Finance Bill

Alison McGovern Excerpts

Tuesday 8th September 2015 Commons Chamber

[Nigel Adams]

I agree with the right hon. Lady. Companies need certainty and time to plan, and 28 days’ notice is clearly ludicrous. A two-year notice period would allow companies to honour contracts they have signed, allow the industry to adapt and, above all, it would be fair.

I know that this is a topic of considerable interest and that other hon. Members wish to make their views known, so I will conclude my remarks by returning to my original point: nothing in life is guaranteed, including the availability of energy in our homes and businesses. I believe that we are entering a very precarious time for the UK, when our capacity margins are getting ever tighter and when plant closures continue to leave us reliant on gas imported from the middle east. Against that backdrop, we are in a global marketplace where investors are taking a sober, pragmatic approach to energy projects, and not just in the UK but elsewhere. We should be giving them greater certainty that the UK is a reliable environment to invest their money in, because that money is needed to deliver the energy projects that will power this nation in future. My concern is that the proposed revision to the climate change levy will do exactly the opposite. That is why, with great regret, I shall not be supporting the Government on this issue.

[Alison McGovern (Wirral South) (Lab)]

It is a pleasure to serve under your chairship, Mr Howarth.

I rise to speak to Opposition new clause 2 relating to the Government’s changes to the climate change levy in clause 45, which have already been outlined by hon. Members. The climate change levy is a carbon tax on the non-domestic use of energy. Clause 45 is concerned with the removal of the exemption currently available to electricity generated from renewable sources in the form of levy exemption certificates. For some years now, these certificates have ensured that electricity generated from clean sources has not been liable to what is, or was, essentially a tax on carbon emitted from the generation of non-domestic energy supplies. In removing the certificates, the clause reverses that principle, leaving us in the utterly perverse situation where renewables generators will be taxed for their contribution to climate change, regardless of the fact that they make little or no such contribution. Several Members have mentioned the apple juice analogy, so I will hold back from repeating it, but it goes without saying that it is an excellent one.

The clause is just one aspect of this Government’s new approach to energy and climate change, which entails abandoning the most cost-effective forms of renewables, reviewing environmental taxes, and, apparently, abandoning their commitment to tackling climate change. That approach risks undermining an area of the economy that has some of the most promising prospects for the future. That sector offers more productive, higher-paid, higher-skilled jobs, particularly in the northern regions and in Scotland; and one would think that it was central to the Chancellor’s so-called productivity plan and his alleged northern powerhouse.

New clause 2 would therefore require the Government to set out the cumulative impact of the removal of the exemption on existing renewables generators and projects currently in the pipeline, where almost all the projects and the banking arrangements or investment decisions underpinning them will have been based on the current fiscal and subsidy framework; on investor confidence in the UK’s green energy sector, which is clearly vital to the future of the green economy and the high-skilled, more productive jobs that will flow from it; and on the UK’s ability to meet its climate change obligations, in which renewable energy has a vital role to play and may make up the shortcomings in other sectors—something that Ministers do not recognise at the moment.

Clause 45 retrospectively removes the exemption from the climate change levy—a tax levied on all non-domestic energy use—for electricity generated from renewables from 1 August 2015. The climate change levy was introduced in 2001. Its aim was to help the UK to meet domestic targets for cutting greenhouse gas emissions. It has always been charged as a flat rate of energy consumed for non-domestic use. However, energy generated from renewable sources has always been exempt from the levy in the form of the exemption certificates that are awarded to renewables generators and, in turn, sold to electricity suppliers for less than the cost of the levy. This regime has helped to make clean energy more attractive and provided greater financial support to renewables projects for their lifetimes.

