Schedule 19 - The Bank Levy

Finance (No. 3) Bill – in a Public Bill Committee at 6:30 pm on 7th June 2011.

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Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury) 6:30 pm, 7th June 2011

I beg to move amendment 187, in schedule 19, page 297, line 1, at end insert—

‘(4) The Secretary of State will review the steps for determining the amount of the bank levy outlined in paragraph 6(2) and lay a report before the House of Commons, before 31 December 2011. This review shall include the Government’s analysis behind the rate and threshold chosen for the bank levy and provide a forecast for the change in both gross and net yield that would be achieved if the Secretary of State were to reduce the amounts in Step 5 from £20,000,000,000 to £10,000,000,000.’.

Amendment 187 is a probing amendment. Our intention is to highlight the complete inadequacy of this measure in ensuring a fair and balanced burden of taxation. The target revenue for this tax is too low and the Government refuse to consider any taxation on the banks below that low level. The issue is an important part of the Finance Bill, which many Members will want to debate. There are many more aspects of the schedule that Members will want to discuss beyond the issue brought forward by our amendment, so rather than pressing the amendment to a vote now or opposing the clause, we should like to return to the issue on Report. In the meantime, I should like to take advantage of this opportunity to press the Minister on a few issues.

Opposition Members support the principle of the bank levy. It is important to ensure that the banking sector makes a fair contribution towards the costs of the financial and economic crisis and that the burden of  taxation is shared out fairly when taxes have to be raised. A specific tax on the banks is a good way in which to achieve both objectives. That is why the Opposition called for a repeat of last year’s bank bonus tax. What we have from the Government is wholly inadequate.

Although we support the levy in principle, questions must be asked about the amount and why that level was chosen. When the bank levy was debated on the Floor of the House last month, my hon. Friend the Member for Nottingham East said that we were unable to table an amendment to this Bill that would raise the level of the bank levy. That is why amendment 187 calls on the Government to report on why these particular rates and allowances were chosen for the levy and what the effect would be of lowering the allowances in terms of the amount of tax raised.

Many measures that the Government have taken have supposedly been beneficial to people, but when they are put in the context of other policies, we see that the Government are not really helping ordinary people at all.

Photo of Bill Esterson Bill Esterson Labour, Sefton Central

I am glad that my hon. Friend has made the point about not helping ordinary people. The Treasury’s original design for the bank levy showed that it would raise £3.9 billion and not the £2.6 billion that is currently forecast. Does she agree that that additional £1.3 billion would make all the difference as it would take the pressure off hard-working families, who are being penalised by the Government?

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

That is the issue to which I want the Minister to respond. Of all the priorities for taxation, he—I say “he”, but I am perhaps slightly elevating his position and should say “the Government, of whom the Minister is a very valued member”—chose to give with one hand and take away with the other, for which the Government were criticised by the director of the Institute for Fiscal Studies.

For example, the personal allowance for income tax is supposed to give people an extra £40 a year, but it is wiped out by the Government’s hike in VAT, which will cost the average family with children more than 10 times that amount—more than £450 a year. The 1p cut in fuel duty, which this Committee has already discussed, is peanuts compared with the 9p or 10p a litre that the Government will have added to fuel taxation by August 2012.

The Government’s proposals for a bank levy are no exception. The £2.6 billion forecast to be raised by the bank levy may seem like a lot until it is put in the context of the £4.9 billion that the Government plan to take away from families with children in cuts to child benefit, child tax credit, the child trust fund and the Sure Start maternity grant. The bank levy could be put in the context of the £10.6 billion a year that the Government will take out of people’s pockets by 2014-15 by switching to CPI indexation for benefits, tax credits and public service pensions. Compared with that, the bank levy will be little more than a drop in the ocean in terms of rebalancing the burden of taxation.

The levy could even be put in the context of the implicit subsidy that the taxpayer has been providing to all large banks in the UK in the expectation that the  taxpayer will bail them out if they fail. According to the Bank of England, that subsidy is worth £100 billion a year. There was clearly scope to go much further and to make a genuine impact. Will the Minister tell the Committee what steps were taken to determine the level of the bank levy and what assessment the Government have made of the amount of tax that could be raised by setting the threshold at a lower rate—specifically at £10 billion, as detailed in our amendment?

