grateful to have the opportunity to speak in this debate.
It is important to distinguish between the policies of the previous Government and those of the current Government. The bank bonus tax and the bank levy have a different ethos or philosophy. The original bonus tax—Members will correct me if I am wrong—was intended to be a one-off measure. In the March 2010 Budget, the Labour Government confirmed that the tax would not be extended, even though the gross yield proved to be higher than had been forecast.
Does the hon. Gentleman agree that part of the problem with the banking crisis is the excessive bonus culture? Perhaps shareholders and Governments should have dealt with that, but we will discuss that on Thursday. Is this proposal not an attempt to address that issue and to ensure that those with the broadest shoulders, who have done so well over the past 10 years with their huge bonus payments, make a contribution now that times are tough?
The hon. Gentleman makes an interesting point, but there are two problems with his argument. First, the tax would fall not on the greedy employees and bankers whom he wants to whip, but on the bank. Secondly, during his Government’s period of office—he will correct me if I am wrong—Fred Goodwin received some £15 million in bonuses, which he paid tax on at the old tax rate. The hon. Gentleman is therefore seeking to close the door after the horse has bolted.
For me, the issue is the size of the bonuses not in the private banks, but in the taxpayer-owned banks. That is the real concern that we ought to be focusing on. That is why the Government’s bank levy is the right way forward.
Let me develop my point and I will then take further interventions.
The Government’s bank levy is the right way forward because if we take too much money out of the banking system, we will be pulling out capital. If we pull out too much capital through taxation—or, indeed, through dividends—we will constrain the ability of the banks to lend. We have a crisis in which banks are not lending because they are hoarding capital. If we pull more capital out of the banking system, it will constrain the granting of mortgages and loans to small businesses. In my constituency, that is an important issue, because many small businesses are having great difficulty in getting the lending that they need.
I appreciate the argument that the hon. Gentleman is making, but is he not aware that long-term youth unemployment in his constituency has risen by 100% since this time last year? Does he not think that desperate action is required to bring that figure back down to zero?
I am all too aware that my constituency has had a difficult time and that youth unemployment has been rising. It rose significantly in the last Parliament under the previous Government, who completely mismanaged the economy. I welcome the fact that the jobseeker’s allowance count in my constituency has fallen in the latest figures. That is really positive. All of us are, of course, concerned about unemployment and want to see more jobs and money. That is why we need to get the banks lending again. That will help businesses to expand and to create the jobs, money and prosperity that we want to see.
I am little unclear about the logic of the hon. Gentleman’s position. He is against taking money out of the banks in the form of a bank bonus tax because it would affect the capital that they can lend to businesses. I think that is a fair assessment of his position. However, that criticism also applies to the bank levy that his Government are in favour of. How is it that he is in favour of a bank levy that takes capital out of banks, but against a bank bonus tax that is paid for by the people who get the bonuses?
My position is that the bank levy strikes the right balance. That is why I asked the shadow Minister whether her proposal would be in addition to, or an alternative to, the bank levy. That is significant. She is arguing, on the gross figures, for more than £3 billion more to be pulled out of the banking system. That would have an immediate effect on the capital that banks can lend to small businesses and hard-pressed home owners.
The hon. Gentleman says that his solution is to get the banks lending again. This Government have categorically failed at that. What we are coming forward with is a concrete set of proposals. He has acknowledged that youth unemployment in his constituency is a problem and that it has doubled since his Government came to power. Why will he not accept concrete proposals that would deal with the blight that faces many young people in his constituency?
The hon. Gentleman is simply suggesting that we give with one hand and take away with the other. He might think that he can throw lots of money at dealing with the problem of youth unemployment, but he would meanwhile be constraining businesses in getting the capital that they need to create new jobs and maintain their existing jobs. That is the central flaw in the Opposition’s argument. They want to take more money out of the banking system when capital and lending are already constrained.
The issue that we need to deal with is bonuses. The Government have taken action on bonuses in the taxpayer-owned banks. They have said that there will be no cash bonuses of more than £2,000 at the taxpayer-owned banks. It is right to have longer-term share incentivisation schemes, which align people’s interests with the success of the banks over the longer term.
The hon. Gentleman is developing an interesting argument. Does he agree that bonuses have been too high not just in the state-owned banks but in the privately owned banks, and that shareholders should do their duty and exercise some control over bonus pots? Bonuses have been paid in banks, such as Barclays, that performance has clearly not justified.
Shareholders have been exercising control. Under this Government we have seen the shareholder spring and real action by institutional investors to restrain pay in the boardroom, which grew so much under the previous Government. Under the current Government, there has been action to ensure that shareholders have far greater power over remuneration reports and can push down the excessive rewards that have been given for not enough success.
It is right that an honest day’s work means an honest day’s pay and really good work deserves really good pay, but it is fundamentally wrong to say that the Government have not taken action. They have encouraged shareholders to do their bit as business owners to ensure that we do not have the excessive pay of yesteryear. A responsible Opposition would say, “We congratulate the Government on ensuring that excessive pay is stopped, and we take responsibility for the fact that when we were in government, we allowed a something-for-nothing culture in which everyone knew the price of everything and the value of nothing.” We need an understanding of the value of things once again. The Government have got it right by saying that there will not be excessive bonuses in the taxpayer-owned banks. Although the Project Merlin agreement was not perfect, it was a move in the right direction, as is the permanent bank levy that the Government have introduced, which raises £2.5 billion a year.
The Opposition would have us believe that their bank bonus levy raised more money than the coalition’s bank levy, but that does not quite stack up, does it? The gross receipts from the Labour Government’s bank bonus tax were £3.45 billion, but the net yield was estimated to be more like £2.3 billion. The explanation for that was given by Lord Sassoon in a detailed written answer to Lord Myners. Under the current Government—Ministers will correct me if I have got it wrong—the permanent bank levy raises about £2.5 billion, which is more money than Labour’s levy. I would have thought the Opposition would welcome that.
The OBR has given so many different figures that I do not know exactly which one the hon. Gentleman is referring to. I will read him what Lord Sassoon said:
“The net yield raised by the bank payroll tax is estimated to be £2.3 billion, while gross receipts were £3.45 billion. An explanation of the methodology underlying the estimate of net yield can be found in” a previous written answer. He continued:
“In line with guidance from the Office for National Statistics, the yield from the bank payroll tax was allocated to the 2010-11 tax year, as this is the point at which the tax was passed into legislation.”—[Hansard, House of Lords, 20 January 2011; Vol. 724, c. WA57.]
The current Government’s levy on banks therefore raised more than the previous Government’s levy.