The Government have set out two justifications for the removal of the levy exemption from renewables: first, that it seeks to correct a so-called imbalance in the tax system whereby renewables generators based overseas benefit from the levy exemption when, according to the Government, they already receive state subsidies in their origin countries and are therefore unfairly benefiting from British taxpayers’ money; and secondly, that it provides so-called better value for money for UK taxpayers—or, to put it another way, raises a considerable amount of revenue to help the Chancellor balance the books. According to the tax information impact note accompanying this measure, the renewables exemption, as it stood, would cost nearly £4 billion over the course of this Parliament, one third of which would go to overseas generators. HMRC claims that there is evidence to suggest that some of these overseas generators receive support in their own countries, although it does not provide any specific evidence. Perhaps the Minister might like to comment further. Regardless of that, the fact is that what was essentially a carbon tax is now becoming simply an energy tax. As Friends of the Earth has asked,

“When is a carbon tax not a carbon tax? When it is a tax on zero-carbon things.”

It is quite straightforward really.

These changes to the climate change levy come on the back of a raft of announcements since the general election, most notably from the new Energy and Climate Change Secretary, which reflect the Government’s apparent U-turn on tackling climate change. Since 7 May we have heard that subsidies for large onshore wind projects are to be axed, while other subsidies for onshore wind and solar photovoltaics are set to end a year earlier than previously announced. The previous coalition Government’s commitment to increase the proportion of tax take from environmental taxes is to be abandoned, while all environmental taxes are to be reviewed. The coalition Government’s flagship green deal scheme to provide energy efficiency standards in homes—which, sadly, proved to be a complete flop—will be not reformed but scrapped. The link between a vehicle’s tax liability and its CO₂ emissions is to be loosened under the reform regime. The zero-carbon homes commitment, first made in 2006 by the then Chancellor Gordon Brown and which would have ensured that all new-build homes from 2016 were self-sufficient, is to be scrapped.

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[Christian Matheson]

Was this industry not one in which we had a lead on innovation and design and technology that we could have exported across the world? There are numerous examples in my hon. Friend’s constituency and mine of companies going under as a result of the proposed changes. She may be interested to know that a major installing company in the Chester area estimates that 90% of its employees will have to be made redundant as a result of the Government’s proposals.

[Alison McGovern]

That is terrible news for our region and the rest of the country. My hon. Friend and I have a great deal in common, not least that we have both visited renewable energy firms in our constituencies. I visited one recently that was similarly disappointed at the Government’s attitude and the business now faces risks that it simply did not expect.

Of even more concern than the fact that the removal of the certificates may mean a difference between profit and loss is that such income has been factored in to the strike prices agreed for projects awarded a contract for difference to date. Surely the removal of the certificates will either open the Government to legal challenge or some contracts for difference will have to be reassessed. Which is it?

I will give an example of such an impact. One small onshore wind project in Scotland generates about 35,000 MWh per year. The loss of the certificates could cost the project £175,000 each and every year. As with many such projects, it was financed with bank loans, the terms of which anticipated an exemption certificate of roughly £175,000 a year. Somebody involved in the project told us:

“We identified each of these projects and risked development capital to secure planning permission, and invested a large amount of time, all on the understanding that the LEC would be available. We raised debt funding from banks, who look at the expected revenue from the project to determine what amount they are willing to lend—they based their calculations on the LEC remaining in place. Therefore, the sudden removal of the LEC will reduce the turnover of these projects, which at the very least will reduce the returns to our investors and in the worst cases, could cause problems with banking covenants.”

Does that example not demonstrate the responsibility that we in the House have to provide a stable regulatory environment for business? That is not a lesson I ever thought I would have to preach to the Conservative party.

NAREC Distributed Energy, the National Renewable Energy Centre in the north-east, has suggested that it knows of at least four European wind developers that have decided to cease, or significantly to reduce, plans to develop in the UK. It says that another firm from mainland Europe with which it was in talks has decided to avoid the UK completely. We have also heard from sources in the solar industry about the growing concern that the industry faces severe challenges ahead.

We can see the impact of clause 45 and other recent policy changes in the announcements made by key energy companies operating and investing significantly in the UK. For example, Vattenfall the Swedish energy company, has already abandoned two onshore wind projects in the UK, one in Wales and one in Lincolnshire. Frankly, those are both regions of our country that could do with the investment. In one case, it cited the Government’s changes to onshore wind planning policy, and in the other, it cited a market that had “moved on”.

