Bank Bonuses

Charlie Elphicke Excerpts

Tuesday 11th January 2011 Commons Chamber

[Mr Osborne]

One of the issues that we are talking directly to the banks about is lending into regional economies outside London and the south-east—that is in addition to the contribution that they make to the whole national economy. That regional emphasis is a very specific part of the discussions we are having.

[Charlie Elphicke (Dover) (Con)]

The Chancellor has already told the House that under the banking contract, bonuses were actively encouraged by the previous Government for the current year. Can he tell the House whether lending to cash-strapped small businesses was also encouraged under that contract?

[Mr Osborne]

Nothing meaningful was secured on lending to small businesses by the previous Government at the very moment when they had maximum leverage: when they were bailing out these banks. That is part of what we are dealing with. We are also dealing with the situation in which they bought their very large stake in the Royal Bank of Scotland—as I have said, the deal explicitly says that the bonuses covering the year 2010 should be paid at market rates. I am saying that we want to see the bonus pool smaller and the Royal Bank of Scotland as a back-marker, rather than a front-runner.

Oral Answers to Questions

Charlie Elphicke Excerpts

Tuesday 21st December 2010 Commons Chamber

[Mr Gauke]

Had we proceeded with the spending formula that existed under the previous Government, some of the deprived areas that are most dependent on central Government grant would have faced a greater cut than the one in the proposals announced by my right hon. Friend the Secretary of State for Communities and Local Government.

[Charlie Elphicke (Dover) (Con)]

Does the Minister agree with me, and my constituents in Dover and Deal, that the council tax freeze is very welcome, and stands in sharp contrast to the massive rises that have hit the poor, elderly and vulnerable in recent years?

[Mr Speaker]

Order. The question is about the comprehensive spending review.

Loans to Ireland Bill

Charlie Elphicke Excerpts

Wednesday 15th December 2010 Commons Chamber

[Mr Osborne]

It is a reasonable summary. Of course we stand behind the International Monetary Fund as a shareholder of it, as are most countries in the world. I shall come on to the European financial stability mechanism, which I have already talked to the House about on a number of occasions. Like other contributors to the EU budget, we stand behind it. In a sense, the loan that we are proposing today is the direct British taxpayer contribution—or rather, the money that is borrowed on behalf of the British taxpayer. I shall come to the terms of the loan, but of course we expect to be repaid, and repaid with interest. We are doing this because we think it is absolutely in our national interest, for some of the reasons that have been set out.

[Charlie Elphicke (Dover) (Con)]

On that point, may I welcome the fact that the Bill is before the House today and that approval is being sought before the loan is made? Will my right hon. Friend explain how we came to be part of the European financial stability mechanism, what approval the House gave to it and what level of debates there were about it?

[Mr Osborne]

As I explained to the House previously—my predecessor, the right hon. Member for Edinburgh South West (Mr Darling) is here, and might at some point want to give his own version of events—my understanding is that in the period between the general election and the formation of the Government, an emergency ECOFIN meeting was held to address the Greek situation and to provide confidence that the European Union and the eurozone stood behind other member states that were potentially in difficulty.

My predecessor ensured that we stayed out of the eurozone facility—I have acknowledged that in the House —but acquiesced in the use of article 122 of the treaty, which allowed the European Union to disburse funds when a natural disaster, such as an extreme weather event, was affecting a member state, to create a mechanism that could stand behind countries that got into difficulties. The decision on the use of that mechanism is taken by qualified majority voting, so although we could vote against its use in this situation, I did not think that that would achieve anything. I am focused, in a way that I shall describe, on trying to extricate the UK from the EU-27 mechanisms that stand behind eurozone countries. If hon. Members will bear with me, I shall talk about that later, and if people want to intervene at that point, that would be more sensible.

Let me move on to the connections between our banking sectors. Our banking sector has a considerable exposure to Ireland, but I should stress that in the opinion of the Financial Services Authority, the UK banks are sufficiently well capitalised to more than manage the impact of the situation in Ireland. For a long time now the devaluation in Irish asset values has been accounted for and priced in.

One thing is clear. It is undoubtedly in Britain’s national interest to have a growing Irish economy and a stable Irish banking system. In the judgment of both the Irish Government and the international community that was not going to come about without the assistance package we debate today. I would now like to explain to Members the principles of the Bill, and then take them through the heads of terms of the loan agreement.

The Bill has two substantive clauses. Clause 1 sets out the parameters under which the Treasury may make payments under UK loans to Ireland. As I explained earlier, the total international assistance package, including our contribution, is denominated in euros. However, we are making a bilateral loan in sterling so that Ireland bears the exchange rate risk over the coming years. Subsection (3) of the clause includes a cap on the total size of our bilateral loan. It is written on the face of the Bill that

“the aggregate amount of payments made by the Treasury by way of Irish loans...must not exceed £3,250 million”.

In other words, the £3.25 billion we originally agreed will be the maximum total size of our bilateral loan to Ireland. A sunset clause is also, in effect, built into the legislation. The period over which the loans may be offered begins on 9 December 2010, when the Bill was published, and ends on 8 December 2015.

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[Charlie Elphicke]

Surely, the right hon. Gentleman’s point highlights the lack of wisdom in signing us up to the stabilisation mechanism on 9 May.

[Alan Johnson]

This may be news to the hon. Gentleman, but his party is in government now. As I said, my party ensured that we contributed nothing—not a penny, not a euro, not a drachma—to the Greek bailout. The Chancellor is coming before this House with a £6.6 billion contribution to Ireland, which we support, but the various aspects of the mechanism need to be explained and understood.

