Hutton Review

George Osborne Excerpts

Tuesday 15th March 2011 Written Statements

[The Chancellor of the Exchequer (Mr George Osborne)]

Will Hutton has today published the final report of his review of fair pay in the public sector.

In May the Government asked Will Hutton to make recommendations to the Chancellor and the Prime Minister by March 2011 on promoting pay fairness in the public sector by tackling disparities between the lowest and highest paid in public sector organisations.

The Government welcome this report and are grateful for the work of Will Hutton and the staff of the review. The Government are committed to striking a balance between value for money for taxpayers and fair pay for public sector workers. We will give careful consideration to the recommendations and respond in detail in due course.

The report is available in the Vote Office and the Printed Paper Office and it has been deposited in the Libraries of both Houses.

The report is also available on the review’s website at

http://www.hm-treasury.gov.uk/indreview_willhutton_fairpay.htm.

ECOFIN (15 March 2011)

George Osborne Excerpts

Thursday 10th March 2011 Written Statements

[The Chancellor of the Exchequer (Mr George Osborne)]

The Economic and Financial Affairs Council will be held in Brussels on 15 March 2011. The following items are on the agenda:

Economic Governance

Ministers will be asked to reach agreement on a package of legislative measures intended to strengthen economic governance in the EU, particularly the euro area, to address the challenges of the sovereign debt crisis, while fully respecting the provisions in the UK’s protocol to the treaty.

Climate Finance

Ministers will adopt Council conclusions on climate finance. The conclusions welcome and reaffirm the commitments on climate finance agreed at the UN negotiations in December 2010. The Government support these conclusions.

Stability and Growth Pact Implementation

Ministers will exchange views on the latest fiscal plans provided by Hungary and Poland in the context of their excessive deficit procedures (EDP). No formal conclusions are foreseen on this item.

Independent Public Service Pensions Commission (Final Report)

George Osborne Excerpts

Thursday 10th March 2011 Written Statements

[The Chancellor of the Exchequer (Mr George Osborne)]

Lord Hutton has today published the final report of the Independent Public Service Pensions Commission.

I invited Lord Hutton to undertake a fundamental structural review of public service pensions and make recommendations on future public service pension provision. The Government are grateful for the work of Lord Hutton and the staff of the commission and will now give careful consideration to his recommendations. The Government are also committed to continuing to engage with people working in the public sector, trade unions and others in taking forward the implementation of any future reforms.

The Government stand by their commitment given at spending review that there is no race to the bottom of the pension provision, that public service pensions should remain a gold standard and that public service pensions should continue to provide some form of defined benefit.

The report is available in the Vote Office and the Printed Paper Office and it has been deposited in the Libraries of both Houses. The report is also available on the Commission’s website at: http://www.hm-treasury.gov.uk/indreview_johnhutton_pensions.htm.

ECOFIN (15 February 2011)

George Osborne Excerpts

Monday 28th February 2011 Written Statements

[The Chancellor of the Exchequer (Mr George Osborne)]

The Economic and Financial Affairs Council was held in Brussels on 15 February 2011. The following items were discussed:

Economic Governance

The Council held a first discussion on a package of legislative measures intended to strengthen economic governance in the EU, particularly in the euro area, in order to address the challenges posed by the sovereign debt crisis, and prevent the emergence of similar problems in the future, while fully respecting the provisions in the UK’s protocol to the treaty. In line with the deadlines set by the European Council, the presidency’s intention is to reach agreement on a general approach on all six proposals at the 15 March ECOFIN.

Savings Taxation Directive and Anti-fraud Agreements with Third Countries

The Council held an orientation debate on proposals to strengthen the provisions of the savings directive on the taxation of savings interest, and on anti-fraud and tax information exchange agreements with Andorra, Liechtenstein, Monaco, San Marino and Switzerland. The Government support the presidency’s aim to maintain momentum on these proposals, so as to enable the Council to make progress as soon as possible.

Preparation of the European Council (24-25 March 2011)

a) Macro-economic and fiscal guidance

The Council adopted conclusions on macro-economic and fiscal guidance for the EU, under the new European semester. The Government believe the reform priorities set out in the conclusions are important and necessary steps to help promote economic growth in the EU and its member states.

b) Appointment of an Executive Board Member of the European Central Bank

Ministers adopted a recommendation on the nomination of Peter Praet (Belgium) as an executive board member of the European Central Bank to succeed Gertrude Tumpel-Gugerell, whose term of office expires on 31 May.

Implementation of the Stability and Growth Pact

The Council took note of a communication from the Commission assessing action taken by Bulgaria, Cyprus, Finland and Denmark in order to bring their government deficits below 3% of GDP. It was agreed that these member states had taken effective action regarding their deficits, and that no further steps under the EU’s excessive deficit procedure were required at present.

Preparation of the G20 Meeting of Finance Ministers and Governors (18-19 February)

The Council endorsed EU terms of reference in preparation for a meeting of G20 Finance Ministers and central bank governors to be held in Paris on 18-19 February. Discussions are expected to focus on the global economy and the G20 framework for growth, the reform of the international monetary system, commodities, financial regulation, and other issues such as development.

Discharge procedure in respect of the implementation of the 2009 EU budget

The Council adopted a recommendation to the European Parliament on the discharge to be given to the Commission for implementation of the EU’s general budget for 2009. The Dutch, Swedish and UK delegations, withheld their consent on the discharge. This marks a step change in the UK Government’s approach to financial management in the EU; the Government consider it unacceptable that the European Court of Auditors has not been able to grant a positive statement of assurance on the EU budget as a whole for the 16th year in succession.

Together with the Netherlands and Sweden, the Government also submitted a joint declaration, setting out concrete actions that would improve financial management (see attached).

Budget guidelines for 2012

The Council adopted conclusions setting out their priorities for the EU’s general budget for 2012, which will serve as the basis for negotiation with the European Parliament and the Commission later this year. The conclusions emphasise the need to take into account economic and budgetary constraints at the national level. The Government believe that the efforts made to curb the EU budget’s growth in 2011 must be stepped up for the 2012 budget.

Joint declaration signed by the Netherlands, Sweden and the United Kingdom

With reference to:

The European Court of Auditors’ annual report on implementation of the 2009 EU budget;

Discharge to be given to the Commission in respect of the implementation of the budget for the financial year 2009;

Draft Council recommendation 5891/11 FIN 47 PE-L 14, + ADD 1, + ADD 2;

The Netherlands, Sweden and the United Kingdom are concerned that:

For the 16th year in succession, the European Court of Auditors has been unable to grant a positive unqualified statement of assurance on the EU budget as a whole;

The slow pace of reforms to the financial management of EU funds is detrimental to the credibility of the EU budget as a whole.

The Netherlands, Sweden and United Kingdom highlight that independent EU-level audit is a crucial function and we therefore strongly support the work of the European Court of Auditors;

The Netherlands, Sweden and the United Kingdom agree with the European Court of Auditors that improving the quality of spending should be a high priority in order to attain significantly better results in the annual report on the 2010 budget.