The Government have demonstrated that the low level of taxation in this case was their choice. The target revenue of £2.6 billion is no accident. In their consultation on the bank levy, they stated that they intended to raise £2.5 billion when it was fully in place. Following the consultation, they found that their proposals would have raised nearly £4 billion. Ministers could have stood by their original design, but instead they took active steps to reduce the amount, principally by changing the proposed £20 billion threshold into a tax-free allowance.

We did not receive a full explanation from the Minister on the Floor of the House, so perhaps he will explain to the Committee now why the target of £2.6 billion of revenue was chosen. What estimates were made of the impact of that level and any other levels on the industry and on revenue for the Exchequer? Why were the Government so averse to raising more than that through the original mechanism? They also refused to tax the banks via a bank bonus tax, which the Opposition suggested. The bonus pool for 2010 across the City of London has been estimated at some £7 billion. There is, understandably, still a great deal of public outrage about that because it is an incredible figure, particularly when banks are still failing to meet their responsibilities to wider society. As we discovered recently, the Project Merlin banks are missing their lending targets by some £25 million a day.

We called on the Government to repeat the bank bonus tax that the Labour Government introduced. Unfortunately, the Chancellor refused to take that option. The bonus tax raised £3.5 billion for the Exchequer, and that would ensure a fair contribution from the banks. It would also provide funds to be invested in a real plan for growth in the economy, which we sorely lack.

The plan that we proposed before the Budget this year was based on a conservative estimate that a repeat bonus tax would raise £2 billion. We proposed using that to create 110,000 new jobs, construct 25,000 new homes and boost investment in local businesses through the regional growth fund by £200 million. The Government’s refusal to repeat the bonus tax means that banks are looking at a tax cut this year worth about £1 billion, which the Government are granting by watering down a bonus tax of £3.5 billion to a bank levy worth just £2.5 billion. That does not include their cuts in corporation tax, which will give back to the banks £100 million this year, with many more cuts planned by the end of the Parliament.

In the same year, families have lost thousands of pounds in tax credits and benefits, and are paying hundreds of pounds more in tax. Families with children are being hit especially hard, with cuts to child care support alone amounting to up to £1,560 a year. This is also the year when those families are seeing reductions in NHS staff and police numbers, with reductions of  more than 11% in some local council grants from the Government, and cuts or closures in their local public services.

The bank levy is an important issue and many hon. Members will want to speak about it on Report. Our amendment would address just one of the many concerns about the Government’s proposal, so we will not press it to a vote today, but will the Minister explain why the Government took active steps to reduce the amount taken by the bank levy following their consultation, when at the same time they raised taxes and cut payments and services for ordinary families?

Does the Minister accept that the banks have a bigger role to play in contributing to the cost of the financial and economic crisis, which began in the financial sector? The Government had a choice on ensuring the fairest possible distribution of taxation. Given the relatively puny amount that they expect to raise from the banks, and the steps that they have taken to keep that amount down, ordinary families would be right to wonder whose side the Government are on.

Photo of Mark Hoban Mark Hoban The Financial Secretary to the Treasury 6:45 pm, 7th June 2011

Clearly, many hon. Members who spoke about this matter in the Committee of the whole House may want to speak at length on Report, but mercifully not this evening. It was always our intention that the levy would raise around £2.5 billion. That is what we set out to achieve, and that is what we are delivering through clause 72 and schedule 19. We will move to the more substantive stand part debate a little later.

The levy will be paid by between 30 and 40 building societies and banking groups. We think the amount that we seek to raise from that is an appropriate contribution. It was set with consideration for the wider environment, including the international programme of regulatory reform, global economic conditions and the need to maintain the competitiveness of the UK sector. The rates of the levy were chosen to deliver that. Other countries have chosen different headline rates, but we need to bear in mind the relative size of the banking sectors, and the design of the bank levy, in different countries. If we look at the combined effect of rates based on the scope of the bank levies in relative terms, the UK levy is larger than that of France and that of Germany.