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[Alan Johnson]

I do agree that part of it should be bilateral, for all the reasons that I have mentioned. As various members have commented, however, we need to understand why the formulation has been made—because it could be setting precedents; because there is a larger pot of money out of which a lesser sum of money is being brought; and because the Chancellor can come back to this House, by virtue of a statutory instrument and seek further money for Ireland. We need to be clear what we are letting ourselves in for.

[Charlie Elphicke]

rose—

[Alan Johnson]

No, I will not give way—perhaps later.

I am also curious about the following piece of distorted logic. In the Treasury Committee, the Chancellor said that it was okay to set austerity aside in order to make a loan to Ireland because of the promise of repayment. He said that this loan “adds to our debt” but

“We’re getting back a very important asset which is a commitment from the Irish government to pay us back with interest.”

What puzzles me is which part of that definition of a sensible loan did not apply to Sheffield Forgemasters. [Hon. Members: “Oh.”] I am sorry that Government. Members groan about British manufacturing industry. My right hon. Friend the Member for Sheffield, Brightside and Hillsborough (Mr Blunkett) raised this issue during the Chancellor’s statement on 22 November. Why does the Chancellor agree a huge loan to Ireland on the basis he cited but reject a modest £80 million that would be paid back with interest and boost the opportunity of British manufacturers to have a substantial stake in the civil nuclear energy supply chain, which is currently dominated by overseas companies? At a time when we are looking for jobs and growth, the logic of that escapes me.

My third concern is the prospect of each eurozone country being bailed out as its economy falls into crisis without addressing the root causes of the continent’s problems.

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[Nadhim Zahawi]

rose—

[Charlie Elphicke]

rose—

[Alan Johnson]

No, I will not give way. The Prime Minister said:

“That is why a priority for any Conservative government led by me will be to create a much better environment for business… We know it can be done. Just look at the Republic of Ireland.”

Two years later, at exactly the time when Ireland’s six largest banks were forced to borrow €20 billion from the European Central Bank, the Prime Minister said that Ireland had

“a ‘future fund’ of assets, providing security against future liabilities and unknown shocks coming down the line.”

Perhaps those on the Treasury Bench will update us on how that future fund is doing in Ireland. Finally, in June 2008, at a Cameron Direct event in Harlow, he said:

“When it comes to the engine room of the country, the economy, you know you can look across to southern Ireland where they have created a dynamic economy. Well we’ve got to do that right here.”

Our message to the Chancellor as we prepare to support his Bill is not to replicate Ireland, but to repudiate the measures that put its economy in such a perilous position.

We understand that there is an O’Donnell circulating a plan B in Whitehall against the Chancellor’s wishes. As the Chancellor said in The Times, the Irish have

“much to teach us, if only we are willing to learn.”

Autumn Forecast

Charlie Elphicke Excerpts

Monday 29th November 2010 Commons Chamber

[Mr Osborne]

The Bank of England Monetary Policy Committee sets interests rates, and does so independently. The purpose, in part, of the measures that we have taken to reduce the deficit is to give the Monetary Policy Committee the maximum possible flexibility and freedom in setting the appropriate monetary policy to stimulate demand in the economy. I believe that that has enabled it to keep interest rates low, which helps to stimulate the economy.

[Charlie Elphicke (Dover) (Con)]

Will the Chancellor confirm that the corporation tax reforms that were announced today will make the UK more attractive as a holding company jurisdiction and help to make the UK a pre-eminent corporate headquarters centre, as much as a financial centre?

[Mr Osborne]

My hon. Friend is absolutely right that the reforms will help to do that. They will help the UK to be an attractive place for international companies to locate, invest and create jobs. The changes to the patent regime will help a number of sectors, such as pharmaceuticals. I mentioned GlaxoSmithKline, but of course Pfizer is a big employer near Dover, and I hope that it, too, will benefit from the announcements that we have made.

Banking Reform

Charlie Elphicke Excerpts

Monday 29th November 2010 Commons Chamber

[Mr William Bain (Glasgow North East) (Lab)]

It is a pleasure to be able to contribute to this important debate. I thank my right hon. Friend the Member for Oldham West and Royton (Mr Meacher) for having the good sense to persuade the Backbench Business Committee to secure it. It is also a pleasure to follow the hon. Member for Clacton (Mr Carswell). I agreed with some of his remarks, particularly the one about breaking up the banks.

When I was preparing for the debate, I had occasion—and a little more time than I expected, owing to my difficult journey from Scotland to London today—to examine an excellent study of the banking crisis by three major economists in a book entitled “Balancing the Banks”, by Mathias Dewatripont, Jean-Charles Rochet and Jean Tirole. Jean Tirole’s chapter in particular details, in very precise order, the reasons for the crisis and makes several points. First, it deals with the crisis in United States home loans, which spread to other sectors and other countries. The staggering expansion in the level of securitisation partly explains the difficulties that the US banks got into. Between 1995 and 2006 the proportion of loans that were securitised rose from 30% to 80%, and the proportion of sub-prime loans that were securitised increased from 46% in 2001 to 81% in 2006. Jean Tirole also points out the lack of high-quality collateral backing many of these loans, which particularly came to our attention when the inter-bank bond and derivatives markets simply froze up. Added to that, excessive liquidity fed the demand for securitisation. As my right hon. Friend the Member for Oldham West and Royton pointed out, monetary policy was also very loose, particularly in the United States, and the performance of credit rating agencies hardly covered them in glory.