The Netherlands, Sweden and the United Kingdom want to see concrete steps towards achieving the following specific objectives before the Council debates discharge of the 2010 budget:

Member states are responsible for implementing the majority of funds from the EU budget in co-operation with the Commission. Member states are responsible for conducting checks and for putting in place an effective and efficient control system. As part of a closer dialogue with member states, the Commission is invited to make proposals and to strengthen member state responsibility. Member states should account for the administration of EU funds at national level, including the proper functioning of internal control systems;



For reasons of transparency and in order to incentivise sound financial management, member states’ annual summaries should be made publicly available. At the same time member states should be obliged to provide analysis of financial management data as an integral part of the annual summaries;



In support of a risk-based approach to auditing, a more structured dialogue between the Court of Auditors, the Commission and member states is necessary. The Commission should bring forward proposals to enable a stronger focus on the audit of larger projects and institutions which have a proven track record of risk.

The forthcoming negotiations of the financial regulation provide an opportunity to take forward these proposals.

ECOFIN

George Osborne Excerpts

Tuesday 15th February 2011 Written Statements

[The Chancellor of the Exchequer (Mr George Osborne)]

The Economic and Financial Affairs Council will be held in Brussels on 15 February 2011. The following items are on the agenda:

Economic Governance

The Council will hold a policy debate on the legislative proposals on economic governance. The Government agree that member states should have robust national fiscal frameworks. However, it will continue to work to ensure that any legislation on fiscal frameworks does not impinge upon UK fiscal sovereignty.

Savings Taxation Directive and Anti-fraud Agreements with Third Countries

Following agreement on the Administrative Co-operation Directive at ECOFIN in December, the Council will hold an orientation debate on proposals to amend the Savings Directive and to pursue anti-fraud and tax information exchange agreements with Andorra, Liechtenstein, Monaco, San Marino and Switzerland. These are related measures which aim to improve transparency and exchange of information to combat cross-border tax evasion. The measures have been discussed on previous occasions but progress has been difficult due to political reservations by two member states. The Government support the presidency’s aim to maintain momentum on the good governance in taxation package with a view to legislative agreement in May.

Preparation of the European Council (24-25 March 2011)

a) Macro-economic and fiscal guidance

Ministers will adopt Council conclusions on macro-economic and fiscal guidance for the EU, under the new European semester. The conclusions focus on implementing a rigorous fiscal consolidation, correcting macro-economic imbalances, ensuring stability of the financial sector, growth and job-enhancing structural reforms, and mobilising community level growth drivers. The Government believe the reform priorities set out in the conclusions are important and necessary steps to help promote economic growth in the EU and its member states.

b) Appointment of an Executive Board Member of the European Central Bank

Council will also adopt a recommendation for the European Council on the appointment of an Executive board member of the European Central Bank. Two candidates have officially been put forth to replace Austria’s Gertrude Tumpel-Gugerell when her eight-year term on the ECB’s Executive board expires 31 May: Peter Praet, executive director of the National Bank of Belgium; and Elena Kohutikova, former member of the Slovak central bank’s monetary policy board. The Government support strong governance for the ECB, although as a non-euro area member state, the UK will not vote on this item.

Implementation of the Stability and Growth Pact

The Council will discuss the assessment of action taken by Bulgaria, Cyprus, Finland and Denmark in the context of their excessive deficit procedures, on the basis of a communication from the Commission. The Government expect the Council to agree that these member states have taken effective action regarding their deficits.

Preparation of the G20 Meeting of Finance Ministers and Governors (18-19 February)

The Council will discuss and agree a terms of reference which will form the basis of the EU’s contribution to the meeting of G20 Finance Ministers on 18-19 February. The meeting is scheduled to discuss: the global economy and framework for strong sustainable and balanced growth; reform of the international monetary system; commodities; financial regulation; follow-up of the report from the UN advisory group on climate change financing; and development issues.

Discharge procedure in respect of the implementation of the 2009 EU budget

Finance Ministers will discuss the Council’s recommendation to the European Parliament on the 2009 discharge procedure following the report from the European Court of Auditors (ECA) on implementation of the 2009 EU budget. The Government consider it unacceptable that the ECA has not been able to grant a positive statement of assurance on the EU budget as a whole for the 16th year in succession.

Budget guidelines for 2012

Ministers will adopt conclusions on the budget guidelines for 2012. These note that rigorous fiscal consolidation efforts will continue in 2012, and it is therefore essential that the 2012 budget take into account member states’ economic and budgetary constraints. They also stress the need for realistic budget estimates. The Government are determined that the efforts made to curb the EU budget’s growth in 2011 must be stepped up for the 2012 budget.

Banking

George Osborne Excerpts

Wednesday 9th February 2011 Commons Chamber

[The Chancellor of the Exchequer (Mr George Osborne)]

The near-collapse of the British banking system more than two years ago still generates today deep feelings of anger and cries for retribution. I understand that, for the link between risk and reward that underpins our free market was completely broken.

Bankers who had made the most catastrophic mistakes walked away with huge payouts and pensions. Those entrusted by us to regulate those bankers and run our economy washed their hands. Meanwhile the rest of the country is left paying every day for their failures. The new coalition Government must pick up the pieces. Let me set out how we will do that.

First, we will make sure that this never happens again. We are replacing entirely the tripartite system of regulation that was introduced by a previous Chancellor and his advisers in 1997, and which completely failed. Next week we will publish the detailed proposals to give the Bank of England responsibility for prudential regulation, and to create a new consumer protection and markets authority that will protect the interests of bank customers. We will then undertake pre-legislative scrutiny, as requested by the House, before introducing the Bill. I hope it will command support from both sides.

Later this year we will receive the interim and final reports of the Independent Banking Commission that this Government established, and which I asked Sir John Vickers to chair. Sir John and his fellow commissioners are asking the difficult questions that need to be asked about how we protect the British taxpayer from future bank failures so that never again is a bank too big to fail. We look forward to receiving their recommendations. I should make it very clear that nothing that I will say today about the settlement that we have reached with Britain’s banks, including references to a level playing field, in any way prejudges the outcome of the commission. That includes both the commission’s recommendations and the Government’s response.

The second task facing the Government is to make sure that we get the maximum sustainable tax revenues from the financial sector. Her Majesty’s Revenue and Customs confirms that the one-off bank payroll tax introduced in the dying months of the previous Government raised £2.3 billion net, but as my predecessor—the Chancellor who introduced the tax—has pointed out, it could not be repeated without massive tax avoidance. I agree with him and we will not repeat the bank payroll tax.

Instead, we have implemented a new and permanent bank levy, and that is why yesterday I announced an increase in that levy so that it raises £2.5 billion this year. This will bring the total raised by the new bank levy to £10 billion over the Parliament, and it means that in each and every year of this Government we will raise more in bank taxes than the previous Government raised in any single year. We have also required all the major banks operating in the UK to comply in spirit and by the letter with the code of practice on taxation. The code was announced with a fanfare by the previous Government, but I discovered that when they left office only two banks had signed up to it. Today all the major banks have signed.

The third task facing the new Government was to reach a new settlement with the banks so that they could contribute to Britain’s economic recovery. Some prominent people in the House were predicting just 24 hours ago that my tax announcement meant that our discussions with the banks on lending were falling apart. The House will be pleased to know that that prediction was completely wrong. This morning the heads of the major British banks—Barclays, RBS, Lloyds and HSBC—reached a new settlement with the Government. I want to thank John Varley, the former chief executive of Barclays, for the huge amount of time and personal commitment that he has given to this project.