The previous Government said that their levy was meant to be a one-off, but now Labour is in opposition it is saying, “Let’s make it permanent.” It also wants to make it additional to the permanent bank levy, and it is using the recent scandal, of which Barclays is the first bank to be found guilty publicly, as an excuse to do that. It should be more responsible in opposition than that.
As the hon. Gentleman will not admit to the figure that the OBR gave for Labour’s levy, I will tell him that it was £3.5 billon. The Government set up the OBR as an independent organisation to give such figures, so I am absolutely amazed that he will not rely on it. That is nearly double the amount raised by the current bank levy in its first year, and significantly more than is predicted for coming years. As we have heard from the shadow Minister, the predicted figure is falling because of the recession that has been created in Downing street.
I believe that the OBR’s figure was for gross receipts, which were not £3.5 billion but £3.45 billion. We need to examine the net yield raised, which was £2.3 billion. That is a lower figure than the £2.5 billion raised under the current Government’s system. I appreciate that the difference between net and gross can be confusing, because not all of us are accountants—I certainly am not. Nevertheless, more cash is coming through the door under the current Government’s arrangements.
The hon. Gentleman’s argument misses a central point, which is that the Opposition want their bank bonus levy to be an additional impost on the banks. My concern is that that would pull more capital out of the banking system. Right now, we need to lend to business and kick-start the economy.
The hon. Gentleman says that accountants know the cost of everything and the value of nothing, but how does he weigh the cost to the banks against the cost to this lost generation—the 100,000 people in Dover, Easington and the constituencies we represent—consigned to a life on the dole?
If we get lending going again, the economy growing again and decent private sector jobs creating more wealth as a nation, we will do better over the longer term. Having short-term measures to create jobs out of thin air—the 100,000 jobs that the Opposition talk about, for example, which would broadly be public sector-type and make-work-type jobs—is not the way to create a sustainable economy. We need to expand the private sector, expand business and expand jobs, so that they are sustainable over the longer term, not just for a year or two.
The hon. Lady knows that the economic recovery is being held up by the chilling effect of the eurozone and because the previous Government made an even bigger mess of the economy than was previously thought. So of course it has taken us longer to recover. None of us wants our economic difficulties to continue; we want the economy to improve, but this can be done, in part, by getting banks lending again and ensuring they have the capital needed to do that safely.
I have taken enough interventions. I have been generous in giving way and in dealing in detail with the hon. Gentleman’s points in particular.
The Opposition are saying, it seems, that we should take more money out of the banking system, but that would be irresponsible because it would constrain banks’ ability to lend. The Opposition use Barclays as an excuse to blame everything on greedy traders manipulating the LIBOR interest rate. I would urge caution, however, because I have looked through some of the internal documents floating around, particularly the note of a conversation involving Paul Tucker of the Bank of England. If I may, Madam Deputy Speaker, I shall briefly read it to the House by way of scene-setting and to demonstrate the Opposition’s mischievousness in seeking to impose this tax.
Order. I am sure that the hon. Gentleman is about to make a fascinating point, but he will of course assure me that it is relevant to the new clause.
It is indeed, Madam Deputy Speaker, because a key part of the Opposition’s rationale for the new clause is that what happened at Barclays was so disgraceful that we need to punish the bankers. A large part of the shadow Minister’s argument is that these bankers are outrageous and we need to impose a tax. My point, however, is that we need to consider the wider picture. I am particularly concerned about the comments concerning what the previous Government did on regulation as well as tax. It says here:
“Mr Tucker stated the levels of calls he was receiving from Whitehall were senior and that, while he was certain that we did not need advice, that it did not always need to be the case that we appeared as high as we have recently.”
It seems it was not only greedy bankers manipulating the interest rates and putting pressure on the LIBOR interest recording; it seems more clearly to have gone to the heart of government and to have been sanctioned by Downing street, according to some comments on the internet. When we talk about how to tax the banks, we need to consider how to get more lending and ensure responsible banking with incentives for the long term. We also need to ensure that members of the previous Government accept their responsibility for the Barclays scandal, the LIBOR situation and their own behaviour.
The information that the hon. Gentleman is laying out is very interesting, but I would like to make it clear that the Labour party has been calling for an additional levy on banks’ payrolls this year for months, if not a year—I do not have the exact date. The scandal that has unfolded this week has highlighted the contribution that the banks made to the financial collapse and the collapse of the banks, which led to the economic recession that we have suffered. For that reason—
What I have set out also highlights the previous Government’s role in failing to regulate and, it seems, in indulging in a bit of market manipulation pressure of their own. I do not think that is acceptable. In her scene setting, the shadow Minister was basically saying, “What happened at Barclays is outrageous; therefore we need to do this.” What I am saying is that we should be careful what we wish for, because banks need enough capital to lend to small businesses, to create the jobs and money that we need to expand the economy and make this country a great success in the next 10 years, building Britain back up to the sort of success that we saw in the ’80s.
New clause 13 is extremely important and deals with the bank bonus tax for youth jobs. It is an admirable new clause.
It is indisputable that the financial services industry is an essential part of our economy, but equally, there must be an acceptance that the industry—the banks and the financial institutions—needs to pay its way. The June 2010 Budget announced that a levy based on banks’ balance sheets would be introduced from
In the last financial year, the amount raised by the bank levy was just over half the amount raised by Labour’s bank bonus tax—£1.8 billion, compared with £3.5 billion. The Chancellor’s spending review plans have simply failed. The Government’s austerity measures have led to the flatlining of growth in the economy, resulting in long-term youth unemployment spiralling to record levels. In the last year it has gone up by 112%, while the number of young people out of work for over a year has gone up even more, by around 156%. That is the result of the Government scrapping the future jobs fund, immediately after they came to power, without putting a viable alternative in place. They had no idea what would replace the fund or how on earth they would be able to create any employment, for young people in particular. The Work programme started only a year later, in June 2011, and we all know now, from people coming to our surgeries, about the difficulties that the workfare and other programmes have created.
That is why we are calling for Labour’s youth jobs guarantee, which would redress the Government’s scrapping of the future jobs fund. On a cautious estimate, we believe that the bank bonus tax could raise at least £2 billion this year, which the Government could use to build thousands of affordable homes and introduce the real jobs guarantee for young people who are long-term unemployed.
As part of Labour’s five-point plan for jobs and growth, the real jobs guarantee would cost £600 million, and would provide a six-month job for every 18 to 24-year-old who had been on jobseeker’s allowance for 12 months or more. We estimate that it could assist up to 110,000 people in that category. The Government would pay full wages directly to the business, which would cover 25 hours of work per week at the minimum wage. That would equate to about £4,000 per job. In return, the employer would be expected to cover the young person’s training and development for a minimum of 10 hours a week. The ultimate objective would be the opportunity of a permanent job at the end of the six months. New clause 13 would tackle the issue of youth unemployment, and make the banks pay their way.