Another important point in understanding what went wrong is the failure of international regulation of the banks. For example, the level of off-balance-sheet liquidity support increased hugely, especially in America. There has also been a need to rediscover what prudential regulation of the banking system should be about. It should be about, first and foremost, protecting small depositors and investors, but also containing the domino effects of systemic risk.

We should therefore welcome some of the recommendations of the Basel Committee on Banking Supervision. The key failure of Basel II was its reliance on pro-cyclical capital controls, and one of the Basel III reforms we should welcome is the introduction of counter-cyclical buffers. I think it is also true to say that Basel II was too complex. It was based on a pillar structure that was both difficult to understand and unable to anticipate systemic risks to the banking system or, indeed, manage financial innovation. As my right hon. Friend pointed out, it was unable to predict the chaos that credit default swaps and collateralised debt obligations would create throughout the world. There needs, therefore, to be an increase in the capital and liquidity banks should hold.

I disagree, although only slightly, with my right hon. Friend in one respect, however. Basel III does introduce a powerful counter-cyclical element of up to 2.5%, which may be significant in preventing future problems. There is also a balance to be struck.

[Charlie Elphicke (Dover) (Con)]

Is the hon. Gentleman aware that Basel III also seems to introduce an incentive for increased invoice discounting and trade factoring, and is that not slightly undesirable?

[Mr Bain]

The hon. Gentleman raises an interesting point. I was about to make the point that Basel III strikes a balance between protecting the taxpayer and the state and promoting economic growth. I understand the banks have been lobbying to try to diminish some of the effects of holding extra capital. Indeed, when I met a representative from Lloyds Banking Group in Glasgow on Friday, he lobbied me to take that position.

What we have witnessed is a crisis that began in the housing and asset price markets in America. It spread to other countries and to the banks of other countries, and it has now also spread to the state. It is important that the taxpayer can see that there are buffers to prevent the state from having to bail out banks across the globe. Having a counter-cyclical element should help achieve that.

The Government should continue the work the previous Government did in pursuing the issue of getting a global deal on bankers’ bonuses. If they do not, or if they are unable to achieve a global deal, the UK and the EU should be prepared to take a lead in giving greater transparency and reducing some of the terrible incentives to sharp practices in the last decade.

Across the world, we are seeing the terrible effects of a credit crunch causing a banking crisis, in turn causing a deficit crisis and then a growth crisis. In the coming months and years, we need to put in place a policy that sorts out the system for good. We need a policy that learns the lessons from the crisis and ensures the taxpayer never has to foot a huge bill for the terrible behaviour of a greedy few.

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[Mr Umunna]

The apparatus would help to introduce greater transparency on bonuses, because if we want to do something about reckless remuneration we need to know about it. I speak to many people in the City, and, although some of course disagree with the measure, many accept that it needs to be introduced. Action was taken, but some measures are still outstanding.

[Charlie Elphicke]

Will the hon. Gentleman give way?

[Mr Umunna]

I am going to make progress, because I do not have much time.

I welcome the introduction of the independent banking commission, which the new Government were right to set up. Without pre-empting the commission, I firmly believe that we should separate retail from investment banking. There is some consensus on that, but it is a question of degree.

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[Stephen Barclay (North East Cambridgeshire) (Con)]

It is a pleasure to follow the well-crafted speech of the hon. Member for Streatham (Mr Umunna). I, like him, welcome the chance to debate this important issue. I must preface my remarks by declaring, in the interests of transparency, that I too used to work in the industry. I worked on both sides of the regulatory fence—as a regulator in policy and supervision roles, and in the insurance and banking sector—prior to entering the House.

The depth of anger felt by our constituents is very much underestimated in the City and in Canary Wharf. Constituents might hear the technical jargon that is often used in such debates, but they are not confused by what went on: they know that senior bankers made big mistakes yet kept their massive payments; they are incredulous that the banks have returned so quickly to paying bonuses, as the hon. Member for Leeds East (Mr Mudie) said; and they are frustrated that the rhetoric of reassurance from the banks is so often at odds with their own experience as customers, particularly when it comes to the fair treatment of customers.

As my hon. Friend the Member for South Northamptonshire (Andrea Leadsom) pointed out, the motion is—dare I say it—poorly drafted when it states that “no action” has taken place. Indeed, the hon. Member for Streatham endorsed that view from the other side of the House. There has been a flurry of regulatory initiatives, such as more intensive supervision by the Financial Services Authority following its admission of regulatory failure over Northern Rock; and on derivatives, which the motion mentions, the capital requirements directive will subject contracts that are not cleared through a funding house to higher capital requirements. So, action is taking place. Likewise, the Government’s amendment rightly focuses on structure and, indeed, prudential policy, but it is silent on the key issue on which I shall concentrate: enforcement against individuals in banks.

Before doing so, I must say that so far the debate has been silent on the short-termism fostered by the pension fund management, and in particular on the pressure that that puts on chief executives, who risk being fired if they do not add shareholder value. In banks, people fear missing the targets set by their chief executive more than they fear the regulator.

[Charlie Elphicke]

Is not one of the serious issues with bonuses, and the point that my hon. Friend makes, that there emerged a kind of cool option, whereby bankers could receive a bonus but never lose out? Should the system not be reformed, so that bankers are able not only to receive a bonus, but to incur a loss? That would align them more with the return on whatever their bank is up to.

[Stephen Barclay]

My hon. Friend is absolutely correct, and I shall come on to consider the quantum of fines that have been imposed, because it makes very strongly the point that he makes.