The essentials of the new settlement are exactly as I set out last month, and I am today publishing an exchange of letters between John Varley and myself. The banks will lend more money, especially to small business; pay more taxes; pay less bonuses; be more transparent about the bonuses that they do pay; and make a greater contribution to our regional economy and society. In return the Government commit to the success of a strong, resilient, stable and globally competitive financial services sector in which UK banks can compete with the best banks in the world on a level playing field, and in which London is a world centre for finance. That is good for jobs and growth in our country.

Let me go through each part in detail, starting with pay and bonuses. Most of us find the levels of pay in financial services to be completely out of kilter with what the rest of society would regard as fair or reasonable. We are determined to bring responsibility and constraint, and make sure that pay is properly taxed. Four years ago, at the height of the banking boom, the City paid £11.5 billion in banking bonuses, most of which was in cash, most of which could not be recovered when the banks collapsed, and too much of which went untaxed. The new remuneration code introduced last month and the tax avoidance measures that we are taking will change that.

Today I can tell the House that the four major British banks have also agreed that total bonuses for their UK-based staff will be lower than last year and lower than they would have been without today’s settlement. The independent non-executive director who chairs each bank’s remuneration committee will have to confirm personally in writing to the Financial Services Authority that their pay deal conforms with today’s commitments. For the first time, the banks have agreed to seek explicit approval from their board’s remuneration committee for the pay of the 10 highest paid employees in each of their main business units. That did not happen in banks such as the Royal Bank of Scotland before the crisis, where the board was ignorant of what was going on.

We have also insisted that the banks be far more transparent about who and how they pay. From this year onwards, the four major banks have committed to disclose the pay details not just of their executive board members, but of the top five highest paid executives not on the board. This will mean that the salary details of at least seven executives at each bank will be published this year. That compares with five individuals in the United States of America and Hong Kong, and only board executives in Germany and Japan. By disclosing individual pay levels the settlement goes further than the Walker report recommended, on which we are seeking international agreement.

We will consult on whether to make it a mandatory requirement from 2012 on all large UK banks to publish the pay of the board plus the eight highest paid senior executive officers. That would mean that Britain had the toughest and most transparent pay regime of any major financial centre in the world.

Let me provide an update on the situation at the Royal Bank of Scotland and Lloyds. The previous Government signed an agreement with RBS that explicitly said that it would in 2010

“enable pay arrangements in line with the market”.

Despite that constraint, which we inherited from the previous Government, United Kingdom Financial Investments Ltd, the arm’s length body which manages the Government’s stake in those two banks, has agreed the following: for all staff at RBS and Lloyds, the maximum up-front cash bonuses will be limited to a maximum of £2,000 this year; all executive directors, including the chief executives, have agreed to receive this year’s bonuses entirely in the form of shares; and directors will have to wait until 2013 to convert these shares into cash.

As the Prime Minister made clear last month, the bonuses at RBS and Lloyds will in total be smaller than they were last year under the previous Government and so, crucially, will the compensation ratios be. They will backmarkers in the industry, instead of the front runners that they once were.

Let me turn from pay to the additional support that the British banks have committed today to provide to the regional economy. At the end of last year the industry pledged £1.5 billion to a new business growth fund, which will invest in the kinds of expanding small businesses that hold the key to Britain’s more balanced economic future. Today they commit to make an additional £1.2 billion contribution to society. The four major banks commit to an additional £l billion for the fund and an additional £200 million to capitalise the big society bank. The business growth fund contribution will be front-loaded over the next couple of years, so that more help can be given to businesses sooner. This money will be in addition to the lending commitments and additional to any funding already allocated from dormant bank accounts.

Finally, at the heart of today’s settlement is a commitment from the four major banks, as well as Santander, to make much more money available for lending to small and medium-sized business. Last year these banks lent £66 billion to such businesses. Today the banks commit to lend £76 billion this year. That is £10 billion more gross new lending to small and medium-sized businesses, a massive 15% increase, materially higher than they had been planning to lend this year and materially higher than anyone who has followed these discussions would have expected. It comes alongside a very welcome commitment from the banks greatly to improve their customer service to small businesses, with a free mentoring service, published lending principles, transparent appeals and improved access to trade finance. Overall, gross new lending to all businesses, large and small, will increase from £179 billion to £190 billion, and the banks will make a commitment to lend even more if demand materialises.

Absent this deal, the banks were actually expecting lending to fall this year. To ensure that progress against these lending commitments can be monitored, the Bank of England has agreed to collect the relevant data and publish them quarterly. To help to ensure that today’s agreement is honoured, for the first time the pay of the chief executives of each bank, as well as of the relevant business area leaders, will be linked to their performance against these SME lending targets. Of course, if the banks fail even then to live up to their promises, the Government reserve the right to return to the issue and take further measures, but I sincerely hope that will not be necessary.

The anger at the terrible mistakes of the banking industry and the failure of those who regulated it will long remain, and rightly so, but let us as a country confront this hard truth: anger and retribution will not bring one percentage point of economic growth or create one single new job. The anger will remain, and I understand that, and we must never make the same mistakes again, but Britain needs to move from retribution to recovery. Today we get the banks to commit, with more lending—£10 billion more for small businesses— for our regional economies and society, £10 billion more in bank taxes, lower bonuses and the most transparent pay regime in the world. In return, let us build a banking industry that creates jobs for hundreds of thousands of our citizens and that competes in the world. Above all, let us ensure that the economic catastrophe that befell this country can never be repeated. That is how this new Government will clean up the mistakes of the previous Government. I commend this statement to the House.

[Ed Balls (Morley and Outwood) (Lab/Co-op)]

Given that this statement was not on the Order Paper, I thank the Chancellor for the eight minutes’ advance notice he gave me of it. Yesterday, he confirmed in his “Today” programme mini-Budget that he is cutting taxes for the banks this year, compared to last year. [Interruption.] Today we find out what the Chancellor has got in return from the banks, after weeks and months of negotiations with the UK banking industry, culminating in the complete shambles of the past 24 hours, and the result is: precious little. From a Chancellor who talked so tough in opposition and who even yesterday continued to promise much, this is a pitiful outcome and an embarrassing climbdown. [Interruption.]

[Ed Balls]

Thank you, Mr Speaker. They tend to heckle when they are worried.

A “damp squib” is defined in the dictionary as something potentially explosive but that fails to perform because it has got wet. That is this Chancellor all over. This negotiation has turned from Project Merlin into “The Wizard of Oz”: the curtain has been pulled back and there is nothing there. Of the leading players on the Government Front Bench, who is the one without courage, who is the one without a brain and who is the one without a heart?

Let us review what the Chancellor has achieved. On lending, he claims to have secured an agreement with the banks to lend £190 billion this year, but financial experts are clear that the deal he has announced is vague, toothless and unenforceable and not a proper substitute for proper competition. How will he be able to measure in detail whether the deal is delivered? Can he tell us the detail of how it will be enforced? Is there a sanction if the lending does not materialise? Was not a senior banker right when he told the Daily Mail on Monday that this lending agreement is “meaningless”? Is not the Financial Times right to say today:

“With much noisy showmanship, the Conservative-Liberal Democrat coalition is puffing demands that are little more than cosmetic”?

Is not that the truth?