What does that picture mean for the UK economy? More importantly, what does it mean for the Chancellor’s ambition, which he tells us he has, for a high-skill, high-wage exporting economy of the future? How do such policy decisions impact on our prospects for overcoming the current productivity crisis, which, as Labour Members have repeatedly set out, must be at the top of the Chancellor’s priorities?

According to the Renewable Energy Association, some 112,000 people are employed in the renewable energy value chain across the UK, some 11,000 of whom are employed in the north-west—my region—alone. Companies in the north-west turn over some £700 million a year, which is investment we can little afford to lose. According to the REA’s figures, the number of renewable energy jobs has grown seven times faster than those in the rest of the economy. Green jobs are undoubtedly vital to regional economies in the north and in Scotland, where renewable technologies are deployed much more widely, and renewables supply chains are more established there than elsewhere in the country.

RenewableUK, which is predominantly the voice of the wind industry, has said that the onshore wind industry alone supports almost 14,000 jobs in the UK and contributes almost £1 billion of gross value added. As the CBI has said,

“green is not just complementary to growth, but a vital driver of it”.

This is a central economic question for our country. It means establishing clear and stable market frameworks, as well as the UK playing a strong role internationally.

The REA agrees, estimating that the industry could create up to 400,000 high-skill jobs by 2020 and, equally importantly, contribute a cumulative £60 billion benefit to the UK’s trade balance. What could be more vital in these times of global economic uncertainty? The Office for Budget Responsibility forecasts that the UK’s current account deficit will remain broadly unchanged up to 2020—a deficit, by the way, that we rarely hear mentioned by the Chancellor. The low-carbon sector could play a key role in turning that around, yet here we have the Government stripping out the support that underpins it.

The first majority Conservative Government for years have been in office for little over a hundred days and this policy framework will severely diminish their business credibility. That fact is evident not just because I say it is, but from the reaction of the business community. The senior vice-president of Veolia in the UK and Ireland has suggested that Ministers risk

“sending this country back to the dark ages”

when it comes to green policy. She said:

“What I don’t understand is why the government would apply the carbon levy on renewable energy plants which are carbon-positive—it’s illogical.”

Jon Ferris, the head of energy markets for the consultancy Utilitywise said the decision would

“do little to convince investors of UK policy stability”.

The chief executive officers of 10 leading environmental charities penned a strongly worded letter to the Prime Minister, pointing out that the Government’s rhetoric post-election runs entirely counter to that during the campaign, concluding:

“We have, as yet, seen no positive new measures that would restore the health of the environment or grow the low carbon economy.”

If the Minister does not like to hear it from me, perhaps he will take it from those on his own side, because there has been no shortage of criticism from Conservatives. Various members of the Conservative party have, quite rightly, failed to comprehend the lack of coherence not just in the Government’s climate change agenda since the election, but in their wider approach to ensuring that the UK is an attractive proposition for investors. The Conservative peer and former shadow Chief Secretary to the Treasury, Lord Flight, in a damning verdict of the Chancellor’s revenue-raising decisions, said:

“Charging renewable companies the Climate Change Levy is a contradiction of Government energy policy, which is still seeking to encourage Renewable Energy investment.”

The Chair of the Conservative Environment Network, Ben Goldsmith, wrote a letter to the Financial Times describing the climate change levy changes as “perverse” and “contradictory”. He even drew parallels with Greece:

“Introducing a retroactive subsidy cut with one month’s notice means more guesswork over what the government will do next—the very worst basis for raising capital. This makes the UK look more like the volatile markets of southern Europe—impacting on newbuilds and undermining confidence in generating assets.”

I often hear the Chancellor compare the UK to Greece, but I never thought I would hear a Conservative activist use his own words against him.

The reaction across the business world and among other stakeholders speaks to a wider point about what these changes mean for the UK’s economic future. Despite the rhetoric from the Conservative Chancellor about a plan to boost productivity, deliver higher-skilled, higher-wage jobs, pursue cost-effective climate change policies and act always in a business-friendly manner, the truth is that clause 45, taken together with a string of other policy announcements since 7 May, symbolises the exact opposite of that approach.