On the regulatory structure, I am sure that my hon. Friend the Financial Secretary to the Treasury will talk about the changes that the Government are rightly making, because we need to be clear who is in charge in the event of failure. The tripartite system did not make that clear. However, I am sure that he, like the previous Chancellor in his White Paper, accepts that there is no single institutional model to insulate us from a future crisis.

The Government are also right to focus on prudential policy, but I caution against a reliance on policy itself, because we need only look at how often it has changed. We are already on Basel III, Solvency II and MiFID II —the markets in financial instruments directive—and the next debate is on commission in the retail sector, which has been debated for many years.

To give a specific example of the flaws in new policy, let me direct the House to “best execution”—one of the features of MiFID that required banks to shop around to obtain the best price. It will not surprise Members to discover that when banks shopped around they happened to find, in accordance with their written policy, that the best possible price just happened to be the one offered by their investment banking arm. Notwithstanding, therefore, the limits of new structures and policy, I believe a clearing house for derivatives would be a welcome step and a key component in addressing opaque financial instruments, such as securitisations, which stopped people obtaining the required visibility in respect of bank balance sheets and which was central to stopping banks lending to each other. Alan Greenspan’s claim that derivatives efficiently dispersed risk throughout the financial system ignored the concentration of risk in individual firms. We need only look at AIG to see the effect of that sort of concentration of credit risk.

A perhaps more technical point is that clearing houses should be more consistently valuing collatoralisation requirements across all banks. The reason for that is the different requirements that apply to UK and German banks, for example, in terms of their capital standards and liquidity requirements.

The most glaring issue that needs to be addressed is that of enforcement—in particular, the lack of transparency that goes to the heart of the sense among constituents that people have had a one-way bet. That was the point to which my hon. Friend the Member for Dover (Charlie Elphicke) alluded. To give an example, the failure of enforcement and the lack of a taxpayer’s guarantee has been material, particularly now that investment banks are not partnerships; I do not think that many partnerships would have leveraged their capital up to 40 times, as many of the banks did. Put simply, the alignment of interest between shareholders who provide the capital and employees who allocate it is not as strong as was historically the case. That is one of the features of a shadow banking system in which the banks had no long-term interest in the securitisations that they structured and underwrote. We would not allow such a thing with an aviation or pharmaceuticals company; they could not design and profit from products that they expected to fail, as Goldman Sachs did with the Abacus deal.

In the final minute allocated to me, I turn to the quantum of fines. To put the matter in context, no fine has been imposed on any senior executive at HBOS, HSBC, Barclays, Lloyds or Royal Bank of Scotland. The biggest three fines, applied to Northern Rock, amount to less than £1 million—that is, less than the chief exec earned as a bonus the year before. The fines were subject to 20% and 30% discounts as a result of early settlement and on the grounds of hardship. For that reason, our constituents feel that no one has been held accountable. They have seen people walk away with the profits without being held accountable for the things that went wrong. As the Minister looks at the structure and policy, we also need to learn the lessons of why enforcement against individuals has failed.

National Insurance Contributions Bill

Charlie Elphicke Excerpts

Tuesday 23rd November 2010 Commons Chamber

[Charlie Elphicke (Dover) (Con)]

I welcome this measure. It is just the thing to spur on the private sector. In evidence to the Treasury Committee, Alan Clarke said that it was a “particularly encouraging measure”. Mr Whiting, of the Chartered Institute of Taxation, said that it was a

“worthwhile experiment for the small, new business with new employees.”

This is just the sort of measure to encourage the private sector that the House should be passing.

[Mr Gauke]

I am grateful for that intervention. We have to build this private sector recovery. This measure is a useful contribution, particularly to those regions where the private sector is not as strong as elsewhere. It is a transitional measure, scheduled to end in three years. We are committed to monitoring and evaluating its effectiveness over that period to ensure its success.

It is not our intention for this policy disproportionately to benefit businesses that employ highly paid staff. For that reason, the maximum amount that an employer can profit from any single employee is limited to £5,000. That cap ensures that the policy will not distort European Union markets and that it complies with state aid legislation. We do not expect any significant competitive disadvantage to arise either for existing businesses or for new businesses in regions where the holiday does not apply. The Bill also makes provision for the administration of this measure. Businesses benefiting from the holiday can withhold the employer contributions from the monthly payments they make to HMRC. If the payment cannot be withheld, the businesses can apply to HMRC for a refund. That will help to minimise employers’ costs as well as the costs of delivery.

The Government expect that hundreds of thousands of businesses will benefit from the measure over the next three years. In the Budget, we estimated that new businesses would save hundreds of millions of pounds worth of national insurance contributions during the lifetime of the scheme, giving them the ability to hire more staff, expand their business or invest in the recovery.

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[Mr Hanson]

But there were no caveats about a shortfall in the Budget proposals of about £1.4 billion. I think it is smoke and mirrors—and, as my hon. Friend the Member for Edmonton (Mr Love) said, it is coupled with the increase in VAT from next year. The VAT rise will impact more than three times as much as the increase to national insurance contributions would have done, and will affect 250,000 jobs.

[Charlie Elphicke]

Will the right hon. Gentleman give way?

[Mr Hanson]

I will give way to the hon. Member for Dover (Charlie Elphicke); the national insurance holiday will not apply in his constituency.

[Charlie Elphicke]

The right hon. Gentleman is right that the national insurance holiday will not apply in my constituency—a matter that I regret. Nevertheless, I welcome the fact that 1,400 of the least well-off people in my constituency will be taken out of tax altogether. It seems that he opposes the increase in the personal allowance and would rather cut national insurance, which we originally planned to do. Instead, we are helping the least well-off. Surely he would welcome that.

