Banking (Responsibility and Reform)

Chris Williamson Excerpts

Tuesday 7th February 2012 Commons Chamber

[Derek Twigg]

rose—

[Chris Williamson (Derby North) (Lab)]

rose—

[Mr Hoban]

Will hon. Members calm down for a minute, and allow me to deal with the point about credit easing?

I think that bank credit will remain the principal source of finance for businesses throughout the United Kingdom. That is why in our autumn statement we went further to ensure access to finance. Last year the Chancellor of the Exchequer announced two bold new credit-easing measures to provide up to £21 billion of new lending for UK businesses. Through the national loan guarantee scheme, we are allowing participating banks to raise up to £20 billion of funding with Government guarantees, lowering their cost of funding and enabling them to reduce lending rates to business by as much as 1%.

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[Mr Hoban]

The national loan guarantee scheme will be open to all banks, including RBS, Lloyds, Barclays and HSBC, and we are currently taking that work forward.

Under the last Government, we witnessed the growth of the bonus culture, where bonuses could be paid in cash, in one year, and were never clawed back in the event of failure. We are changing that culture. Bonuses under the Financial Services Authority code are paid out over at least three years, in shares, not just cash, and failure can be punished by clawing back bonuses, and at both RBS and Lloyds cash bonuses will again be limited to £2,000.

[Chris Williamson]

Will the Minister give way?

[Mr Hoban]

Let me make some more progress.

Through the disclosure regime, we have provided more transparency than ever before, revealing the executive pay of the five highest-earning non-board executives for the Project Merlin banks last year. We are consulting this year on extending the requirement to cover eight executives at all banks operating in the UK, and UK banks now also have to disclose the aggregate pay of all their key risk-takers. These are some of the toughest rules in the world. It is because of our pressure and our leadership that the Commission’s capital requirements directive—CRD IV—contains proposals for additional regulations on remuneration disclosure which closely follow the recommendations of the Walker report.

[Mr Hoban]

Clearly we had more power in opposition than we thought; we seem to be being blamed for the bonus culture and what was happening in the banks. As the hon. Gentleman will recognise, we have seen a bonus culture develop in this country and action needs to be taken. It is a bit rich for Labour Members to be criticising us, given that they were in government for the past 13 years and had the power to do something about the situation.

[Chris Williamson]

rose—

[Mr Hoban]

I will give way to the hon. Gentleman, as I do not want him to feel missed out.

[Chris Williamson]

I am grateful to the Minister for giving way, at about the 35th time of asking. Will he now accept that it would be appropriate to repeat the bankers’ bonus tax and create 100,000 new jobs and 25,000 affordable homes, and give a boost to the construction industry, which is on its knees as a result of his Government’s policies?

[Mr Hoban]

I was going to discuss the bank payroll tax a little later, but let the hon. Gentleman just ponder for a while why the person who introduced that tax, the former Chancellor, described it as a “one-off” and something that was not workable because it did not change the behaviour. What we have done is introduce the bank levy, which the Labour party opposed when it was in government, and every year that is raising £2.5 billion more than the bank payroll tax raised in a single year. That is the product of well-thought-through taxation policy. We have gone ahead and imposed that bank levy, but the Labour party, when in government, opposed it.

Let me discuss the interaction of bank bonuses and capital. We agree with the interim Financial Policy Committee that capital levels, not bonus payments, have to be the priority. Banks must strengthen their balance sheets as a foundation for lending to families and businesses. That is why the FSA is rigorously scrutinising bank distribution plans, and it will not approve plans unless they are consistent with required capital levels, ensuring that banks maintain the capital they need in order to finance businesses. It is because of our leadership that bonus levels have already started to fall. According to the Centre for Economics and Business Research, City bonuses tripled under Labour, and when the shadow Chancellor was Minister for the City they were £11.6 billion. At the time, the shadow Business Secretary was carefully drafting the contracts to ensure that people could earn those bonuses. Last year, bonuses were almost half that figure, at £6.7 billion, and we fully expect them to fall further this time. Thanks to the action we have taken, bonus pools have come down and Labour’s cash bonus culture has been ended.

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[Stephen Williams (Bristol West) (LD)]

Here we are again in another Opposition-day debate centred on the economy, banks and bonuses. The handwritten notes I prepared earlier this afternoon read, “And yet again we hear no contrition from the Labour Front Bench.” However, as this is a debate and we have to respond to it, I will at least acknowledge that there was some contrition from the hon. Member for Streatham (Mr Umunna). I guess it must be easier for him, and indeed for his Front-Bench colleagues, who were all elected in 2010, to wash their hands of the last Labour Government’s decisions and offer at least some apology for what their predecessors did in office. However, it would be good to hear a collective apology from the Opposition, including those Members who were here in the previous Parliament, for the ineffective regulation and supervision of the banking industry, which was a major factor in the collapse of the banks and the economic failure and contraction that happened four years ago.

[Chris Williamson]

On the point about contrition, will the hon. Gentleman not also call on Government Front Benchers to apologise for calling for less regulation prior to the banking crash in 2008? While on the subject, what about having some contrition from him about tuition fees?

[Stephen Williams]

I am responsible for my party’s statements and, indeed, my party’s mistakes in certain instances but, as I said in my intervention on the hon. Member for West Bromwich West (Mr Bailey), in the previous Parliament, my right hon. Friend the Member for Twickenham (Vince Cable) warned consistently about the coming economic catastrophe. The hon. Gentleman was not here at the time, but I think that he would have been ashamed to hear the jeering and cat-calling that my right hon. Friend had to put up with at the time.

It was the culture, not just the lax regulation, that led to some of the problems we have experienced in recent years. During the last decade of the Labour Government, executive pay rose on average by 13.6% per annum, while the FTSE share index rose by just 1.7% a year. In 2002-03, the bankers bonus pool, which is at the centre of the motion, totalled £3.3 billion. In 2006-07, the year before the crash and everything starting to go wrong, the pool was £11.4 billion. In the year of the crash itself, when all the bankers were staring into the abyss, the pool was £11.5 billion. I do not recall any Minister at the time being worried about the size of the bonus pool or the distorting effect it must have had on executive behaviour.

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[Richard Fuller (Bedford) (Con)]

It has been interesting to sit in this debate and hear such an extended series of mea culpas from Opposition Members for the failings of the last Labour Government on this issue. Let us not forget that that Labour Government presided over the decline of British manufacturing, under which the concentration of banks about which they now complain took place and the meaning of the word “bonus” became so debased. There is so much for them to say sorry for, and so little time in a three-hour debate for all of them to come forward and repent.

[Chris Williamson]

rose—

[Richard Fuller]

I see we have a new repenter.

[Chris Williamson]

I am not repenting, but the hon. Gentleman might like to repent for the fact that the real origins of the problems that we are facing can be traced back 30 years to Margaret Thatcher’s Government. [Interruption.] I can hear hon. Members cheering, but it was Margaret Thatcher’s Government who undermined the manufacturing industry, used financial services as an alternative engine of economic growth, ran down the mining, steel, shipbuilding and car-making industries and totally destroyed manufacturing in this—

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. Shorter interventions, as I have already expressed, are the order of the evening.