The banking industry has been in the news for all the wrong reasons over the past few days. Bob Diamond has resigned from Barclays, only days after the bank was fined a record £290 million for attempting to manipulate the inter-bank lending rate known as LIBOR. A simpler explanation of that activity would be to call it corporate fiddling. In my constituency, young people aged 24 under whose only crime is to be unemployed in area that has few job opportunities are being threatened with losing their entitlement to benefit. Let us compare that with Mr Diamond’s situation. He has been the chief executive of a bank that has been fined a record £290 million for attempting to manipulate interest rates. It will be extremely interesting to see what sort of gold-plated handshake he receives following his timely resignation. I am sure that he will walk away with a fair amount, leaving him an even more extremely wealthy man than he is already.
Figures published by the independent Office for Budget Responsibility show that last year’s bank bonus tax raised £3.5 billion, which is considerably more than the £2.3 billion that the Tories claim it raised. Cautious estimates show that the bank bonus tax could raise in excess of £2 billion this year. What an opportunity for jobs and growth. What an opportunity for 100,000-plus young people to gain some form of employment. We should grasp that opportunity with both hands, but we can see what the situation really is.
The money from the banks could be used to build thousands of affordable homes, which would provide a much-needed boost to our construction industry. It could be used for investment in infrastructure such as school buildings. Investment in school buildings is much needed at several schools in my constituency. I have visited numerous schools there in the past two or three months and, believe me, we have some fine teachers, some fine staff and some fantastic pupils, but we cannot use those words to describe the facilities in which they are working.
We would introduce the real jobs guarantee for long-term unemployed young people. Such an initiative would be welcomed in my constituency and throughout the north-east. It would be a significant step because, believe me, there are many young people in Wansbeck and the north-east who have never had the opportunity of any employment. That is the harsh reality. Sadly, in communities throughout my constituency, we continue to feel the effects of the coalition Government’s economic policy as the number of people out of work continues to rise at the same time as job opportunities reduce. Under this Government, youth unemployment is our only growth industry.
On a country and regional basis, the highest rates of unemployment are in the north-east, standing at 11.3%. Over the last year, the greatest rise in the International Labour Organisation unemployment rate was also in the north-east—up 1.8 percentage points. Between February and April 2012, 1.01 million people aged 16 to 24 were unemployed—a rise of 119,000 compared with the same quarter only a year ago. The unemployment rate for those aged 16 to 24 is 21.9% of all economically active people in this age group—an increase of 2.6 percentage points on the previous year.
In my constituency, the official figures show that the number of jobseeker’s allowance claimants aged 24 and under has increased by 22.4% in the last year. The number of JSA claimants per jobcentre vacancy is 15, but in large parts of Wansbeck the figure is in excess of 50 people going for each vacancy. These figures do not include the hundreds of jobs lost with the closure of Rio Tinto Alcan, nor the huge number of jobs in the supply chain that will be lost. They do not include either those who will lose their jobs as a consequence of the coalition’s attack on the public sector; in my constituency, 53% of those employed work in the public sector.
Within those horrendous statistics are a huge number of young people who are denied the opportunity of employment, many of them, of course, women. With in excess of 1 million young people unemployed, the only proposals the Prime Minister can come up with are threatening to remove access to housing benefit for those aged 16 to 24, and trying to prevent school leavers from claiming benefits straight away. Surely if we can see it, he can see it: this is not the answer, whereas providing jobs and opportunities for our young people is the answer. The number of young people out of work for over a year has gone up 156%. Why did the Government scrap the future jobs fund immediately after they came to power without a viable alternative in place? That decision was driven purely by ideology.
I invite the Prime Minister to my constituency to see the effects of his Government’s economic incompetence on my constituents and, in particular, on those young people denied employment opportunities. Then again, I am not sure whether that would be a good idea. Labour’s five-point plan means job creation and a redistribution of wealth from those who want more to those who need more. We need to repeat Labour’s bank bonus tax and invest in real jobs and in real jobs guarantees.
A good point, Madam Deputy Speaker. I suspect that my hon. Friend might repeat some of my points, as we Labour Members have robust arguments in support of the bank bonus tax in new clause 13, to which I am delighted to lend my support this evening.
Given the dramatic events at Barclays over the past few days, it is particularly apposite to be discussing the contribution of the banks to the well-being of our economy and how to deal with the excessive bonus culture in the financial services sector. Our position on this issue has been clear and consistent: bonuses should be exceptional payments paid for exceptional performance. Far too many highly paid bankers, however, continue to be paid astronomical bonuses, often seemingly with little or no connection to meeting their performance targets. While such excessive and unjustifiable bonuses remain, the case for a tax on bank bonuses is strong and undoubtedly popular with the public. The LIBOR scandal at Barclays will cause the banks’ reputation to plummet to a new low. Few would have believed that the public’s opinion of them could get any worse, but they manage to keep coming up with inventive new ways of further undermining the trust of their customers and the wider population.
My hon. Friend has made an important point about the popularity of a tax on bank bonuses with the public, but the tax should not just be popular; it should also work. Nothing that Government have done has remotely worked, and those failures—including their failure in regard to bank lending—are the real reason why this is the right thing to do.
Is not one of the tragedies the fact that the hundreds of thousands of people who work in the financial services sector—many thousands of them in my constituency and that of my hon. Friend—are being let down by those who are receiving the big bonuses? I was shocked and horrified by what is being done in their name, because they are often the victims of the criticism and the policies in the banks which have led to today’s debate.
The problem with the banks seems to be that they will not lend because they are frightened, and they are frightened because they must have money themselves. Perhaps we should think about the connection between bonuses and the way in which banks lend to small businesses, and perhaps a decent bonus could then be given to a bank that is run by someone who helps the economy by lending.
That is a valid point, with which I shall deal shortly.
The strength of the balance sheets and the corporate reputation of our banks are crucial building blocks enabling us to restore confidence in the economy and return to growth. However, I am afraid that the Prime Minister’s limited parliamentary inquiry into what happened at Barclays will not command the confidence of the public, or be regarded as an adequate response to the catalogue of failings and scandals that have befallen our banks in recent years.
The full public inquiry into banking standards that has been called for by my right hon. Friend the Leader of the Opposition would be the most effective way of demonstrating to the public that both politicians and those in the industry are serious about ending unacceptable practices and taking steps to restore faith in our banking system. A repeat of the bank bonus tax would help to reassure the public that bankers are making amends for their part in our current economic woes by helping young people to return to work and enabling new homes to be built.