[Mr Hanson]

I look forward to the hon. Gentleman going back to Dover to explain why he is supporting not only a Bill that does not give a national insurance holiday to his constituents, but the VAT rise elsewhere in the Budget proposals—we need to look at that in the round—which will impact on pensioners, the low paid and everybody in his community. This is not a topic for today, but the debate on the national insurance rise was open and honest on our side. During and after the election, the Conservative party argued against the rise, but it is now implementing it. On top of that, it is not meeting the objectives in its manifesto and has increased VAT. I think that a VAT rise is a regressive tax policy that will hit the poorest hardest, but that is the choice that the Conservative party has made.

I want to focus most of my remarks on the second part of the Bill. The decision to introduce a regional employer national insurance holiday is welcome, but it specifically excludes new businesses in Greater London, the south-east and the eastern region. We tabled a reasoned amendment that has not been selected, but which would have declined to give a Second Reading to the Bill because of those exclusions. I sense that the hon. Members for Portsmouth North (Penny Mordaunt), for Meon Valley (George Hollingbery) and for Basildon and Billericay (Mr Baron), who spoke earlier, will have expressed their concerns about how the choices on the national insurance holiday were made. [Interruption.] The Economic Secretary to the Treasury says that we would have increased national insurance contributions across the board.

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[Mr Hanson]

The hon. Gentleman will know that North West Leicestershire will benefit from the scheme, but I hope that he will look slightly beyond the confines of Leicestershire and talk to the hon. Members for Portsmouth North, for Meon Valley and for Basildon and Billericay, who have all expressed concern about the proposals.

[Charlie Elphicke]

rose—

[Mr Hanson]

Perhaps the hon. Gentleman can tell us whether he is in favour of his constituents not having this benefit at this time.

[Charlie Elphicke]

I spoke on the subject of regionalisation in the Finance Bill, and we have to take the rough with the smooth. Does the right hon. Gentleman welcome the fact that in places such as Delyn, 500 new jobs have been created in the past six months? In Dover 500 new jobs have also been created in the past six months. Across the country as a whole, about 300,000 new private sector jobs have been created in the past six months. Does he not welcome that?

[Mr Hanson]

I think I know Delyn better than the hon. Gentleman. If he would like to come to me to talk to the 320 people who lost their jobs yesterday at Headland Foods in Flint, I should be happy to discuss the issue. That happened only yesterday in my constituency, so I will not take any lessons from him about what happens on my patch in north Wales.

I will tell the hon. Gentleman straight away, however, that West Ham has 6.8% unemployment, Tottenham 7.4% and Camberwell 6%. That is more than three times the level of unemployment in Tatton, in Richmond (Yorks), represented by the Foreign Secretary, and in Derbyshire Dales, represented by the Government Chief Whip. Indeed, it is four times the level in Sheffield Hallam, represented by the Deputy Prime Minister. All those areas will benefit from the scheme, while areas of severe deprivation in London will not.

Let us look at the constituencies of coalition Cabinet members. Berwickshire, Roxburgh and Selkirk has 2.8% unemployment, North East Somerset has 1.6%, Tatton has 2.1%—

Financial Assistance (Ireland)

Charlie Elphicke Excerpts

Monday 22nd November 2010 Commons Chamber

[Mr Osborne]

At the moment, there is heightened concern around the world about European countries with high budget deficits. One such country is the UK, but there is no heightened concern about us because of the measures that we have taken. If we followed what the hon. Gentleman and Labour Front Benchers propose, and if I were to say at the Dispatch Box tomorrow, “You know what. We are abandoning our fiscal plans set out in the Budget and the spending review, and instead engaging in a loosening of those plans,” I can only imagine what the international reaction would be.

[Charlie Elphicke (Dover) (Con)]

Being there for a friend in need overseas and unbankrupting ourselves at home are right and proper. However, how could it ever be right or proper for a Government voted out of office to engage in major financial commitments for the UK while squatting in Downing street?

[Mr Osborne]

I think my hon. Friend is referring to the period between the general election and the creation of this Government. I have given the House my account of that. I thanked the former Chancellor for keeping us out of the eurozone facility, but I did not agree with his decision to commit us to the mechanism, and I communicated that to him. However, I also made it clear at the time there can only be one Chancellor of the Exchequer operating for the UK, even in the unusual situation between the general election and the formation of this Government. He will account for his decisions and I will account for mine.

Finance Ministers’ Meeting (Ireland)

Charlie Elphicke Excerpts

Wednesday 17th November 2010 Commons Chamber

[Mr Hoban]

As I said, no formal request has been made for assistance. We have a clear national interest in the stability of the Irish economy, and that must be recognised.

[Charlie Elphicke (Dover) (Con)]

Does not the crisis in Ireland and across Europe underline how right the Government have been to take the tough but necessary action to save us from bankruptcy? Will the Minister condemn the siren voices in Europe that are talking down Ireland, and will he be a friend in need, as we, as a country, should be?

Equitable Life (Payments) Bill

Charlie Elphicke Excerpts

Wednesday 10th November 2010 Commons Chamber

[Jonathan Evans]

Will the hon. Gentleman give way?

[Charlie Elphicke (Dover) (Con)]

rose—

[Mrs Main]

rose—

--- Later in debate ---

[Charlie Elphicke]

rose—

[Chris Leslie]

I give way to my good friend from Dover.

[Charlie Elphicke]

I thank the hon. Gentleman for giving way. I know him to be a generous Member of the House. With his customary generosity, will he acknowledge that the amount is nevertheless three times that which the previous Government said they would have given as compensation?