On pay transparency, again we have a damp squib. The Chancellor claims that we will now have the most open regime in the world, but what does it actually add up to? The answer is transparency for pay and remuneration of only the seven most senior bank executives, whose anonymity is still fully protected. The Government are demanding that local authorities publish the salaries of anyone in local government earning more than £58,200, but he is allowing a taxpayer-owned bank and publically quoted companies in the financial sector to continue to pay staff millions of pounds in pay and bonuses with no transparency at all.

Why is the Chancellor not activating the legislation that we put on the statute book that would require the publication of the remuneration of any individual paid more than £1 million? It is there on the statute book and ready to go, so why not just sign the order and get on with it? Why has he failed so abjectly to make any progress in international negotiations with European and global Governments on transparency? There has been no progress because there is no sign that he has even tried.

On bonuses, I am afraid that the country will conclude that the Chancellor has thrown in the towel in the face of extensive lobbying by people with whom he and his Conservative colleagues have just become too close and too cosy. Does he remember what the Prime Minister said just two years ago—when Leader of the Opposition—when attacking the previous Government? He said:

“Because of this dithering we could see bonuses paid out for a second year to executives in taxpayer owned banks, which is unacceptable.”

After months of dithering from this Chancellor, what will we see over the next fortnight? We will see exactly that: bonuses running into millions of pounds, in cash and shares, paid to executives in taxpayer-owned banks. What he should be doing today is announcing proper reform of corporate governance and taking up our proposal to repeat last year’s £3.5 billion bank bonus tax, in addition to his levy, and use the money to support jobs and growth to kick-start his stalled recovery.

I have told the Chancellor that I will support him on long-term banking reform, enforceable lending agreements and proper statutory action on transparency and pay. Our economy badly needs a reformed, transformed, vibrant and globally competitive financial services industry for the future. He is right that hundreds of thousands of jobs depend upon it. However, this is not an agreement to secure the long-term future of our economy, but a short-term and shabby political deal. There have been talks that dragged on for weeks, a mini-Budget on the “Today” programme, crisis conference calls with the banks yesterday afternoon, a hasty compromise cooked up overnight and a Chancellor finally coming to the House with little to offer in return for his tax cuts for the banks.

I have to say that this is a Chancellor who, as the former CBI head has said, puts politics before economics. He talked tough in opposition, but in government he looks increasingly out of his depth and out of touch. We have rising VAT, rising fuel prices, rising unemployment and deep spending cuts hitting living standards of families, and yet his first priority is a tax cut for the banks. Millions of families up and down the country will now be asking, whose side is this Government on?

[Mr Osborne]

Well, that has to be one of the feeblest replies to a statement that I have heard. The only person who seems to be out of his depth at the moment, rather surprisingly, is the shadow Chancellor. There was one thing missing from that rant: an apology. He was the City Minister. I will move on to all the things that we need to do to regulate the City, but I will first remind him that he stood at this Dispatch Box for two years as City Minister and could have done any of the things that were either in my statement or in his reply, but he did not. The truth is that he is man with a past, and we will not let him forget it—even if he does. I took the opportunity to look at his website on which he lists all his achievements in politics, but he does not mention the fact that he was City Minister. He does not mention the fact that he invented the system of City regulation that failed so spectacularly. He might have forgotten what he did not do in government; we will not.

Let me deal specifically with some of the right hon. Gentleman’s questions. He asks how the lending targets will be monitored. I told him in the statement that the Bank of England is going to monitor them. [Interruption.] “How are they going to be enforced?”, Opposition Members cry. The chief executive’s pay will be linked to the targets, and I made it very clear in the statement that, of course, if the deal is not met we will return to the issue.

The right hon. Gentleman talks about transparency. In 13 years, the previous Government never implemented transparency in the City of London. Some £11.5 billion of bonuses were paid in the year in which he was the City Minister, but we are introducing the most transparent regime of any major financial centre in the world.

The right hon. Gentleman continues deliberately—because I know he must know the numbers—to get the sums wrong on the bank payroll tax and bank levy. Her Majesty’s Revenue and Customs confirmed that there is a £2.3 billion net receipt from the bank payroll tax, and that is spelled out in the March 2010 Budget book, which the Labour Government published. We are raising £2.5 billion every year from a bank levy that he opposes— right?—unless he has changed his mind on that. [Interruption.] He now supports it. Well, that is good news.

Perhaps, then, the right hon. Gentleman will listen to the right hon. Member for Edinburgh South West (Mr Darling). The right hon. Member for Morley and Outwood (Ed Balls) quoted quite a lot from the newspapers in his reply. Well, this is from The Daily Telegraph: “Bankers’ bonus tax failed, admits Alistair Darling,” who said:

“I think it will be a one-off thing because, frankly, the very people you are after here are very good at getting out of these things and...will find all sorts of imaginative ways of avoiding it in the future.”

That is from the then Chancellor who actually introduced the tax on which the right hon. Gentleman now pins his entire economic prospects.

Let me end by saying this: the right hon. Gentleman calls for things that he simply did not do in government. On pay and bonuses, he says control them in the nationalised banks; he did not do that last year when he was in the Cabinet, and he did not do it at all when he was in the Treasury. He calls for transparency; he did not introduce it when he was in the Cabinet or in the Treasury. He talks about reforming the banking system; he is the person who designed the banking regulatory system that failed, but he does not admit it. He talks about the bank levy; he wrote 11 Budgets and never put one in. And on lending, he tried as a member of the Government to secure lending agreements throughout the banks, and he completely failed. The truth is this: he is a man running away from his past, with no plan for the future.

[Mr Andrew Tyrie (Chichester) (Con)]

Anybody looking reasonably at the settlement will have to agree that it is a welcome step in the right direction. In normal times, Governments should not intervene to force banks to lend or to reveal commercial details of pay, and I very much hope the Chancellor will confirm that it is a one-off, with one exception. Does he not agree that, without further transparency on bonuses, we will never know whether banks are fuelling risks and mistakes for which one day, as a result of the way they misallocate risk, we may have to pay? Will he also support the Treasury Committee’s initiative, outlined in a letter to the Financial Services Authority, and supported by Sir David Walker, to secure that much higher level of transparency?

[Mr Osborne]

I thank the Chair of the Treasury Committee for the welcome that he gives to the package. Of course, in any normal times one would not want to have to negotiate lending agreements with the banks or, indeed, be in a situation where half our banking sector was in part in the public’s hands, but that is the situation that we inherited as a Government and why I felt that the agreement with the banks was necessary, as well as the additional tax that we are levying on them.

My hon. Friend specifically raises the issue of transparency and his proposals that I know he has put to the FSA. As I said in my statement, we have a voluntary agreement this year on disclosure, which already goes beyond those of other financial centres in the world, but, having consulted, we will legislate in the coming year, and his proposals will deserve close attention.

[Mr Geoffrey Robinson (Coventry North West) (Lab)]

Will the Chancellor confirm that, as a result of his Herculean efforts in this struggle with the banks, the names of the traders who are still going to be awarded the greatest bonuses will not be made public?

[Mr Osborne]

The disclosure will be of those senior executives not on the board, but in the Walker proposals there was not even a proposal to identify individual salaries. So it is the senior executives who will be identified.