I know that many Government Members believe that the bankers have been let off lightly in regard to bonuses and paying their fair share towards recovery. Senior Government figures have talked tough on bank bonuses, but have stopped short of taking meaningful action. Indeed, rather than ensuring that bankers made a bigger contribution, the Chancellor gave them a massive tax cut in the Budget, as a result of which the richest bankers will pay millions less in tax from next April. As Deborah Hargreaves, chair of the High Pay Commission, said when the new 45p rate was announced:
“This tax cut for bankers will be galling for the millions of pensioners who will see their bills go up because of this Budget.”
As well as the reduction in the personal tax paid by bankers, the Chancellor’s cuts in corporation tax mean the banks received a tax cut last year and will do so again in future years. Despite the Chancellor’s slight increase in the rate of the bank levy in January this year and 2013, the Government’s failure to repeat the bank bonus tax leaves the banks considerably better off, while our constituents face cuts in tax credits, higher living costs and a squeeze on millions of pensions.
At the same time, small businesses across the UK continue to struggle to access the lending they desperately need to grow and create jobs, with lending to SMEs having fallen by more than £9.5 billion last year.
That may be the hon. Gentleman’s opinion, but I reiterate the point that, because of the Government’s policies of the past two years, the official figures show that banks lent £9.5 billion less to SMEs last year than in the previous year, so there is a problem now.
My hon. Friend is right about the poor state of bank lending, but the reality is that the banks are not lending because they have no confidence; they have no confidence in this Government because they have pushed us back into a double-dip recession. That is the reality, and that is why action is needed. That is why this
Labour proposal is the right way forward to kick-start the economy and start to solve the problem of youth unemployment.
I agree. I am sure that many Members have been contacted by SMEs based in their constituencies who are desperate because they cannot attract as much lending from the banks and other financial institutions as they enjoyed a number of years ago. While many are critical of the lending banks, they are also critical of Government policy. Members on the Government Benches may not agree with that, but it is the reality, and that is why people are approaching us with these complaints and concerns.
The continued failure on lending is making a mockery of the Chancellor’s promise to link the pay of the chief executives of each bank with performance against SME lending targets, but there is now another chance for Members on the Government Benches to demonstrate to their constituents that they are genuine about making bankers pay their fair share. Labour’s bank bonus tax raised about £3.5 billion, as confirmed by the independent Office for Budget Responsibility. As my hon. Friend Ian Lavery said, even on a cautious estimate, we believe that this year alone it could raise at least £2 billion, over and above what is already in place. The Government could use those funds to introduce the real jobs guarantee for young people who are long-term unemployed, potentially helping 100,000 into work. It could also be used to build thousands of much-needed new affordable homes.
In conclusion, by supporting the new clause hon. Members can show that we are serious about holding bankers to account and ensuring that they pay their fair share, while also raising additional funds to address the people’s priorities—youth jobs and affordable homes—and make a real contribution to turning around our ailing economy.
I support the new clause because today more than 1 million of our young people—one in five of them—have no job. That is not because they are not trying to find work and it is not because they are not working hard to get experience and skills; it is because in this flagging economy—in this double-dip recession created by this Government’s failed economic policies—the jobs just are not there. Yet, at the same time, we see the banks paying out huge bonuses to some of those responsible for the economic mess we are in. Britain is now bottom of the pile for social mobility, and that is due to this Government’s failures. The top 1% of our society now control a greater share of the national income than at any time since the 1930s. Despite these crippling inequalities, this Government’s priority has been to give tax breaks to millionaires while building their austerity programme on the backs of some of the poorest in this country.
The current labour market is a bleak place. The hardest hit by unemployment remain women and older people, who face discrimination in the labour market, and of course young people. Long-term unemployment is at its highest since 1996. As my hon. Friends have already said, youth unemployment has increased by more than 100% in the past year. That is a travesty, because it means that we have failed to help young people live up to their ambitions and find the jobs they want—or, indeed, find any jobs at all. It also means that a great wealth of talent and productivity is being lost. That is a travesty, too, and one this Government should be ashamed of. According to a recent Association of Chief Executives of Voluntary Organisations report, that will cost the Treasury £4.8 billion this year and it will cost the economy £10.7 billion in lost output. I support the new clause because the Government’s plans are driving a wedge through our society, leaving too many people behind.
Social mobility in this country has ground to a halt, and as I represent one of the most deprived areas of London, I see that all too clearly; it has always been hard, but now we are moving backwards. Every week, I meet young people in my constituency who are losing out. My area has one of the highest rates of youth unemployment, at more than 8%. The loss of the education maintenance allowance is making it harder for these young people to stay on in school. The lack of jobs makes it seem like the rising cost of university or education is just not worth it. Georgia Rowe, a student at one of the colleges in Tower Hamlets, recently said to me:
“I thought about university but it doesn’t guarantee a better job. You might as well not be in debt.”
This is the generation of young people who are being left behind.
That is why Labour has proposed the real jobs guarantee to help give our young people a chance, as we know the scarring effects that long periods of unemployment can have. People need work experience, training and to learn the skills that make them more employable in today’s difficult labour market. I know what a massive difference it can make to a young person’s chances if they get a little experience. Programmes such as Job Ready, which is hosted by Futureversity in my constituency, and Skillsmatch, and those of the Adab Trust and City Gateway, along with access to a job, can help people overcome the psychological barriers to economic opportunity, and build ambition and confidence. They connect business and young people, opening up new opportunities and partnerships, but those programmes are all struggling without adequate support.
The Work Foundation has rightly called the Government’s approach to youth unemployment “piecemeal” and “fragmented”. The Government’s headline plan to get young people back into work through the Work programme and youth contract is failing. They have managed to get only about a third of those on the programme into jobs, and in this age of austerity that is not good enough. Recent figures in my constituency showed that at least 15 people were chasing every job vacancy. The Government should be looking for real ways to help solve these problems and not continuing to kill off jobs and growth prospects through their draconian austerity measures.
Young people in my constituency can see the opportunities a short distance away in Canary Wharf and the City of London. They want to know how to get jobs there. They see bankers in the city getting tens of thousands of pounds in bonuses while unemployment soars. This is what happens when social mobility grinds to a halt. Those kids in my constituency, who are as talented and aspirational as any others, simply do not have the same opportunities, so it does not seem like such a bad idea to ask those who have so much to pay a little more.
When I consider the behaviour of the banks and some of their employees, I do not always see shining examples of socially responsible companies. The finance sector is a vital part of our economy and many companies and their staff behave responsibly, but too many of the highest paid behave the worst, as we have seen with the Barclays bank scandal. Such behaviour is at best reprehensible and at worst criminal and requires inquiries and investigations as soon as possible, yet those people are some of the highest paid in the country. Bob Diamond earned 600 times more than the average income in my constituency, so a tax on the excessive bonuses received by people such as him is only too fair. But instead the Government are reducing the tax paid by banks, with the bank levy raising just over half as much in 2011-12 as Labour’s bank bonus tax would have raised this year.