[Chris Leslie]

We will not know that, because Chadwick’s report was published after the general election. We had a series of steps that would have then been taken, but history went in a different direction because the spending review and the Budget were undertaken by a different party, not by our party in government. I am not saying that there are magic solutions to this issue. These are complex matters and there are technical reasons for both the methodologies that are being used in the compensation and the timings and the discussions around them. It is important to bear in mind the wider needs of the public purse. We have consistently said that and now the Government have come round to that point of view. I understand why they did.

Finance (No.2) Bill

Charlie Elphicke Excerpts

Monday 8th November 2010 Commons Chamber

[Mr Hanson]

My hon. Friend makes the important point that those are high-skilled, highly technical jobs that will bring investment to this country. They are intellectual capacity jobs that are helping to grow the areas of our international markets that we need to grow.

To follow up on what the hon. Member for Dundee East said, Edward Troup, the managing director of budget, tax and welfare at the Treasury, said to the Scottish Affairs Committee:

“There would be issues; there would be boundary issues,”

but crucially, he continued, “but it would work.” I am not trying to make political capital out of the matter, but if it is proved that the tax break would work—meaning that it can be applied, can deliver, will keep jobs in this country, will grow business and will help resources be reinvested in the British economy—will the Exchequer Secretary be willing to accept the principle and introduce an appropriate clause in some future Finance Bill?

If it is found that the tax break would work but the Exchequer Secretary will not introduce it, I will have to presume that he is not interested in doing so, rather than that he is concerned about its applicability and workability. If so, he is on an entirely different page from the one that the Under-Secretary was on in April, that the Chancellor was on before the general election and that the hon. Member for Bath, who is part of the coalition, was on at that time.

[Charlie Elphicke (Dover) (Con)]

The right hon. Gentleman makes a perennial point that shadow Ministers make, to which actual Ministers presumably perennially say no. May I point out to him the table in proposed new section 1216Q of the Corporation Tax Act 2009, in new schedule 2? It mentions points being given for at least 50% of a game’s production budget being incurred in the UK, and proposed new section 1216R states what the percentage of UK expenditure has to be. Will he confirm that that does not conflict with any European law provision?

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[Chris Leslie]

(Nottingham East) (Lab/Co-op): I beg to move, That the clause be read a Second time.

New clause 2 would force the Treasury to come clean on its plans to withdraw child benefit from families with higher-rate taxpayers from January 2013, which will take £2.5 billion a year from those families from 2014-15 onwards.

Ever since the Chancellor announced the policy of means-testing child benefit a month ago at the Conservative party conference, the policy has gradually unravelled. The Treasury has struggled to spell out exactly how it will implement the idea—especially as there has rightly been separate and independent taxation of individuals since 1990, when it was recognised that there were major problems with taxing women as though their income were effectively part of their husbands’ property. Those days may seem long ago now—it is 20 years since Lady Thatcher left Downing street, and 20 years since Britain joined the exchange rate mechanism—but the Government have adopted a déjà-vu approach to policy making which looks set to reopen that history.

We have grown used to the principle of independent taxation over the past two decades, and many now take it for granted, but we ought to pause and reflect on why it is so important. The Government’s proposed changes to child benefit imply a requirement for mothers to disclose their receipt of child benefit to their partners, and a requirement for partners or husbands to be taxed on the income of their spouses. That represents a potential breach of the principle of separate and individual taxation which, as the new clause says, was introduced in the Finance Act 1988, and which applied from 1990 onwards.

The 1988 Act introduced a radical change in the system of taxing husbands and wives: independent taxation. Until then, husbands and wives were viewed as one person for tax purposes, and the Revenue, of course, saw only the husband. The spouse’s income and gains were added together, and the couple were treated as if the total income were that of the husband. He was responsible for completing the annual tax return and for paying all tax due, including that on his wife’s income and gains. However, with the introduction of independent taxation, spouses were treated as separate individuals for tax purposes and for the first time married women enjoyed privacy in, and responsibility for, their own tax affairs. In addition, some married couples were paying more tax because they were married than they would have if they had been cohabiting. That drew much criticism at the time.

It is instructive to look back at the speeches advocating the virtues of independent taxation, especially by the then Chief Secretary to the Treasury, who has since been ennobled as Lord Lamont. In the 1988 Budget debate he called this reform

“a radical proposal for independent taxation…It will give married women the independence and privacy in tax matters that they have been denied for so long…Under the new system, a married woman will be treated as a taxpayer in her own right with a full personal allowance to set against her income, and her own basic rate band. She will have responsibility for her own tax matters and will be able to enjoy complete privacy if she wishes…It is an important principle that there should be independence and privacy in taxation matters.”—[Official Report, 16 March 1988; Vol. 129, c. 1193-94.]

Clearly the Prime Minister should heed the words of his former boss in these matters. I gather that Lord Lamont is still occasionally called upon to give advice to his former special adviser. Perhaps their diaries clashed on the day of the fateful decision on child benefit, but there is still time for the Prime Minister to make that call to Lord Lamont, and to see the error of his ways and rein in his doctrinaire Chancellor on this issue, especially as the Prime Minister promised before the general election to protect child benefit. Winding the clock back 20 years and reversing decades of progress in equality in taxation and in the responsibilities of individuals for their own income risks creating a set of major perversities in the tax system that could have significant ramifications. That is why the Opposition are opposed to the changes in child benefit.