[Stephen Williams (Bristol West) (LD)]

I welcome what the Chancellor says about the levy, the extra lending, the transparency on bonuses and, in particular, the restraint shown by the two banks that are effectively under state control. On the banks that are not under our control, however, does he agree that, at a time when families throughout the country face difficulties, some banks seem to have lost their moral compass and really ought not to award themselves extravagant bonuses on a level that families could only dream of?

[Mr Osborne]

I agree with my hon. Friend that the banks should show restraint and an appreciation of the society in which they operate, the challenges that we face with the economy and, indeed, the squeeze on families’ incomes, in part due to the high prices of things such as oil and food. I make this observation: the bonuses this year will be lower than those in the last year of the Labour Government; and, as a result of this agreement, they will also be lower than they would have been, a point that will be confirmed by the independent non-executive director of the individual bank.

[Mr Dennis Skinner (Bolsover) (Lab)]

Why should anybody believe that the Chancellor of the Exchequer has got the guts to take on the banks, when today it is revealed that he and his friends in the Tory party—those on millionaires’ row—have picked up £44 million from those bankers in the City? Why should we believe all this rubbish?

[Mr Osborne]

I thought that the hon. Gentleman might ask a question like that, so I did a bit of research and discovered that one of the biggest donors to the shadow Chancellor’s party leadership campaign was a Michael Sanzone, who started off at ABN Amro, moved to RBS and ended up at Lehman Brothers before supporting his campaign. They are probably the four most catastrophic decisions of recent years.

[Charlie Elphicke (Dover) (Con)]

That gentleman was probably expecting a knighthood and a peerage, like so many of them had in the past. Have we not moved on from excessive bonuses to an emphasis on lending more money to small and medium-sized enterprises? Are we not seeing £10 billion for SMEs and £2.5 billion in total for the new growth fund?

[Mr Osborne]

My hon. Friend is absolutely right. For me, in these discussions the absolute key has been the additional commitment to lend to small and medium-sized businesses. Over the past couple of years, all Members have had people in our constituencies come to us with very difficult stories about the failure of banks to lend to such businesses, and we now have a commitment to increase the lending available by 15%, which is a substantial increase. Alongside that—I did not have time to go into all the detail, but it is being published this afternoon—there will be a new code of practice for the banks to treat their customers much more fairly: for example, they should engage with small businesses a full year before an overdraft comes up for renewal. For me, dealing with that crucial area of the economy—getting credit to small and medium-sized businesses—has been one of the most important parts of the new settlement.

[Simon Danczuk (Rochdale) (Lab)]

We now have the big society shrinking before our eyes, and voluntary organisations seeing their budgets cut left, right and centre. At the same time, we still have bankers’ bonuses well beyond most people’s dreams, and on top of that we learn today that the City and organisations in it, as my hon. Friend the Member for Bolsover (Mr Skinner) pointed out, have been stuffing money into the Tory party’s coffers. Is this a series of coincidences, or should the public be more suspicious?

[Mr Osborne]

I just pointed out that a Lehman Brothers executive was one of the biggest donors to the shadow Chancellor’s campaign, and I think the hon. Member for Bolsover (Mr Skinner) shouted at that point, “Well, I didn’t vote for him.” [Interruption.] He repeats it; in fact, he probably did not vote for the Labour party leader, because as far as I can tell virtually no Labour MP did. That brings me to this point: the key thing about the Labour party and its fundraising is that it gets money from the trade unions and changes policy as a result.

[Nicky Morgan (Loughborough) (Con)]

On behalf of the small businesses and voluntary sector in my constituency, may I thank the Chancellor for his announcements about the business growth fund and the big society bank? Is not the reason why the shadow Chancellor’s statement was so empty that the Opposition realise that they did nothing so constructive during their 13 years in government?

[Mr Osborne]

My hon. Friend makes the very good point that we need to see more support for small and medium-sized businesses in our constituencies and in our economy. The regional business fund that I talked about, to which the banks have today made a commitment of an additional £1 billion, is very important because it addresses one of the weaknesses in the British economy—the absence of support, particularly equity support, for small, expanding businesses. I think that this will make a significant contribution to that.

[Stewart Hosie (Dundee East) (SNP)]

I thank the Chancellor for his statement and for the early advance sight of it. I agree with what he said about the public’s response to the high levels of pay, which are not fair and reasonable and are not seen to be so. I welcome the very low cash bonuses for RBS and Lloyds staff and the decision for executive bonuses to be paid in shares only. May I suggest that that should rolled out to every bank every year as a matter of course? On the new bank lending, will he confirm that it will really be new, that it will go to the businesses that need it most, and that we will not be locked into excessive fees and charges?

--- Later in debate ---

[Mr Osborne]

I thank the hon. Gentleman for the support he has given to important parts of this package. I understand how important the banking industry is to Scotland, where many thousands of people are employed in it, and the impact that the failure of RBS and HBOS had in Scotland. On his specific point about bonuses, the new code of practice that came in last month forces all banks to pay a much greater proportion of their bonuses in shares and in deferred packages. Of course, none of this existed when Labour was regulating the City. As I have said, I would urge the banks to show restraint and reflect the fact that they are operating in a society with economic challenges brought about by the deepest recession and the biggest banking crisis of our lifetimes.

[Jason McCartney (Colne Valley) (Con)]

Let me tell the hon. Member for Bolsover (Mr Skinner) that my constituents and I can only dream of living in the £1.6 million house that his party leader lives in.

I welcome the Chancellor’s statement on lending to small businesses and curbing banking bonuses. However, with Lloyds TSB closing its last remaining branch in Meltham and Barclays closing its branch in Milnsbridge, when he next meets the banking bosses will he please stress the importance of community banking and the fact that not all constituents have access to internet banking?

[Mr Osborne]

When I next talk to the banking chiefs, I will certainly communicate to them, or my office will do so, the specific issues that my hon. Friend raises about the two banks in his constituency. One of the challenges we have at the moment is that RBS and Lloyds are trying to de-lever because of the enormous mess they got into under the previous Government. More generally, he makes a very good point about the importance of community banking. The four banks that have reached this settlement today are committed to extending that and thereby, to a degree, rolling back what happened in recent years. There are also those who want to enter the banking sector. Of course, they have to comply with the FSA requirements, but I know that some of them are offering a return to the kind of community banking that he talked about.

[Anas Sarwar (Glasgow Central) (Lab)]

The Chancellor compares the funding given to the Labour party by trade unionists with the 50% of donations to his party from the City, but I remind him that it was the bankers who caused this crisis, not millions of hard-working trade unionists.

An FSA report found that RBS had 1.1 million customer complaints, more than 50% of which were not dealt with appropriately, resulting in a £2.8 million fine. Does the Chancellor think it is right to reward failure with lavish bonuses, whether in cash or in shares?

[Mr Osborne]

It was the last Labour Government who were responsible for the economic mess that we got ourselves into, and the sooner Labour Members face up to that, the better. One example of that was the arrangements put in place regarding RBS, to which the hon. Gentleman referred. That is the contract that we inherited from Labour; this is what the then Ministers who now sit on the shadow Front Bench signed up to: they explicitly told RBS that from 2010 it should pay in line with the market rate. We have now got it to be at the back of the market, not the front.