I was interested to hear my hon. Friend say that Bob Diamond’s bonus and salary were 600 times the average wage in her constituency and want to highlight that point. Most of us understand that top bankers will probably be paid a lot more than most people in the country under any system, but such a discrepancy is obscene. That is what people find so disgusting and what they want to see tackled.
I thank my hon. Friend for his intervention and hope that the Government are listening. They must understand how serious the matter is and the deep resentment and anger that is felt in constituencies such as mine. The borough that contains my constituency is also the borough in which Canary Wharf is based and the injustice of some of the behaviour and the worst abuses in the banking sector must be addressed. The Government must take responsibility.
It is very decent of the hon. Lady to give way. When she refers to figures that are 600 times a normal wage or to huge bonuses, at least there is compensation. If those sums are declared, quite a lot—perhaps 40%—will come back to HMRC, which we could then redistribute. It is better that way than if it is hidden offshore.
The hon. Gentleman should perhaps look at the tax records of Barclays bank, as he will find that it has not paid the taxation that it should have paid. His Government should do more to ensure that the taxes that should be paid are paid. I also think that his Government has a poverty of ambition in not accepting our amendment to make a massive difference to unemployment in constituencies such as mine. I urge the Government to think hard about the impact on the 1 million young people—a sizable number of whom are in my constituency—and consider what could be done to address the problem rather than trying to defend bankers’ bonuses.
The hon. Lady is being very generous in giving way. The notion of very high bankers’ bonuses is nothing new, of course, as it has been going on for an awfully long time. Her party was in office for 13 years. Could she explain exactly what it did about that?
After the financial crisis, as part of the deal, my party introduced the bankers’ bonus tax and we raised £3.5 billion that went towards the attempt to get people back into work that was so successful in constituencies such as mine. I urge the hon. Gentleman’s party to consider what works, and that did work. Instead of being partisan and ideological, his party should look at what works and enforce it. The people of this country will not forgive his Government for not acting, for creating a double-dip recession and for leaving so many people out of work. It is a disgrace and he should apologise, with his party, for presiding over two years of being in government in which they have caused a double-dip recession and much more unemployment. That is what his party should be focused on and addressing, not trying to score party political points. You are in government. Do something.
When my party was in government, we cut unemployment. We got a million young people into work. After the financial crisis, when unemployment started to increase, we did something about it. I urge the hon. Gentleman’s Government to do something about unemployment, instead of looking backwards. Do something about the unemployment rate which is causing so much damage to our country, instead of doing what his party did when it was in power in the 1980s, which was to go around telling people that unemployment was a price worth paying.
The hon. Gentleman’s party is demonstrating that the nasty party is back with a vengeance. That is devastating for people in constituencies such as mine. They do not want to see the nastiness of the party. They want jobs. I suggest that his party focuses on creating jobs and growth. That is what people want.
I should like to conclude my speech. I have given way enough, but if the hon. Gentleman wants to hear more about the issues affecting our country and my constituents—[Interruption.] I give way.
The noble Lord Mandelson said that those people should pay taxes, and when my party was in power we brought unemployment down. That is what I urge the hon. Gentleman’s party to act on. I urge the Government, instead of defending bankers’ bonuses, to think about the 3 million people who are out of work. That is the responsibility of his party and his Government. He should talk to them about solving the current problems, instead of looking backwards.
When we are talking about banksters—to use a term that was coined as far back as 1932 by an Irish-American radio priest—we are talking not just about people who are filthy rich, but about people who are filthy rich by foul means. They have engaged in rackets, they get paid in packets. Why do they deserve a cut in their taxes?
They do not deserve a cut in taxes. I hope the Government will take serious action, otherwise the public, who already feel this way, will rightly believe that this Government are not for them but for the vested interests and the millionaires who make so much money and are not willing to pay their dues or to make the appropriate contribution. I am sure the Government do not want to be on the side of people who are milking the system and making so much money and not making the appropriate contribution.
I call on the Government to pay attention, to listen not just to my party, but to the millions of young people who want a job and an opportunity to make a contribution to this country. We have a plan that could help get them get into real work and would reward those who work hard—a plan that is costed and paid for by asking some of the wealthiest in our society to contribute just a little more. With the economy back in a double-dip recession and economic confidence so low that investment growth has virtually ground to a halt, job opportunities for these young people desperate to find work will not appear without help. I hope the Government will see sense and give young people in Britain the much-needed support that they deserve, by supporting the new clause.
I would like to begin my remarks on new clause 13 by agreeing with so much of what has been said today by Opposition colleagues. I want briefly to take the House back a couple of years to 2010, when I was lucky enough to secure an Adjournment debate on young people and unemployment, the first such debate I led in the House. For me, it could not have been on a more important subject than the position of young people in the labour market in my constituency. I do not wish to put myself forward as some kind of Cassandra or some awful foreseer of what has come about, but I warned the Minister then that the swift withdrawal of some of the more successful things the Labour Government had been doing to tackle young people’s unemployment would lead to more young people being on the dole. Sadly, that is what has happened. In fact, two years later the ONS tells us that an extra 65,000 16 to 24-year-olds are now without work. That is not just a waste of talent and funds, but a moral shame.
I want to say a few words on that subject and why new clause 13 is so important to young people facing that difficult situation. The Government have had two years to tackle the problem, yet all of us here have to admit that the problem is getting worse, not better, and that action is needed more today than it was in 2010. The Government would not listen then; I beg them to listen now.
My hon. Friend has a proud record, before and since reaching this place, of advocating for young people and employment. She is quite right to draw attention to the Government’s record. We should remember that we saw the same thing happen in the ’90s. The Government are going back to exactly the same failed policies of the ’90s. The difference between Government and Opposition Members is that when we were in government we looked after unemployment. We kept unemployment, repossessions and business failures low. Under this lot they have gone up and we are seeing the problems for young people, which is why we need the action we are debating right now.
The hon. Lady makes the important point that youth unemployment is deeply regrettable and has been rising recently, but she skips over the fact that youth unemployment has been rising since 2004, so most of the period of that rise actually occurred on her watch when the kinds of policies she is advocating were clearly not working.