As the Chancellor wrote in the foreword to his productivity plan in July:

“The drivers of productivity are well understood: a dynamic, open enterprising economy supported by long-term public and private investment in infrastructure, skills and science.”

I could not agree more. Unfortunately, the Chancellor’s actions in recent months speak louder than his words ever will. He would do well to heed the advice of some in his own party, including the hon. Member for Selby and Ainsty and those I have just quoted.

New clause 2 calls on the Government to assess all of the impacts I have just outlined. It aims to highlight the true impact of removing the climate change levy exemption for renewable-sourced electricity. It asks Ministers a number of questions that are crucial to the future of the UK’s green economy, its role in achieving a more balanced, productive economy, and the UK’s role in the world. How does the removal of the exemption affect existing renewables generators and projects currently in the pipeline? What impact will clause 45 have on investor confidence? Finally, what does it mean for the UK’s ability to meet its climate change commitments?

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[John Redwood]

The two questions that the Committee needs to ask when considering this Government proposal are these. Will it will help or hinder the Government in their central task of making sure we have enough power in this country for our future needs? And will it help or hinder what I hope is also the Government’s task, which is to provide value for money and sensibly priced energy, so that we can tackle fuel poverty and have a plentiful supply of reasonably priced energy to fuel the industrial recovery and the general economic recovery that the Government wish to see? My hon. Friends the Members for Selby and Ainsty (Nigel Adams) and for Brigg and Goole (Andrew Percy) made important contributions, but I would like to see whether there is any scope to bring them a bit closer to the Government’s position.

[Alison McGovern]

The right hon. Gentleman has set out the two objectives that he thinks the Government should have. Is he suggesting that tackling climate change should not be the Government’s objective?

[John Redwood]

I have made very clear the priorities for myself and my electors. In the situation in which the country finds itself, guaranteeing keeping the lights on and having the power for industry and commerce is a fundamental objective that I take very seriously. I also take seriously the need to ease what Labour used to call “the cost-of-living crisis” to ensure that people have more money to spend for a better lifestyle, so affordable energy is crucial. Those are the priorities I set out for these policies. I think they can be achieved while ensuring that we reduce pollution, which I am very much in favour of. I wish to have sensible environmental policies, but my priorities are security of supply and powering better-paid jobs and more activity, which requires lower energy prices.

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[Damian Hinds]

I hope I can put my hon. Friend’s mind at rest, to some degree, in the course of the next few minutes, but I will of course also be very happy to meet him and colleagues. I am always happy to meet colleagues to discuss these important matters.

There were four important reasons for ending the climate change levy exemption. The first was that it represented poor value for money, with one third of the benefit going to overseas operators—bringing no benefit to UK climate or renewables targets—and of course much of that generation will also have been receiving subsidy and incentive at home. The hon. Member for Wirral South (Alison McGovern) asked where these estimates come from, and I can tell her that they come from evidence provided to the Government by Ofgem—I am sure she will understand that the detail is commercially sensitive. The hon. Member for Brighton, Pavilion (Caroline Lucas) and my hon. Friend the Member for Brigg and Goole (Andrew Percy) pointed out that if one third of the value goes abroad, by definition two thirds stays at home. I cannot deny that that is mathematically correct, but of course that still represents a heavy leakage rate and it is the one third leakage that makes this exemption poor value for money. Just to be clear, EU law would not allow us to restrict the exemption or preferential treatment to the UK only. [Interruption.] I am sorry—I thought the hon. Member for Wirral South was trying to get in, but she wants me to move on to explain the second reason.

As I say, the exemption was an indirect incentive, and more efficient and effective policies have been put in place through the renewables obligation and contracts for difference schemes. They are worth more, they are direct and they are explicitly grandfathered, carrying more investor worth than a tax break. The third reason was the need to protect climate change levy revenue. The independent OBR forecasts show that without a change, climate change levy revenue would fall from £800 million to £200 million by 2020, and removing the exemption is worth some £3.9 billion over the course of this Parliament.