The hon. Member for Bristol East suggested that the banks were getting a good deal out of the proposals and referred to the reduction in corporation tax that we announced in the Budget. She suggested that banks were benefiting by £0.1 billion, but I point it out to her that that estimate of £0.1 billion relates not only to banking, but to insurance and pension funds and to auxiliary financial services. Clearly, banks are paying more as a consequence of the increase in the bank levy that was announced in the Budget than they are benefiting from the reduction in corporation tax rates.

On the allowance and threshold, when we announced the bank levy last year we stated that there would be a threshold of £20 billion. As part of the subsequent consultation exercise, however, we explicitly sought views on whether an allowance would be preferable to an all-or-nothing threshold. The respondents to the consultation made it clear that a threshold would provide a cliff edge, which banks would avoid by restructuring, and they even suggested that banks or building societies might avoid growing their UK operations to avoid the threshold. I think that that is a fair point.

We have decided, therefore, that there should be an allowance on the first £20 billion of liabilities that are liable to the levy. The sector is not paying any less levy as a result of that, because we have made it clear from the start that developments in the design of the levy would improve its effectiveness but would not reduce the overall expected yield. The rates were set only when the design had been finalised, and to meet our detailed yield. Those details, along with many others, have already been made public.

I am sure the hon. Lady recognises that the Government have taken substantial steps to explain the basis of our decisions. As she will know, all tax measures now have a tax information and impact note that sets out clearly information about the impact of the measure. That has provided a significant amount of analysis on the levy so far. I do not believe that there is a need to produce any further analysis of the rates and threshold of the bank levy.

The second part of amendment 187 also concerns the allowance, and it seeks a forecast of the change in yield that would be achieved if we were to reduce the allowance from £20 billion to £10 billion. As I have explained, the Government did not introduce an allowance to reduce the overall yield from the levy. Instead, the allowance ensures that the levy is proportionate to the risks inherent in banking businesses of different sizes. That means that smaller banks and building societies and foreign banks with a small UK presence—those whose liabilities are less than the £20 billion annual allowance—will not pay the levy.

I do not know whether the hon. Lady has discussed her amendment with the Building Societies Association or whether it would be content to see the threshold of the allowance reduced and more of its members’ money—which could otherwise go to their depositors in higher savings rates or lower borrowing rates—swallowed up in that way. That would be the consequence of reducing the threshold and the allowance to £10 billion.

We have also had to balance the probability that the failure of a bank might pose a systemic risk against the relative burden that is imposed to gather additional revenue at the margin. Although size is not the sole factor in determining risk to the system, it is an important one. Setting a lower allowance would risk imposing an unnecessarily high burden on institutions that do not pose a systemic risk to the UK economy in the way that large banking institutions do. Analysis of the change in yield from a reduction in that allowance would not, therefore, be appropriate or worth while.

The hon. Lady expressed support for the principle behind the bank levy, which is welcome. Such support was not forthcoming at the general election. The previous Government explicitly ruled out the unilateral introduction of a bank levy—I am pleased that her party has recanted.

We should bear something else in mind. The hon. Lady mentioned the bank payroll tax introduced by the previous Government, but she must recollect that the then Chancellor said that it was a one-off measure and could not be repeated. It is, however, much better to have a permanent tax on banks, and the levy tackles that. Each and every year, our permanent bank levy raises more than the one-year bonus tax proposed by the previous Government. Our levy is raising more money from taxes on banks than the bank payroll tax  introduced by the then Chancellor did in the only year of its operation, and he explicitly ruled out a repeat of exactly the same tax measure.

It is not necessary to produce yet another report on the bank levy. Sufficient information is in the public domain to enable people to reach their own conclusions on the rates, the thresholds and the allowance. Therefore, if the hon. Lady presses her amendment to a Division, I shall encourage my hon. Friends to oppose it.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

I see that the Minister was paying rapt attention to my opening remarks, because I said twice that I did not intend to press the amendment to a vote.

The Minister’s answers were unsatisfactory, simply repeating what was said earlier without providing any new information on how the decisions were reached. In particular, the banks saying, “We don’t like the sound of that, and we’ll take our ball away if you bring the levy in at a higher rate,” is something the Opposition would greet with some scepticism. Basically, that is what banks and companies do when we talk about taxing them—indeed, individuals do so as well, although, obviously, people at the lower end of the scale are not in a position to make such threats.