The hon. Gentleman needs to be careful about apportioning blame, because although we have seen an extreme rise in youth unemployment over the past couple of years because of the recession—I will move on to the problem of demand in the economy later—under the Labour Government there was successful action to prevent levels of youth unemployment from rising to those we saw in the ’90s. If he wishes to, we can talk at length in the Chamber on another occasion about some of the structural reasons for young people’s unemployment, such as how skills are transferred in different ways, how small businesses recruit differently, which hits younger people more than it does those with experience in the economy, and why those patterns were starting to emerge from 2005. However, in new clause 13 we are trying to establish the urgency of getting money from a particular source and prioritising the needs of young people in my constituency and in his.
The Association of Chief Executives of Voluntary Organisations has done an important piece of work to calculate the cost to the Exchequer of young people being out of work, and, although I hope that Treasury Ministers will have already heard the figures that my hon. Friend Rushanara Ali cited, I want to alight on this one. If youth unemployment continues at current rates, by 2022 the cost to the Exchequer and to the economy in lost output is estimated to be £28 billion—on top of the human and social costs. That is a huge figure, and we as a country cannot afford to see this crisis continue.
I shall take a few moments, however, to consider not only the financial cost, huge and important though that is, but the impact of the crisis on individuals, on their pride and on their self-worth. I mentioned earlier the Government’s own research, carried out by the Department for Work and Pensions, into the future jobs fund, and if Ministers have not read it they would do well to do so. The research, first, considered the impact on young people who took part in the future jobs fund programme, and it is a shame that Charlie Elphicke has left his place, because I wanted to ask him—I tried to intervene on him to do so—whether he had met, spoken to or asked the opinion of any young person who took part in the future jobs fund.
Just in case hon. Members have not had the opportunity to read the research, however, I shall quote a young person and how they were feeling prior to the introduction of the future jobs fund. They said that they were
“feeling a bit low. I was about four and half, five months, unemployed and I thought ‘oh no, this isn’t good’. Most employers I spoke to, it was like if you’ve been unemployed for more than 2 months, it really puts people off. I knew how to do a job; it’s just the fact that I’d been unemployed for nearly 5 months. Almost half a year, which was quite embarrassing really. I know there was nothing out there, but it was still kind of embarrassing.”
Despite this person realising that aggregate demand and low job vacancy numbers had caused their problem, they blamed themselves, so I ask hon. Members to consider the impact of low self-esteem and poor mental health on the extra 65,000 young people who have become unemployed since 2010.
The research, secondly, asked young people how they felt about their work once they had taken part in a future jobs fund employment placement, and to me the following quotation says it all. On the question of what the most important gain was, one person said:
“Trust in my determination. Self belief, the belief from my employer that I am able to succeed”.
What more important thing could anybody have for success in life than self-belief? When people are left to languish on the dole, such self-esteem is undermined every single day.
I strongly admire the sincerity of the hon. Lady’s compassion for those people, but I am not sure that reading out two or three vox pops necessarily adds to the intellectual coherence and probity of the argument. She admitted a moment ago that youth unemployment was dangerously high during the Labour years. It remains very high, and we are very worried about that, but what does she actually propose we should do about it?
I am not sure I know where to start. I am reading out the testimony of young people who have been unemployed. That is not some kind of media vox pop; it is an example of real people who have been affected by the phenomena that we have been talking about, and we should listen to them. If the hon. Gentleman does not want to listen to what I have to say, let him listen to young people in my constituency and in his own, and to how they feel about being thrown on the scrapheap.
I shall briefly discuss bankers’ bonuses, and why the measure before us is an entirely appropriate one to take in order to fund for young people employment that will stand them in good stead for the rest of their careers. Profit-making banks have had a reduction in corporation tax, but I shall not go over the reasons why the tax in question is an appropriate one to levy on their payroll. We have to face the fact that in the City of London we have seen behaviour that cannot be tolerated. For the sake of the future of our young people, what is needed now is some sort of restorative justice to rebalance people’s ability to make a good life for themselves. Young people in this country are facing a more difficult labour market than they have for many years. I beg the Government to listen and take some action now.
I am grateful to you, Madam Deputy Speaker, for the opportunity to speak in this debate and to follow my hon. Friends the Members for Wansbeck (Ian Lavery) and for Livingston, and indeed Charlie Elphicke, who served on the Public Bill Committee. He is not in his place at the moment, but I found his contribution interesting, as always.
I support new clause 13, tabled by the Opposition Front-Bench team, which would introduce a bankers bonus tax to fund a job guarantee for every young person who has been out of work for more than 12 months. History will judge this Budget as chaotic. It has been a Budget of U-turns—on pasties, on caravans, on skips and on charities. It should be remembered as a Budget for “millionaires row”—admittedly, that is a little sparse at the moment—but I hope it will not be remembered as the Budget that let the greedy bankers off the hook. Tonight, I want to put on the record the impact on the north-east.
The north-east requires an alternative vision for economic confidence, growth and jobs. The proposals in new clause 13 of a guaranteed paid job for people who have been out of work for 12 months, as suggested by the Institute of Public Policy Research North, would boost the process of regeneration that is so badly needed in my region. According to economists at IPPR North, coalition spending cuts have worsened the impact on our region’s economy and added to unemployment—especially youth unemployment—in the north-east. Well over 32,000 public sector jobs have been cut. I remind the House that unemployment in my region stands at 11.3%; 145,000 people are out of work. The private sector-led recovery that was promised has clearly not materialised in my region, at least, and a recent report from Northern TUC shows declining employment in the private sector.
In the Public Bill Committee, I gave some examples of the private sector haemorrhaging jobs in my constituency, and I do not propose to repeat that tonight. The problem we face—Bob Stewart, who is no longer in his place, raised this point—is that money is being sucked out of the region through public spending cuts, benefit cuts and the slashing of regeneration and infrastructure projects, worsening the economic problems. The Government, through their policies, are squeezing out demand from the regional and national economies. That is counter-productive, as it pushes up both the benefits bill and Government borrowing.
The Prime Minister and the Chancellor pretend that there is no alternative, but the Opposition recognise that politics is about priorities and making choices. Sadly, the Chancellor has chosen to give a £40,000 tax cut to 14,000 millionaires, while more and more people in my area are losing their jobs and young people in particular have little prospect of finding paid employment. He has also chosen to keep VAT, a deeply regressive tax that hurts the poor, at 20%.
IPPR North has said that business confidence is failing. The lack of confidence among employers has created a hire freeze across the north that looks likely to get worse. The unwillingness of employers to take on permanent staff only increases economic insecurity for ordinary households. Where vacancies do exist, they are often for low paid and insecure work. Given that more than 1 million young people are out of work, we need real action from the Government to stop the next generation from wasting away on unemployment benefits. That is where the real jobs guarantee comes in. We need to offer a jobs guarantee, especially to young people, to stimulate the economy and offer personal hope to each individual.