Let us consider the administrative shambles that would be created if the Government were to get their way. The Wall Street Journal has reported insiders in the civil service talking of “panic stations” at the Treasury with growing acceptance that the policy is virtually “unenforceable” and “likely to be ditched”. If a mother is under no legal obligation to tell the father that she is in receipt of child benefit—unless we do see the end of independent taxation, of course—how can this tax on families work? Currently, the father’s tax status is irrelevant to the mother’s entitlement to child benefit. Can the Minister tell the House how this clawback arrangement will work, especially if parents are divorced or divorcing or separated or separating, or if the mother simply declines to report the tax status of the father of her children to Her Majesty’s Revenue and Customs officials?

Can the Minister also tell us whether the rumour that the Treasury is considering a new database to match mothers with their partners is true, and would that not make the Child Support Agency seem a bit like a pocket calculator by comparison? Will the Minister spell out the mechanisms the Treasury envisages in respect of this policy, and the enforcement mechanisms it is planning to put in place to take these sums off families earning approximately £45,000 or above? Will the Treasury be relying on a self-certification approach by the partner not in receipt of child benefit? Will the Minister take this opportunity to state for the record that the Government will continue with the important principle that mothers should be the primary recipient of child benefit payments?

The poor design of this policy could easily undermine revenue plans too. Clawing back the cost of the benefit from higher rate taxpayers through the tax system would be “intrusive” and involve lots of form filling. That is the opinion of one of the Chancellor’s own advisers on tax policy, John Whiting, whom the Chancellor recently appointed as the tax director of the Office of Tax Simplification. Mr Whiting suggests that the policy would be an administrative burden that would merely “make a dent” in the estimated £2.5 billion of savings the Treasury claims the change would bring. We are not alone in questioning the logic of this ill-thought-through proposal, therefore. We know from the reporting on this policy that the Chancellor rode roughshod over his Cabinet colleagues when it was announced at the Conservative party conference. Clearly many in the Cabinet were oblivious to those plans when the Chancellor sprung them on them, but it is now clear that he also rode roughshod over those in the civil service. They were insufficiently included in the plans for this policy and had he consulted them properly, they would have pointed out the chaos that it would create.

These are serious matters affecting millions of families across the UK, not only millionaires such as the Chancellor’s family or the Prime Minister’s family, but those on relatively modest incomes. They include police officers, college tutors, health service workers, senior teachers, pharmacists, paramedics, train drivers and air traffic controllers. Many are caught up in this category, the arbitrary design of which will create great unfairness with punitively high marginal rates of taxation.

[Charlie Elphicke]

The hon. Gentleman seems to want to convince the House that £45,000 a year is not very much money, but he should tell that to my constituents, whose average annual earnings are less than £20,000; that is what the average job pays in Dover and that is the norm in many parts of this country outside London. My constituents look askance at the fact that people on £45,000, a sum of earnings that they aspire to and dream of having, receive benefits. They tell me on the doorstep that they think that that is wrong, in principle, and that this measure is the right one to take.

[Chris Leslie]

The hon. Gentleman is doing his job, supporting a policy that was not the one espoused in his party’s manifesto. It certainly was not the policy that the Prime Minister advocated before the election when he promised to protect universal child benefit—he now says that it should be taken away from these “rich” individuals, but I do not agree. I do not believe that this class of middle-income families is necessarily finding life easy on this particular range of salaries. We have to speak up for that squeezed middle in society and that is absolutely what the Opposition intend to do. Where a policy could see a £1 pay rise for these families result in the loss of £2,000 in child benefit, depending on the number of children involved, it involves a punitively high rate of marginal taxation that surely even Members on the Government Benches would agree is flawed.

At last week’s Treasury Committee sitting, the director of the Institute for Fiscal Studies, Mike Brewer, described these cliff-edge issues as “economically perverse” and “distorting”. He also said that it “seems unfair” that two families in different circumstances but perhaps separated by very small sums should be “treated so differently”. His colleague, Carl Emmerson, added:

“The income tax system, by being individually based, is basically neutral about whether individuals”

should be taxed separately or together and that that is an “advantage” in the tax system.

My right hon. Friend the Leader of the Opposition has rightly asked,

“why should a family on £45,000 where one person stays at home lose their child benefit—£1,000, 2,000, £3,000 a year—but a family on £80,000 where both partners… are working should keep their child benefit?”—[Official Report, 13 October 2010; Vol. 516, c. 322-23.]

Even the Treasury has, begrudgingly, had to publish some statistics showing that this policy would create all sorts of anomalies and odd behaviour. It published a figure in the Budget suggesting that it expected to lose £270 million each year in revenue from people tax planning as they navigated this madness.

A family with three children on £33,000 a year after tax is to lose £2,500 from 2013—that is the equivalent of a 6p in the pound hike in their income tax. Middle-class families are being hit, and it is particularly pernicious of the Conservatives and the Liberal Democrats to focus on children in this way as a means of raising money—they are clubbing families over the head with a higher tax burden while, of course, letting the banks off the hook. At the very least the Treasury should accept the new clause and agree to publish an independent review of the consequences for independent taxation if its plans for child benefit taxation of higher rate paying family members are to proceed.

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[Mr Chuka Umunna (Streatham) (Lab)]

Let me make three very quick points, parts of which will pick up on comments that have already been made.