As indicated, however, I do not intend to press the amendment to a Division, although we hope to return to the issue on Report. Therefore, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Mark Hoban Mark Hoban The Financial Secretary to the Treasury

I beg to move amendment 134, in schedule 19, page 302, line 30, after ‘liabilities’ insert ‘(“M’s liabilities”)’.

Photo of Jimmy Hood Jimmy Hood Labour, Lanark and Hamilton East

With this it will be convenient to discuss the following: Government amendments 135 to 182.

That schedule 19 be the Nineteenth schedule to the Bill.

Photo of Mark Hoban Mark Hoban The Financial Secretary to the Treasury

I am tempted to talk about the amendments at some length. I am sure that people would be interested in details relating to the application of the netting rules to certain lending transactions called reverse repos or those relating to covered bonds. However, I suspect that the appetite of my hon. Friends is not quite as great as I would have thought.

In respect of the amendments, we have sought to ensure that the netting provisions in the schedule operate as originally intended in respect of certain reverse repo transactions where securities received as collateral are sold, and also that the netting rules apply correctly to the UK permanent establishments of foreign banks.

The amendments flow from correspondence received after publication of the Bill, questioning whether the legislation was sufficiently clear. We have tried to ensure that the provisions will operate as intended and that the various transactions are within the netting provisions.

Amendments 181 and 182 provide for an expanded definition of the trade or business of a covered bond vehicle, increasingly important for the funding of banks. The amendments will ensure that all covered bond  limited liability partnerships within banking groups are excluded from the levy’s joint-and-several-liability provisions, again as was originally intended.

I commend the amendments and the schedule to the Committee.

Amendment 134 agreed to.

Amendments made: 135, in schedule 19, page 302, line 31, after ‘to M’ insert ‘(“N’s liabilities”)’.

136, in schedule 19, page 302, line 34, leave out ‘to N’.

137, in schedule 19, page 302, line 34, leave out ‘to M’.

138, in schedule 19, page 302, line 43, leave out ‘and’ and insert—

‘( ) a liability which M has to N to which sub-paragraph (2A) applies is to be treated as a liability to which an asset of N corresponds, and’.

139, in schedule 19, page 302, line 47, at end insert—

‘(2A) This sub-paragraph applies to a liability which M has to N if—

(a) as at the end of the chargeable period, the assets of the relevant group include a financial asset in respect of an advance of cash made by M to N,

(b) underlying that asset, as collateral, are securities which have been transferred by M to another person,

(c) the liability is a financial liability in respect of M’s obligation to return the securities or similar securities to N, and

(d) the provision mentioned in sub-paragraph (1)(c) covers both the financial asset mentioned in paragraph (a) and that financial liability.

Section 556 of CTA 2009 (meaning of securities and similar securities) applies for the purposes of this sub-paragraph as it applies for the purposes of Chapter 10 of Part 6 of that Act.’.

140, in schedule 19, page 303, line 1, leave out ‘to N’.

141, in schedule 19, page 303, line 6, leave out ‘to M’.

142, in schedule 19, page 306, line 34, leave out paragraph (a) and insert—

‘(a) an entity (“M”) within sub-paragraph (9) has liabilities to another entity (“N”) not within that sub-paragraph, and N has assets which correspond to those liabilities (“M’s liabilities”),’

143, in schedule 19, page 306, line 38, after ‘to M’ insert ‘(“N’s liabilities”)’.

144, in schedule 19, page 306, line 41, leave out ‘to N’.

145, in schedule 19, page 306, line 41, leave out ‘to M’.

146, in schedule 19, page 307, line 1, leave out ‘In’ and insert ‘For the purposes of’.

147, in schedule 19, page 307, line 3, at end insert—

‘( ) if N is a relevant foreign bank covered by paragraph 17(17), liabilities of M to N are to be ignored so far as N’s assets corresponding to those liabilities are assets of the permanent establishment through which N carries on a trade in the United Kingdom as determined at Step 2 in paragraph 24(1),’.