General Government expenditure accounts for 50% of the economy, our debts are at record levels and we have the highest deficits. Does the hon. Gentleman think that the answer to debt, deficit and the Government’s massive share of the economy is for the Government to do more or to do less?
I want to say a few words in support of a bank bonus tax. I emphasise that I am supporting that not to bash the bankers, but to end the unacceptable face of banking in the form of an excessive bonus culture that is still far too widespread.
As I said earlier, the vast majority of people who work in financial services certainly do not get vast bonuses; many thousands of people in my constituency work hard behind bank counters or in bank offices serving customers, and they are often on modest incomes. Many have paid with changes in working conditions, while others have paid with their jobs, when redundancies flowed from the financial crisis caused by the irresponsibility of senior executives. We are not targeting those people; we want to do something about the small minority who are still getting excessive rewards.
A study published at the end of June showed that average pay for chief executives at 15 leading banks in the US and Europe increased by 12% over the last financial year. That may be less than the 36% increase in the previous year, but whatever the increase—it is about 50% when we add both increases—it is wildly out of line with falls in profits and share prices that have frequently characterised the sector. That is not performance-related pay in any sense that most people would understand and it is certainly not a performance that would justify what is effectively a further tax cut on top of a tax cut for the highest paid.
A tax targeted on bank bonuses is necessary because the existing attempts to curb the bonus culture have so obviously failed. That is the key point. The issue is not about saying that people should not be very well paid at the top of banks and financial institutions, but we want to get away from a position in which sums wildly in excess of anything that could be said to be deserved are paid as a matter of course. None of the steps taken so far has changed that culture, even in an era of financial crisis among the banks and beyond.
The second reason why we want a bank bonus tax is that it would raise money for some valuable purposes. The issue of jobs for young people affects all our constituencies. My constituency normally comes in the middle range of unemployment across the UK, and we have seen a substantial increase in youth unemployment. I certainly want that issue to be tackled in my constituency.
We are also saying that the bank bonus tax would be used to provide affordable housing. That, of course, would bring two benefits. First, it would bring more housing into the sector. Constituencies such as mine have to some extent, although on a lesser scale, experienced the same phenomenon as happened in London, where high rates of pay in certain sectors such as financial services have pushed up house prices and made it harder for people on lower incomes to get affordable housing, so this proposal would be important for those people as well. Of course, building affordable housing and new homes also gives a boost to the economy through providing new jobs in the construction sector and helps people who have been out of work because of the collapse of that sector in many parts of the country.
Our proposal of a bank bonus tax would not only tackle the excessive bonus culture but provide jobs for our young people and affordable homes, giving a boost to the construction sector. I therefore hope that the House will support it.
We have heard a series of slightly strange speeches by Labour Members. We have become accustomed to their belief that they left us a golden economic legacy, but the reality is that when they left office unemployment was higher than when they came into office. They seem to believe that the problems of youth unemployment started under this Government. At least David Miliband has the good sense to recognise that it is a long-standing and deep-seated issue and that its growth started under the previous Government.
Labour Members seem to forget that when they left office the deficit was out of control. We have tackled that and reduced the structural deficit by a quarter.
Youth unemployment is higher than when Labour left office, unemployment generally is higher than when Labour left office, and the economy was growing when Labour left office whereas now we are back in recession. Will the Minister confirm all three of those facts?
The challenge that we face is dealing with the economic legacy left by Labour, with the huge boom in financial services and the huge bust that followed.
We have heard Labour Members’ story that they presided over a golden age in the financial services sector. Catherine McKinnell could not bring herself to admit that the scandal over LIBOR fixing took place between 2005 and 2008 or that the interest rate mis-selling that affected so many small businesses took place in the same period leading up to the financial crisis.
Labour Members deplore the bonus culture, but let us not forget that when they were in government, bonuses were paid out in the year that they were earned and paid out in cash. That was the hallmark of the age of irresponsibility that characterised their time in office. This Government are taking action to tackle the bonus culture. This Government have introduced rules to ensure that bonuses are not paid out in the year they are earned but spread over a three-year period, that they are not paid out in cash but in shares, and, crucially, that they can be clawed back where there have been problems in the business or where there has been wrongdoing. This Government have tackled the bonus culture in the UK whereas the previous Government let it run riot, and we have seen the financial consequences of their so doing.
The bank bonus tax was first introduced by the previous Government. In fact, I think that our Government should have done much more about the bonus culture in the banks in the past and was wrong not to do so. However, will the Minister at least accept that at no stage did his Government suggest any action whatsoever to tackle the bonus culture? He should not suggest that the responsibility lies only with Labour but accept his share of the responsibility as well.
We have taken action to tackle the bonus culture by ensuring that the interests of shareholders and management are aligned and that where there is wrongdoing bonuses can be clawed back. That is a significant change that has happened since this Government came to office. In the same way that we are remedying the regulatory failures left behind by the previous Government, particularly by the shadow Chancellor, the inquiry set up into the fixing of LIBOR will ensure that in future LIBOR is regulated to fill the hole in the Financial Services and Markets Act 2000 and ensure that there are criminal penalties for manipulating LIBOR—again, filling the hole left by the shadow Chancellor when he designed the regulatory system.
When the previous Government brought forward the Financial Services and Markets Act 2000, we voted against the decision to transfer the supervision of the banks from the Bank of England to the FSA. We are putting right that failure by the previous Government. We criticised the financial services reforms brought forward by the previous Government in the aftermath of the financial crisis. We said that they were tinkering around the edges and did not address the fundamental problems at the heart of regulation. The work that we did in opposition laid the foundations for a much tougher, more intrusive and more interventionist regulatory regime to tackle the problems left by the previous Government.
The UK economy has suffered hugely as a consequence of the financial crisis. It has lost £140 billion in growth. We have to tackle the causes of that failure, as well as tackling the deficit that the previous Government left behind. That is what we are doing through the Financial Services Bill, which is passing through Parliament at the moment.
“The measures that I announced in October have stabilised the banking system, and inter-bank lending rates have fallen. The three-month LIBOR rate halved to just over 3 per cent. this week.”—[Hansard, 18 December 2008; Vol. 485, c. 1213.]
The last Prime Minister had a problem recognising his responsibility for the problems that befell the economy.
One way in which we have sought to get the balance right in the taxation of businesses is by introducing the bank levy. We took that decision in opposition. We thought that it was right to ensure that banks paid their fair share towards dealing with the risks that they pose to the economy. The measure was opposed by the previous Government. They did not want to introduce a bank levy on a unilateral basis. We had the courage to make that decision and to ensure that banks pay their fair share.