[Brandon Lewis (Great Yarmouth) (Con)]

Like other Members, I welcome the move on lending to small businesses. The Federation of Small Businesses, the chambers of commerce and independent businesses have been arguing for some time that good businesses that are viable but have cash-flow problems have been struggling as a result of the policy of the banks under the previous Government. Given that this new move will allow those businesses to survive, and indeed grow, to the benefit of the economy, does the Chancellor agree that it is somewhat surprising, if not disappointing, that the shadow Chancellor and Labour Members have not welcomed it?

[Mr Osborne]

It is surprising. I noticed that in the shadow Chancellor’s rather extraordinary response there was no mention of lending. Indeed, I am not even sure what the Labour party’s plan is to get the banks to lend more and whether Labour Members welcome this move or not. I know for a fact that the previous Labour Government tried to negotiate a cross-bank agreement on gross lending, and failed. One would have thought, therefore, that they would welcome this, but they have not done so. My hon. Friend makes the good point that the key is to get lending to small businesses going, which is where the market failure has been over the past couple of years. That is absolutely crucial to our economic recovery.

[Mr George Mudie (Leeds East) (Lab)]

Now that the Chancellor is into transparency on salaries, can he, as the largest shareholder in RBS, the bailed-out bank, tell the House whether it is true, as the Financial Times has suggested, that 100 bankers are earning more than £1 million? If not, how many are?

[Mr Osborne]

The transparency arrangements are the ones that I have set out, and the arrangements for managing RBS are the ones put in place by the Government of whom he was a Whip.

[James Morris (Halesowen and Rowley Regis) (Con)]

Many hard-working families and people in my constituency will welcome today’s announcements. Does the Chancellor agree that the banks have a moral responsibility to invest in areas such as the west midlands and the black country, where we need the private sector jobs growth that is vital for the future?

[Mr Osborne]

I absolutely agree with my hon. Friend. There is a preponderance of small and medium-sized manufacturing businesses in the west midlands and the black country, as I know from my various visits there. These are precisely the sort of firms that we need to help and assist, and this agreement means that more lending will be available to them. As I say, there is also a commitment to a regional business support fund that will provide equity investment to help those small and medium-sized firms to become bigger firms, which is what the British economy needs so that we do not, as we did in the past 10 years, depend on one sector, in one corner of the country, for our economic growth.

[John Mann (Bassetlaw) (Lab)]

Is the Chancellor confident enough to predict that as a consequence of this package there will be more small businesses on the high streets of Retford, Worksop and Harworth at the end of this year?

[Mr Osborne]

I am confident about saying that the situation for small and medium-sized businesses in the hon. Gentleman’s constituency and elsewhere will improve. The situation is not going to be transformed overnight—[Interruption.] The hon. Member for Vale of Clwyd (Chris Ruane) and others seem to have complete amnesia about the fact that Labour presided over the biggest banking crisis and the deepest recession since the 1930s. Labour Members got elected on the slogan crafted by the shadow Chancellor, “No more boom and bust”, and then gave us the biggest boom and the biggest bust, and we are recovering the economy from the mess that they left.

[Several hon. Members]

rose—

[Nadhim Zahawi (Stratford-on-Avon) (Con)]

Thank you, Mr Speaker.

“If the City is doing well, the country is doing well. When it prospers, we all prosper”.

They are not my words but those of the shadow Chancellor. Did my right hon. Friend take any advice from him?

[Mr Osborne]

No, instead I learned from the example of all the things that went wrong when the shadow Chancellor was City Minister. As one does on these occasions, I came into the Chamber armed with many of his quotes about what a golden legacy he was leaving in the City, how bonuses were at the appropriate level, and how he was going to resist all calls in Parliament to toughen up regulation. It would take a couple of hours to read them all out, but no doubt over the next few years we will have plenty of opportunities to remind him that he is a man with a past.

[Ms Margaret Ritchie (South Down) (SDLP)]

I understand that the business growth fund will have a network of regional offices throughout the UK. Will there be such an office in Northern Ireland to work with the banking sector, the business community and the Northern Ireland Executive?

[Mr Osborne]

Yes, I will ensure that there will be a presence in Northern Ireland. We are seeking to ensure that there is co-ordination between the business growth fund and the Government’s regional fund. As I have said on many occasions to Members from Northern Ireland, we are acutely aware of the challenges in Northern Ireland. The Secretary of State for Northern Ireland has produced a paper on how we might revive the Northern Ireland economy, which is now with the devolved Government. I am taking a close personal interest in that and I hope shortly to come forward, with my right hon. Friend, with some concrete proposals.

[David Rutley (Macclesfield) (Con)]

I welcome the announcement on the increase in funding for the business growth fund and the new lending agreements. Does my right hon. Friend agree that those steps will help to establish a new generation of wealth creators, which is an urgent priority in regions such as the north-west, where private sector growth has to be the focus?

[Mr Osborne]

My hon. Friend is right, which is good as he is my local MP. One of the weaknesses in the British economy over recent years has been that small and medium-sized businesses have not had access to venture capital and other sources of funding, as they have had in countries such as the United States and Germany, so that they can become larger companies. The regional business growth fund that I have spoken about will provide more access to such funding. I will also return to this issue in the Budget.

[John McDonnell (Hayes and Harlington) (Lab)]

I believe that I was the first MP to raise the issue of bankers’ bonuses in this House five years ago, and I was critical of the previous Government. I say to the Chancellor directly that referring pay to remuneration committees, which is a largely toothless and ineffective rubber-stamping exercise, and allowing bankers at RBS to convert their shares into cash bonuses within two years will not assuage the anger of the British people.

[Mr Osborne]

First, I respect the hon. Gentleman’s consistency on this issue. Secondly, I said explicitly that I did not think that the anger would disappear any time soon; memories will be long of what has gone wrong in recent years. It will help that bank boards will at least be aware of the some of the salaries that are being paid in their organisations, which they simply were not under the previous regime. That is one thing that clearly went wrong at the Royal Bank of Scotland.

[Mr Aidan Burley (Cannock Chase) (Con)]

A man named Tom Bell set up a charity in my constituency to improve the quality of life for tens of thousands of disabled and disadvantaged kids. He was awarded the OBE for his efforts. In assessing the rewards given to bankers, what does the Chancellor make of the five peerages, eight knighthoods, seven CBEs, four OBEs and four MBEs that were given to bankers by the Labour Government?

[Mr Osborne]

The statistics speak for themselves. Of course, the shadow Chancellor used to be the chief economic adviser and, given that almost everything at the Treasury was signed off by him, he presumably signed off the knighthood for Sir Fred Goodwin. Perhaps in one of our future encounters we will hear the truth about that.

[Mr Ronnie Campbell (Blyth Valley) (Lab)]

Some £125 billion was put into the banks by the last Labour Government to bail them out in the crisis. Will the Chancellor tell us when the taxpayer will get that money back?

[Mr Osborne]

Unfortunately, if we sold those shares today, we would lose money as a country. Of course we want to return those banks to the private sector. That is clearly an objective of this Government, and I suspect that it will be an important issue in this Chamber during this Parliament. The hon. Gentleman makes a very good point: a huge sum of money was put in to bail out the banks and no conditions were attached. With all the things that I have talked about today and all the things that the shadow Chancellor asked about, such as pay and transparency, when the previous Government had the leverage, they did not use it. Unfortunately, we have to deal with that inheritance.

[Matthew Hancock (West Suffolk) (Con)]

Yesterday, before the Public Accounts Committee, Treasury civil servants explained that the previous Government had the opportunity to seek to put constraints on this year’s bonuses at the partly state-owned banks, but that they chose not to. Is the Chancellor disappointed by that?