148, in schedule 19, page 307, line 6, leave out ‘and’ and insert—

‘( ) a liability which M has to N to which sub-paragraph (10A) applies is to be treated as a liability to which an asset of N corresponds, and’.

149, in schedule 19, page 307, line 10, at end insert—

‘(10A) This sub-paragraph applies to a liability which M has to N if—

(a) as at the end of the chargeable period, the assets of M include a financial asset in respect of an advance of cash made by M to N,

(b) underlying that asset, as collateral, are securities which have been transferred by M to another person,

(c) the liability is a financial liability in respect of M’s obligation to return the securities or similar securities to N, and

(d) the provision mentioned in sub-paragraph (8)(c) covers both the financial asset mentioned in paragraph (a) and that financial liability.

Section 556 of CTA 2009 (meaning of securities and similar securities) applies for the purposes of this sub-paragraph as it applies for the purposes of Chapter 10 of Part 6 of that Act.’.

150, in schedule 19, page 307, line 13, leave out ‘to N’.

151, in schedule 19, page 307, line 18, leave out ‘to M’.

152, in schedule 19, page 310, line 46, leave out paragraph (a) and insert—

‘(a) an entity (“M”) within sub-paragraph (9) has liabilities to another entity (“N”) not within that sub-paragraph, and N has assets which correspond to those liabilities (“M’s liabilities”),’

153, in schedule 19, page 311, line 3, after ‘to M’ insert ‘(“N’s liabilities”)’.

154, in schedule 19, page 311, line 6, leave out ‘to N’.

155, in schedule 19, page 311, line 6, leave out ‘to M’.

156, in schedule 19, page 311, line 13, leave out ‘In sub-paragraph (8)(c)’ and insert

‘For the purposes of sub-paragraph (8)’.

157, in schedule 19, page 311, line 15, at end insert—

‘( ) if N is a relevant foreign bank covered by paragraph 19(17), liabilities of M to N are to be ignored so far as N’s assets corresponding to those liabilities are assets of the permanent establishment through which N carries on a trade in the United Kingdom as determined at Step 2 in paragraph 24(1),’.

158, in schedule 19, page 311, line 18, leave out ‘and’ and insert—

‘( ) a liability which M has to N to which sub-paragraph (10A) applies is to be treated as a liability to which an asset of N corresponds, and’.

159, in schedule 19, page 311, line 22, at end insert—

‘(10A) This sub-paragraph applies to a liability which M has to N if—

(a) as at the end of the chargeable period, the assets of M include a financial asset in respect of an advance of cash made by M to N,

(b) underlying that asset, as collateral, are securities which have been transferred by M to another person,

(c) the liability is a financial liability in respect of M’s obligation to return the securities or similar securities to N, and

(d) the provision mentioned in sub-paragraph (8)(c) covers both the financial asset mentioned in paragraph (a) and that financial liability.

Section 556 of CTA 2009 (meaning of securities and similar securities) applies for the purposes of this sub-paragraph as it applies for the purposes of Chapter 10 of Part 6 of that Act.’.

160, in schedule 19, page 311, line 25, leave out ‘to N’.

161, in schedule 19, page 311, line 30, leave out ‘to M’.

162, in schedule 19, page 312, line 37, after ‘liabilities’ insert ‘(“the relevant entity’s liabilities”)’.

163, in schedule 19, page 312, line 39, after ‘entity’ insert ‘(“N’s liabilities”)’.

164, in schedule 19, page 312, line 42, leave out ‘to N’.

165, in schedule 19, page 312, line 43, leave out ‘to the relevant entity’.

166, in schedule 19, page 312, line 47, leave out ‘In’ and insert ‘For the purposes of’.

167, in schedule 19, page 313, line 3, leave out ‘and’ and insert—

‘( ) a liability which the relevant entity has to N to which sub-paragraph (2A) applies is to be treated as a liability to which an asset of N corresponds, and’.