The bank levy is a tax on the balance sheets of banking groups and building societies. It complements the wider regulatory reforms that are aimed at improving financial stability, such as the higher capital and liquidity standards. It thereby ensures that the banking sector makes a fair and substantial contribution that reflects the risks that it poses to the financial system and the wider economy. The levy is also intended to encourage banks to move away from risky funding models.
From the outset, the Government have been clear that we intend the levy to raise at least £2.5 billion each year. The Opposition should get their facts right. They have trotted out the gross figure that was raised by the bank payroll tax. They must bear in mind that the tax also reduced pay-as-you-earn and national insurance receipts. That is why the actual yield of the bank payroll tax was only £2.3 billion. Our levy will therefore raise more, year after year, than was raised by their one-off bank payroll tax.
The target yield for the levy was set out in the Government’s first Budget. We also announced our intention to make significant cuts to the main rate of corporation tax. Let me deal with another red herring from the Opposition. We were clear at that time, as we are now, that the bank levy yield will far outweigh the benefits that banks will receive from the corporation tax changes. Other sectors, including manufacturing, will benefit from the reduction in corporation tax, but banks will not benefit because of the bank levy. In the 2011 and 2012 Budgets, the Chancellor has gone further and announced two more cuts in the main rate of corporation tax. It now stands at 24%. The increase in the bank levy announced in the Budget offsets the benefit of those additional cuts to maintain the incentives on banks to move towards less risky funding.
“déjà vu all over again”.
This is at least the fifth time in this Parliament and the second time in the passage of the Finance Bill that we have debated the bank payroll tax. We have heard no new arguments from the Opposition and nothing to persuade us to vote for it.
Yet again, we have to point out to the Labour party that such a tax would be counter-productive and unnecessary. The bank payroll tax was introduced as a one-off interim measure in the last Parliament ahead of regulatory reforms and changes to remuneration practice and corporate governance. The previous Chancellor, Mr Darling—somebody the hon. Member for Newcastle upon Tyne North should listen to and learn from—said that it could not be repeated. He pointed out that it was a temporary measure until bank remuneration practices were changed, and we have changed those practices.
The new clause calls for the proceeds of the tax to be used to help employment, but I should take some time to remind the House of the measures that we are already taking to do that. We have introduced the youth contract and are investing £1 billion over the next three years in supporting half a million young people into employment and educational opportunities. We will provide
160,000 wage incentives worth up to £2,275 each to employers who recruit an 18 to 24-year-old through the Work programme. There will be an extra quarter of a million voluntary work experience or sector work academy places over the next three years and a further 20,000 incentive payments to encourage employers to take on young apprentices, taking the total to 40,000.
We are also providing additional support through Jobcentre Plus and the opportunity for people to be referred for a careers interview with the national careers service. We are already providing more apprenticeship places than any previous Government, with a record 457,000 apprenticeships delivered in 2010-11 and a commitment to delivering 1.2 million over the entire spending review period. That is a quarter of a million more than the previous Government’s commitment.
The hon. Member for Newcastle upon Tyne North says that the bank payroll tax should be used to help youth employment, but let us consider the number of ways the Labour party has already announced it would be used. The Leader of the Opposition was asked where the money would come from to reverse the increase in VAT, and he said:
“I said for example we should have a higher bank levy.”
It was also suggested that it be used to pay for higher capital spending of about £7.5 billion in 2010, which would have required £6 billion from the bank levy. The Leader of the Opposition said that reversing child benefit changes could be afforded by using the bank payroll tax—yet another use for it.
The bank payroll tax is the tax that continues to give, the tax that the Opposition always turn to when they want to find a way of plugging the black hole in their figures. They used it to explain how they would reverse tax credit savings, spend more money on the regional growth fund, cut the deficit and turn empty shops into community centres. We have heard a remarkable number of ways in which something that the previous Government said was a one-off would be used to fill the black hole in Labour’s economic thinking.
My hon. Friend is right to ask me that question. About 15 times. Every time there is a tricky question, what is the answer? Let us reintroduce the one-off bank payroll tax. That demonstrates the emptiness at the heart of Labour’s economic policy. It has no concrete ideas to tackle what happened in the financial crisis or the economic problems that it left behind. The Opposition are reduced to trotting out the same stale arguments for the fifth time running, and I urge the House to reject them once again.
We have heard some passionate speeches from Labour Members, but I am concerned about the lack of contributions from Government Members. Only one, Charlie Elphicke, contributed in the entire debate. He put forward some interesting views and theories, and I commend him for engaging in the debate, because there is little of more importance right now than youth unemployment.
The hon. Gentleman concluded his speech, however, by hailing a return to the 1980s. I do not know about other Opposition Members, but it sent a shudder of fear through me, because although some people had the time of their lives in the 1980s—we have fond images of the City, the champagne flowing, the pinstripe suits and the brick-sized mobile phones—for many the 1980s were not pleasant or a time of growth but devastating, particularly for youth unemployment. Parts of the UK, including my region of the north-east, other English regions, Scotland and Wales, suffered dreadful decimation of their traditional manufacturing industries, and in many ways are still paying the price. We risk repeating that fate today, which is why we are proposing to impose a bank payroll tax on the very institutions that played a large part in causing the international financial crisis that led first to the recession and then to today’s double-dip recession.
No, we have clear plans: we would like to spend the bank payroll tax on creating youth jobs. I would have thought that Government Members would have grasped that opportunity, given that short-term unemployment is up 112% and long-term unemployment is up 156%. I would have thought that Conservative Members would be shouting out for any solution to bring those figures down.
Or are Government Members happy to see another generation of young people thrown on to the scrap heap with no opportunities and no way out? The future jobs fund gave opportunities to young people. It was heralded by the Prime Minister as a good scheme and promises were made not to scrap it, but as soon as the Government took office it was put in the bin. And we have seen little put in its place: the work experience scheme, for which we waited a whole year, is producing very few results.
For that reason, we are proposing a solution. On a cautious estimate, we believe that this year the bank bonus tax could raise at least £2 billion, which the Government could use to create thousands of affordable homes and introduce a real jobs guarantee for long-term unemployed young people. As part of Labour’s five-point plan for jobs and growth, the real jobs guarantee would cost £600 million—a small price to pay for tackling the chronic youth unemployment about which Labour Members have spoken passionately this evening.
Under the real jobs guarantee, the Government would pay full wages directly to businesses—again something I would have thought Government Members would have supported—and support businesses taking on new members of staff. It would cover 25 hours of work at the minimum wage—£4,000 per job—and in return the employer would cover the training requirements and the young people would be required to take the jobs made available. It would be a genuine contract and a real jobs guarantee.
We cannot stand by and watch another generation of young people left to suffer the effects of this double-dip recession, which is why we propose this bank bonus tax as a real solution and why I urge hon. Members to vote for the new clause.