The fourth reason was to retain the incentive for energy efficiency across all energy use, while, as a side effect, simplifying the administration of the climate change levy, which will continue to add about 5% to 7% to business energy bills. Thus, we are encouraging energy efficiency.

[Alison McGovern]

I did want to intervene in the end. The Minister’s central argument seems to be this: this is not the best way to subsidise and, in any event, plenty of other support is available. Yet feed-in tariffs are under review and the Government are already legislating to undermine renewables obligations. We therefore just do not recognise this picture of “plenty more support available”. Will he confirm that the Government still plan to be the “greenest Government ever”? Is that a characterisation that he still sticks to?

[Damian Hinds]

In the first part of what the hon. Lady said she was pretty close to the mark. When I say that there is wider support available, I mean that the climate change levy exemption was worth up to £5.54 per megawatt hour, whereas the renewables obligation is worth £40 per megawatt hour, so relatively it is a much more significant financial effect.

New clause 2, which was tabled by the Opposition—[Interruption.] The Front-Bench Members seem unhappy.

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[Harriett Baldwin]

I hope the hon. Lady recognises that the rate paid by building societies and smaller banks will be lower than it was at any time when she and the Labour party were in government. In fact, the measure brings the corporation tax rate to a level lower than when the Conservatives took power in 2010. In addition, 90% of building societies will be exempt from the charge because the first £25 million is exempt from the surcharge.

At the same time, we believe that the changes in clauses 16 and 17 will create a fairer, more competitive and more sustainable basis for taxing the UK banking sector. By rebalancing banks’ contributions towards a tax on profits, future charges will be more aligned with profit and capital accumulation. That reduces the risk of tax affecting banks’ decisions on where to invest and helps to ensure that tax does not impact banks’ ability to lend to businesses and individuals.

By aligning banks’ contributions with their activities in the UK, the changes recognise and reduce the impact of tax on UK banks’ ability to compete in overseas markets. They help to reflect the impact of regulatory reforms, which have reduced the risk of those overseas operations to the UK economy.

I shall draw my brief remarks to a close. The Government firmly believe that banks should make a fair contribution to the economic recovery. However, that contribution must be balanced with the need to maintain the competitiveness of the UK and to support lending to the wider economy. The changes in the clauses provide a better balance between those two objectives, and do so while providing long-term certainty and stability to the sector, and short-term revenue to the taxman. I therefore hope that clauses 16 and 17 and schedules 2 and 3 stand part of the Bill.

[Alison McGovern]

I, too, will make some brief remarks. I rise to speak to the Opposition’s new clause 1, which relates to clauses 16 and 17, concerning the Government’s changes to the bank levy rate for 2016 to 2021 and the introduction of a new surcharge of 8% on bank profits.

Before I begin my remarks and before I forget to ask the Minister, Members will be aware that the changes the Government are introducing are quite controversial in some quarters. Building societies have been expressing deep concern. However, I think I just heard the Minister say that 90% of building societies will not be affected by the changes because of the threshold. Will the Minister tell me, either in her remarks later or in an intervention now, whether she means 90% by number of institutions or 90% by size of building societies in total? The statistic does not reflect the concern that building societies have expressed in recent weeks. I will await her answer whenever she sees fit to give it to me.

Taken together, the clauses will completely reshape the structure of bank taxation in the UK, as the Government move from a tax on bank balance sheets towards a tax on bank profits. Alongside the impact on the banking sector itself, the clauses also have significant implications on tax receipts for the Exchequer. It is our belief that the changes have the potential to damage the competitiveness and diversity of our banking sector. New clause 1 calls for an urgent review to establish the impact of the new measures. Before coming on to the detail of new clause 1, I will briefly examine the case for a reduction in the bank levy in more detail.

When the bank levy was introduced at the start of the previous Parliament, the Chancellor made it very clear there were two separate objectives behind the policy. First, it was designed as a revenue raiser, with the Chancellor targeting an income of £2.5 billion each year from receipts of the levy. The second objective was to cause banks to change the structure of their balance sheets. This was explained by the then Exchequer Secretary, the hon. Member for South West Hertfordshire (Mr Gauke), who said the levy was

“intended to encourage banks to move to less risky funding profiles, and…reflective of economic risk”.—[Official Report, 12 July 2010; Vol. 513, c. 733.]