168, in schedule 19, page 313, line 7, at end insert—

‘(2A) This sub-paragraph applies to a liability which the relevant entity has to N if—

(a) as at the end of the chargeable period, the assets of the relevant entity include a financial asset in respect of an advance of cash made by the relevant entity to N,

(b) underlying that asset, as collateral, are securities which have been transferred by the relevant entity to another person,

(c) the liability is a financial liability in respect of the relevant entity’s obligation to return the securities or similar securities to N, and

(d) the provision mentioned in sub-paragraph (1)(c) covers both the financial asset mentioned in paragraph (a) and that financial liability.

Section 556 of CTA 2009 (meaning of securities and similar securities) applies for the purposes of this sub-paragraph as it applies for the purposes of Chapter 10 of Part 6 of that Act.’.

169, in schedule 19, page 313, line 9, after ‘of the’ insert ‘relevant’.

170, in schedule 19, page 313, line 10, leave out ‘its liabilities to N’ and insert ‘the relevant entity’s liabilities’.

171, in schedule 19, page 313, line 16, leave out ‘to the relevant entity’.

172, in schedule 19, page 314, line 30, after ‘liabilities’ insert ‘(“the bank’s liabilities”)’.

173, in schedule 19, page 314, line 32, after ‘bank’ insert ‘(“N’s liabilities”)’.

174, in schedule 19, page 314, line 35, leave out ‘to N’.

175, in schedule 19, page 314, line 36, leave out ‘to the bank’.

176, in schedule 19, page 314, line 46, leave out ‘In’ and insert ‘For the purposes of’.

177, in schedule 19, page 315, line 5, leave out ‘and’ and insert—

‘( ) a liability which the relevant foreign bank has to N to which sub-paragraph (3A) applies is to be treated as a liability to which an asset of N corresponds, and’.

178, in schedule 19, page 315, line 9, at end insert—

‘(3A) This sub-paragraph applies to a liability which the relevant foreign bank has to N if—

(a) as at the end of the chargeable period, the assets of the relevant foreign bank include a financial asset in respect of an advance of cash made by the relevant foreign bank to N,

(b) underlying that asset, as collateral, are securities which have been transferred by the bank to another person,

(c) the liability is a financial liability in respect of the bank’s obligation to return the securities or similar securities to N, and

(d) the provision mentioned in sub-paragraph (1)(c) covers both the financial asset mentioned in paragraph (a) and that financial liability.

Section 556 of CTA 2009 (meaning of securities and similar securities) applies for the purposes of this sub-paragraph as it applies for the purposes of Chapter 10 of Part 6 of that Act.’.

179, in schedule 19, page 315, line 25, leave out ‘its liabilities to N’ and insert ‘the bank’s liabilities’.

180, in schedule 19, page 315, line 30, leave out ‘to the bank’.

181, in schedule 19, page 328, line 36, leave out paragraph (b) and insert—

‘(b) a covered bond vehicle, or’.

182, in schedule 19, page 329, line 3, at end insert—

‘“covered bond vehicle” means a limited liability partnership—

(a) which is a party to a capital market arrangement, or a transaction in pursuance of a capital market arrangement,

(b) whose trade or business (ignoring any incidental activities) consists wholly of one or both of the following—

(c) which is within the charge to corporation tax;’.

183, in page 44, line 32, leave out Clause 79.

184, in clause 77, page 44, line 5, at end add—

‘(2) The Schedule shall come into force on a date specified by the Treasury by an order made by Statutory Instrument, which may not be made until an impact assessment of the effect of this Schedule has been laid before the House of Commons; and approved by resolution of the House of Commons; and the dates specified in paragraphs 8(3) and 9(5) of the Schedule shall be replaced by the date specified in the order under this section if it is later.’.

185, in clause 53, page 32, leave out lines 18 to 32 and insert—

‘(7) Where a person prepares or is required to prepare accounts in accordance with new standards for a period of account, the Taxes Acts (other than this section) have effect as if the person prepared or was required to prepare accounts, for that period, in accordance with the corresponding old standards.

(8) For the purposes of subsection (7)—’.—(Mr Hoban.)

Schedule 19, as amended, agreed to.

Ordered, That further consideration be now adjourned. —(Mr. Goodwill.)

Adjourned till Thursday 9 June at Nine o’clock.