The first point is the issue of declaration. My hon. Friend the Member for Nottingham East (Chris Leslie) mentioned last week’s Treasury Committee hearing, during which I asked the Chief Secretary to the Treasury how he intended to enforce the new child benefit measure. He said that the coalition Government will introduce legislation to require higher rate taxpayers to declare whether child benefit is coming into the household. Such a declaration is partly dependent on information being passed from one partner to the other. The Chief Secretary was very clear that the obligation to provide the information will be on the higher rate taxpayer. Why not also introduce a requirement in respect of the other half of the couple? As the Chief Secretary did not answer that, will the Minister now shed some light on it and reveal whether the Treasury has taken proper legal advice? The hon. Member for Dover (Charlie Elphicke), a former tax lawyer, is in the Chamber. I wonder whether he advised his colleagues.

[Charlie Elphicke]

I thank the hon. Gentleman for his kind words. As a lawyer, I might be very cautions, but as someone who has been in a relationship and who has found that couples tend to talk, I will ask the hon. Gentleman whether he is aware of any couples with children who do not share their financial information?

[Mr Umunna]

I do not usually ask my friends and acquaintances whether they share financial information with their partners, but I hear the comments of the hon. Gentleman.

My second point is, how will it be possible to prove the connection between the mother and the higher rate taxpayer, bearing in mind the problems that we have been having at Her Majesty’s Revenue and Customs? Given that HMRC’s resources have been cut over the past few years, how will it be able to keep tabs on the situation between couples on a monthly basis? As some 1.2 million families will be affected by the new measure, will HMRC be given any more funding to enable it to enforce the new change and to keep tabs on what is happening out there in the nation?

Finally, John Whiting, joint interim head of the Office of Tax Simplification, has obviously commented on the problems of the new measure, but what is the point in setting up such an office when the people working within it and those heading it up have not been properly consulted or asked to advise on this measure? Surely, if the Government are not minded to accept this new clause, it would be a good idea to delay the introduction of this measure and ask the Office of Tax Simplification to do its job and advise on how it can be more efficiently introduced.

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[Chris Leslie]

I accept the hon. Gentleman’s point. We have to be prudent in how we address these questions, and I hope to come to some of the matters he raises as we explore corporation tax and so on. If he bears with me, I will—hopefully—elaborate.

UBS analysts said that they expected Lloyds and HSBC to benefit by 2012 because of the cut in corporation tax bills, which in their case was larger than the hit they expected to be sustained through the banking levy. It seems, therefore, that the banking levy is playing quite a small part, perhaps a walk-on character—

[Charlie Elphicke]

rose—

[Chris Leslie]

A walk-on character with very few lines—unlike the hon. Gentleman, to whom I give way.

[Charlie Elphicke]

I would like to put a couple of points to the hon. Gentleman. First, taking the case of Lloyds and RBS, are there not likely to be substantial carry-forward losses in those banks, which will not be paying corporation tax for many years to come, let alone by 2012? Secondly, were they then to face a higher rate of tax, which I believe he is proposing, would the cost on those banks not result in the devaluation of their shares, which are now owned by the public? Surely, it would go round in a circle.

[Chris Leslie]

I will come to deferred tax in a moment, because the corporation tax questions require much greater scrutiny. That is one reason we tabled the new clause. I hope that the hon. Gentleman will join me in the Lobby, should we divide on this issue—unless the Treasury concede it—and that he agrees that we should have a review of the level of tax the banks are paying. If they are paying too much, which I doubt, I will be happy to look at the evidence and the facts. However, there is opacity about these questions, and given the hit falling on the shoulders of families and children in this country, it is incumbent on us to ask whether the banks will be paying their fair share. That is all we are asking this evening.

We think that the Government’s banking levy has been a limp effort so far. Given some of the corporation tax changes, there is a bit of a cashback arrangement for some of the banks. I would like to touch on three areas of corporation tax that I think require more serious and rigorous review. The first is that cashback boost for the banks resulting from the reduction in corporation tax rates announced in the Budget. The Exchequer Secretary confirmed in a written answer that over the lifetime of the spending review the Treasury expects that the cut in corporation tax main rate from 28% to 27%, and eventually down to 24%, will return £1 billion to the banks—specifically to the banks:

“£0.1 billion in 2011-12, £0.2 billion in 2012-13, £0.3 billion in 2013-14 and £0.4 billion in 2014-15.”—[Official Report, 1 July 2010; Vol. 512, c. 610W.]

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[Charlie Elphicke]

As a member of the new intake, it was a privilege to serve on the Government side of the Pubic Bill Committee. I congratulate Ministers on ably putting forward the Government’s case in Committee.

This important Bill is one of the three key pieces of the Government’s programme for the finances of the country—the first was the emergency Budget and the second was the comprehensive spending review. It forms part of the way in which we will start righting the finances of the nation. Only today we heard a lot of deficit denial from Labour Members, yet the nation needs its finances sorted out. We in Dover are trying to help to do that, in our small way, through the prospective sale of our port. We say, “Don’t wait two years to flog it off overseas like Cadbury; let’s get on and do it now, with a community mutual purchasing the port, to ensure that the Government get their money by the end of the financial year.” Understandably, the harbour board is not pleased about that. Under its plans, it hopes to get millions for management, but I want millions for the people of Dover and the betterment of the community, just as the Government, through the Bill, seek the betterment of the nation as a whole.

Our finances are in a bad state. We have a structural deficit of £109 billion a year. By the end of the Parliament, even after we have reined in the deficit, our debt will have increased by £292 billion, and that is before we get on to asking how we pay down the national debt. The key message of the Bill, the Budget and the comprehensive spending review is that we must stop debts mounting before we can pay down the mortgage. We must get the finances of the nation back under proper control and on a level keel.

Just as I was privileged to be a member of the Public Bill Committee, I am privileged to support the Bill, and I congratulate Ministers on their excellent work.