[Mr Osborne]

I am not only disappointed by it; it has been a constraint in what we have been dealing with. It is very explicit—[Interruption.] The shadow Chancellor says this is rubbish, but that was the agreement that he and his colleagues signed up to. That is the problem on this issue, and I think that that is beginning to dawn on them. They have a past—they have a record. It is a record of letting the City get away with murder, and of the rest of us having to pick up the pieces.

[Mr Andrew Love (Edmonton) (Lab/Co-op)]

Following the statement on bankers’ bonuses, how would the Chancellor respond to the one in ten of my constituents who are unemployed and looking for work; the many low-paid workers who face real reductions in their living standards over the next few years; and the many public sector workers who face the possibility of redundancy? Please do not respond by saying, “We’re all in this together.”

[Mr Osborne]

To repeat what I said in my statement, I completely understand the anger and resentment felt by the many people who have lost their job or faced their income being squeezed because of the mess that was created in the British economy by the banking system and those who were regulating it. That is the situation we are dealing with. My priority today has been to put the economic recovery first and to ensure that we get banks to lend to small and medium-sized businesses, so that they can take on the people the hon. Gentleman is talking about. Small and medium-sized businesses are the engine of job creation in the British economy and they are crucial to our revival. It is also crucial that we rebalance the economy so that we are not as dependent as we were on the success of the financial services sector.

[Mr Marcus Jones (Nuneaton) (Con)]

I congratulate the Chancellor on securing the banks’ commitment to increased lending to small and medium-sized enterprises. However, the banks’ aggressive treatment of SMEs, many of which are almost being bullied into accepting new lending terms, fees and charges, is still an issue that is damaging the potential for growth in our economy. Has the Chancellor discussed that issue with the banks during this process, and what do the banks intend to do about it?

--- Later in debate ---

[Mr Osborne]

I assure my hon. Friend that that issue has been at the heart of the discussions. As I have said, that is why we have put such an emphasis on getting a commitment to increased lending to small and medium-sized businesses. There will be a new code for banks, under which they will have to treat their customers much more fairly, be more reasonable and transparent about the terms that they offer, and engage with customers long before overdrafts and the like need to be renewed.

[Naomi Long (Belfast East) (Alliance)]

I thank the Chancellor for the reassurance he gave to the hon. Member for South Down (Ms Ritchie). As he knows, Northern Ireland has a very discrete banking sector, which has been heavily affected by the Irish banking crisis, as well as by the UK banking crisis. Will he ensure that businesses and individuals in Northern Ireland benefit from the announcement he has made today with regard to both lending and regulation?

[Mr Osborne]

As I said to the hon. Lady’s colleague from Northern Ireland, I am paying particular attention to the Northern Ireland economy, partly because of what has happened in the Republic of Ireland. I am also paying particular attention to the Northern Ireland banking system, because there is the potential for a knock-on effect from what has happened in southern Ireland. As I said, I am working closely with the Secretary of State for Northern Ireland on what we can do to stimulate growth in Northern Ireland. Finally, despite their questions, I welcome the support I have received from some Opposition parties in the House. That reflects on the fact that although the statement does not contain everything that people want, it is a positive step forward. It also shows how opportunistic the opposition of the former Labour Government is.

[Amber Rudd (Hastings and Rye) (Con)]

Does the Chancellor welcome, as I do, the assessment of the Centre for Economics and Business Research that for the first time ever, bankers will pay more in tax than they take home from their bonuses?

[Mr Osborne]

I do welcome that research. We need to ensure that we get the tax revenues up. We have introduced the permanent bank levy, which was opposed by the Labour party. We have forced the banks to sign up to the code of practice, which Labour announced in a fanfare from this Dispatch Box, but managed to get only two banks to sign up to—we have got all the banks to sign up. We are looking at the tax avoidance measures that have been used, such as disguised remuneration, which the previous Government had 13 years to address, but failed to do.

[Kate Green (Stretford and Urmston) (Lab)]

Not every worker in a bank is on a multi-million pound salary. Clerical, back office and counter staff frequently earn well under £20,000 a year. Is the Chancellor confident that these measures will begin to reduce pay inequality in the banking sector, and will he have discussions with senior bankers about worker representation on remuneration committees?

[Mr Osborne]

I am certainly happy to raise the issue about representation that the hon. Lady mentions, but—[Interruption.] These people seem to forget that they were running the country for 13 years and had every chance to do the things that they complain about now, and they completely failed.

To return to what the hon. Lady said, I will raise the specific issue of the representation of workers within the banks. As I have said, most people, including myself, find some of the levels of pay in the financial services sector extraordinary. We are seeking to start to constrain them, although we obviously have greater control over the semi-nationalised banks. I hope that we are also ensuring that we get the tax revenues required to help pay off the nation’s credit card, the budget deficit.

[Neil Parish (Tiverton and Honiton) (Con)]

Like many hon. Members, I welcome the Chancellor’s getting greater lending from the banks for small businesses, but can he assure us that there is proper competition within the banking sector, so that money is lent at competitive rates? That is one of the problems that businesses in my constituency are having: they cannot get the money at the proper rate.

[Mr Osborne]

My hon. Friend is right that competition in the banking industry is very important. In the past two or three years we have seen a massive consolidation of the banking industry, with many of the building societies being folded into the larger banks. HBOS disappeared, for understandable reasons, Northern Rock had to be nationalised and so on. One of the remits of the Vickers commission, the Independent Commission on Banking, is to examine competition in the sector, and of course John Vickers himself has personal experience of competition issues. That was one reason why I asked him to take up the post. The commission is examining the specific issue that my hon. Friend raises.

[Gordon Banks (Ochil and South Perthshire) (Lab)]

On the Chancellor’s aspiration to have an extra £10 billion lent by the banks to UK SMEs, may I ask him how that figure was arrived at? Is it what he considers is lacking in the economy, or is it all he could prise from his friends? Is it gross or net?

[Mr Osborne]

The number is gross, like the lending targets agreed by the previous Government for the nationalised banks, but this is, of course, an agreement across the banking sector. The number was part of the hard negotiations that we had in order to get the amount up. The banks were anticipating reducing lending in the British economy over the coming year, and we have reversed that and got a 15% increase in small and medium-sized business lending.

[Christopher Pincher (Tamworth) (Con)]

In the light of his statement and what he has heard from the Opposition Front Bench, will my right hon. Friend give any further consideration to the warning offered by a certain soi-disant financial journalist who said that nothing must be done to endanger a light-touch, risk-based regulatory regime? [Interruption.]

--- Later in debate ---

[Mr Osborne]

I must say that it is a slightly depressing thought that the appointment of the hon. Member for Vale of Clwyd as shadow Parliamentary Private Secretary means that this will be a constant feature of the encounters in the House between me and the shadow Chancellor, but there we go.

My hon. Friend the Member for Tamworth (Christopher Pincher) makes a very good point. There are, of course, legions of quotes from former Labour Ministers including the shadow Chancellor about the light-touch regime, how they were resisting calls in Parliament to strengthen it and all of that. Quite a few of them, of course, have gone off to work in the banking sector since leaving Parliament.