He went on to dismiss the idea of a tax on bank profits, as it would not create the same kind of behavioural effects as the levy.

In and of themselves, either of those goals was perfectly reasonable and was supported across the House. However, it quickly became obvious that the two goals were incoherent in practice, because as banks changed their balance sheets the revenue from the levy went down. This caused the Government to raise the levy again and again, with a total of nine rises in just five years. Now, having marched the banks to the top of the hill, the Chancellor plans to march them back all the way down again with cuts to the levy every year, finishing with a rate of 0.1% by the end of the Parliament. After 10 years of this Chancellor, we will have had a total of 13 different bank levy rates—what a mess.

The Chancellor claimed in his Budget statement that the bank levy needs to be reduced because the levy has worked. That is an interesting theory given that the revenue target, one of his policy objectives, has been missed consistently. The main question for the Minister is this: if the Government believed that increasing the bank levy had a positive behavioural effect on the banks, does the Minister believe that reducing the level will have a similar effect in the opposite direction? I thought I understood the Minister to say that she did believe there would be some behavioural effects of the change. Perhaps she might say a bit more about that.

The OBR’s economic and fiscal outlook shows that the future revenue projections are based on the assumption that banks will continue to reduce their balance sheets. Will the Minister explain, for the purposes of clarity, on what basis that assumption has been made? If anything, the new policy framework seems to be incentivising banks to grow their balance sheets, especially outside the UK—that seemed to be what the Minister indicated just now in terms of competitiveness outside the UK—and to reduce their profits. Why is this the incentive structure the Government want to adopt? It is completely at odds with the stated policy objectives of the past five years and bears little relation to wider economic objects. Are the Government not breaking their principle that banks should be taxed according to the economic risk they pose to the economy, as the Minister mentioned?

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[Alison McGovern]

I do not know whether the hon. Gentleman misunderstood or whether I misunderstand him, but the particular concern in relation to profits is the impact on mutuals, which, by definition, have little access to capital and use their profits to grow capital for lending. That is the effect there is concern about. Does he think the proposed tax would be good for mutuals?

[Huw Merriman]

The point made earlier was that this measure helps the likes of HSBC and Standard Chartered, so I took the new clause to be about more than just mutuals, with it being about an unfair benefit being added to certain banks. I am trying to highlight that tax is not necessarily the means to control riskier transactions. Reference was made to those banks, which is why I was extending the point. With an allowance of £25 million set in place, the smaller institutions will be buffered to a certain extent. In addition, I do not believe it is essential that we start treating different institutions differently. Of course some pay less tax because they have fewer profits.

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[Harriett Baldwin]

It has been a great pleasure to have my Opposition shadow, the hon. Member for Wirral South (Alison McGovern), in the Chamber today making the points that she has. I sincerely hope that next week she will continue to be my Opposition shadow, because it is clear that she takes her role very seriously. I know that she supported the hon. Member for Leicester South when it came to nominating the leader of her party, so I hope that her point of view prevails when it comes to the announcement on Saturday.

[Alison McGovern]

I thank the Minister for giving way. First, I supported my hon. Friend the Member for Leicester West (Liz Kendall). Secondly, I thought I liked the Minister.

[The Temporary Chair (Mr George Howarth)]

Order. Before the Minister resumes her speech, fascinating and colourful as this exchange is I hope that it will not be too extended.

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[Harriett Baldwin]

You are quite right, Mr Howarth. What I wanted to say was that one would not believe from the remarks that the hon. Member for Wirral South made at the beginning of the debate that the banking system had fallen into massive failure, meaning that this Chancellor had to take steps in 2010 to sort out the country’s banking system and the deficit. Listening to the hon. Lady this evening, one would have thought that banks were then paying less tax than they are today but in fact, after the changes in clauses 16 and 17, the banking sector will pay the lowest rate of bank tax in the G7.

One would also not believe from the remarks we heard at the beginning of the debate that over the 13 years for which the hon. Lady’s party was in power there was no increase in competition in banking. There were more than 20 inquiries into banking competitiveness, but they were obviously unsuccessful. The hon. Lady asked a number of questions, and although I do not want to detain the House for long with this entertaining discussion I want to respond to some of the points raised in the debate.

I was asked a couple of times about building societies, and I said that 90% of building societies would be unaffected by these changes. Obviously, the vast majority of building societies do not make a profit of more than £25 million a year, so the sector will benefit from the reduction in corporation tax over the life of this Parliament down to 18% by 2020.

[Alison McGovern]

I asked the Minister specifically what that 90% meant— 90% by number, or by size?

[Harriett Baldwin]

Absolutely, and it is 90% of all building societies. Clearly, a handful of building societies are big enough to be able to pay the additional levy contained in these clauses and, even after the surcharge, they will still be paying a lower rate of corporation tax than they were paying under the previous Labour Government. With the hon. Lady’s conversion to lower taxes, she should be welcoming and celebrating the fact that the Budget announces these long-term changes.

The hon. Lady also asked whether the numbers in the Red Book take into account the corporation tax changes, and indeed they do. She asked about revenues after 2020-21 and I am delighted that she recognises that it will be the Conservative party that will be making those decisions after the next general election. She asked about the Ernst and Young forecast in today’s papers, and even she got the giggles when she raised the forecast, which is really quite laughable. It takes into account only one side of the equation in terms of the potential rise in the take from bank corporation tax.

The hon. Lady asked about competition, and I have mentioned the competition track record of her party when in power, but it is helpful to be able to talk about the range of things my party did in the last Parliament to improve bank competition. It is a strong focus of this Government. I am glad that the SNP spokesman, the hon. Member for Kirkcaldy and Cowdenbeath (Roger Mullin), mentioned the ambition to have 15 new banks receive a banking licence. I understand that there are a large number in the pipeline. Indeed, one new bank has already got its licence this year.

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The hon. Member for Kirkcaldy and Cowdenbeath asked whether the tax regime supports the challenger banks. Of course it does, because the rate of corporation tax will fall to 18% by the end of this Parliament, which means an extremely attractive rate on the first £25 million of profits, and the vast majority of challenger banks will fall into that category. By the end of this Parliament, and taking into account the surcharge, the combined rate for a bank that makes £200 million in profits, for example, will be 25%. That will be a very competitive rate, and it balances the need for revenues to the Exchequer with the need for capital formation in the banking system.

[Alison McGovern]

I know that the Minister is trying to rattle through this quickly, but I have a question. We can all trade previous Governments’ records—I could draw attention to the impact on mutuals and building societies generally in 1986—but let us talk about the future. Clearly these changes will have an impact on building societies, which offer consumers a unique proposition because of their structure. Will she commit this evening to ensuring that the changes she is making will not harm the mutual banking sector?

[Harriett Baldwin]

Again, I am surprised that the hon. Lady seems to want me to keep mentioning the rate of corporation tax, because it is now lower for building societies than it was when her party was in power—it seems an extraordinary line of attack. Yes, a handful of building societies are large enough to pay the surcharge, but 90% of them—by number—will not only be unaffected by the change, but will benefit. Capital formation and the ability to retain earnings within the mutuals will improve as a result of the corporation tax reductions that we are introducing, which she opposed in the manifesto she stood on at the general election.

In conclusion—I will be quick, because I know that the Committee wants to express an opinion—I commend clauses 16 and 17 and schedules 2 and 3 to the Committee, and I respectfully request that the hon. Members for Wirral South and for Kirkcaldy and Cowdenbeath do not to press amendments 3 and 4 and new clause 1.

Question put and agreed to.

Clause 16 accordingly ordered to stand part of the Bill.

Clause 17 ordered to stand part of the Bill.

Schedule 2 agreed to.

Schedule 3

Banking companies: surcharge

Amendment proposed: 3, page 74, line 4, leave out “8%” and insert “the relevant percentage”.—(Roger Mullin.)

Question put, That the amendment be made.