[Mark Durkan (Foyle) (SDLP)]

Does the Chancellor not accept that he may be overselling as transparency something that is really just temporary and limited translucency on bonuses, credit and lending to business? What guarantees are there that the Bank of England will not just report on the aggregate of the money available but will examine the prices and conditions involved? Will he also guarantee that if businesses are relieved by credit granted, they will not be floored by tax demanded?

[Mr Osborne]

First, on transparency, at the moment we have a voluntary commitment by the largest British banks, and we are going to turn that into a legislative requirement on all the major banks operating in the UK. We will bring forward proposals over the coming year to consult on that, as we have to do under the statutory procedures, but my intention has been made clear.

Bank charges and so on are properly not a responsibility of the Bank of England at the moment. It is going to focus on collecting the numbers. However, we are creating a strong consumer protection and markets authority—there will be legislation before the House on that, and a very good chief executive-designate has been hired. He will ensure that the customer gets a fair deal as well.

[Geraint Davies (Swansea West) (Lab/Co-op)]

Will the Chancellor put a cap on the value of the shares that bank executives give themselves as bonuses, or will shares now be seen as a Trojan horse for bankers to give themselves still greater bonuses in future?

[Mr Osborne]

As I have explained, bonuses are actually going to be lower this year than they were in the last year of the Labour Government, who had an opportunity to do something about them.

Yes, bonuses will increasingly be paid in shares, and for a very good reason—so that when the bank goes bust, people will not walk away with a huge payment. We remember not just Fred Goodwin’s knighthood but the pension that the Labour party awarded him. It was completely unable to deal with the fact that the bankers in the banks that went bust walked away with their money. One of the reasons for paying bonuses in shares, and why we have introduced the code, is so that the bankers, too, will pay a price if the bank in which they are involved fails.

[Alex Cunningham (Stockton North) (Lab)]

The education maintenance allowance costs £580 million a year, a fraction of the cash that the Chancellor could be raising from the banks. Why is he taking more money from young people’s EMA and other things affecting their lives than he is taking from the banks?

--- Later in debate ---

[Mr Osborne]

First, we are taking £2.5 billion from the banks each year, which is more in each year than in any of the Labour Government’s 13 years. Of course, the context of all this is the enormous budget deficit. It is worth reminding Opposition Members that in eight weeks’ time, the Darling plan would have started to take effect—the halving of the budget deficit in four years, which they kept repeating in the election and which the shadow Chancellor was apparently forced to sign up to. In eight weeks’ time the big cuts would have come, which would have been £2 billion less than the cuts being undertaken by the coalition Government. We have eight weeks to hear Labour’s plan for where the cuts would fall.

Oral Answers to Questions

George Osborne Excerpts

Tuesday 8th February 2011 Commons Chamber

[Chris Evans (Islwyn) (Lab/Co-op)]

1. What factors he has identified as underlying the fall in gross domestic product in the fourth quarter of 2010.

[The Chancellor of the Exchequer (Mr George Osborne)]

The Office for National Statistics attributes the actual fall in GDP to the bad weather in December, but we have been clear that even without that effect, the numbers were disappointing. In the past week, there have been more encouraging survey data showing services, construction, retail and especially manufacturing all growing more strongly—something the Opposition have been mysteriously silent about.

[Chris Evans]

Could the Chancellor please tell the traders on Blackwood High street whom I met this Saturday whether the rise in VAT will help or hinder them this quarter?

[Mr Osborne]

The VAT increase, like the other measures we are taking, helps to deal with the record Budget deficit that we inherited from the Labour party. By dealing with that, we have provided financial stability for the British economy. That has also been made clear by the previous Chancellor, the right hon. Member for Edinburgh South West (Mr Darling), who would also have gone ahead with a VAT increase.

[Mr John Redwood (Wokingham) (Con)]

Given that the last quarter of last year saw a big real increase in public spending and a further big increase in debt, does that not show that there is no necessary connection between those things and growth and that it would be quite wrong to think that spending and borrowing more would solve the problem?

[Mr Osborne]

My right hon. Friend is absolutely correct. Of course, in December, the Government were spending, in real terms, a record amount. I make the point again that we inherited a record Budget deficit. I believe that Labour’s plan, set out in its March Budget, was to start cuts in April this year. We have set out a credible plan and we are awaiting one from Labour.

[Stephen Timms (East Ham) (Lab)]

The figures underline that the economy is not out of the danger zone. Does the Chancellor know of the concern expressed by the Recruitment and Employment Confederation about a new lost generation of unemployed young people of the kind we saw in the ’80s and ’90s? What assessment has he made of measures the Government can take to avoid that problem?

[Mr Osborne]

The right hon. Gentleman is absolutely right that unemployment went up by 1 million under the previous Government. We know that even in the good years, the problem of youth unemployment increased and that we as a country were not able to do much about it. This Government are determined to tackle that head-on with reform of the welfare system so that it always pays to work and, at the same time, with the new Work programme, which will give young people the skills and opportunities they need to get off those unemployment rolls.

[Mr Andrew Tyrie (Chichester) (Con)]

In giving evidence before the Treasury Committee, Lord Turnbull made it clear that spending as a proportion of GDP should be nearer 40% than the current level of nearly 50%. The OECD has said that the deficit will retard growth. Will the Chancellor make more of the case that action is needed to tackle the deficit not just on financial grounds but to help release the wealth-creating sectors of the economy?

[Mr Osborne]

My hon. Friend is clearly correct that it is unsustainable for the Government to be consuming almost 50% of national income. Lord Turnbull observes that under Labour and Conservative Governments in the past, the number was closer to 40%. Of course, the deficit reduction plan that we have set out brings that about.

[Ed Balls (Morley and Outwood) (Lab/Co-op)]

It is an honour and a great responsibility to shadow the Chancellor of the Exchequer at this critical time for our economy and our country. I pay tribute to my predecessor and thank him for everything he did despite the fact that I seem to have inherited an excessively large number of breakfast meetings from him. It is a good job that I did not have one today, or I would have missed this morning’s rather hurried mini-Budget.

It snowed so badly in December in Britain that airports closed, our economy shuddered to a halt, consumer confidence slumped and unemployment rose. In America, it also snowed so badly that airports closed, but the pace of US economic growth increased, consumer confidence was high and unemployment fell to a two-year low. Could the Chancellor tell the House whether there is something different about snow in Britain—or is there a better explanation as to why the American economy grew and Britain’s did not?

[Mr Osborne]

First, I welcome the right hon. Gentleman to his post and congratulate him on his appointment. Now he and the Leader of the Opposition know what it is like to be second choice. The new shadow Chancellor knows, because he was at the Treasury and he is a man with a past, that Britain had the largest housing boom, the biggest banking crash and the largest budget deficit, and as a result, recovering from the deepest recession was always going to be challenging and choppy, but we have set out a credible plan, including an increase in the bank levy, to deal with the budget deficit, which he refuses to deal with because he is a deficit denier.

[Ed Balls]

No answer to the question on America. Perhaps the Chancellor should have spent less time on the ski slopes of Switzerland and more time in the conference halls of Davos, listening to the American Treasury Secretary. Let me tell the right hon. Gentleman what he said:

“You’ve got to make sure you don’t hurt the recovery . . . There are some people who like to move . . . very quickly to do very deep cuts in spending but it is not the responsible way to do it.”

In June, unemployment was falling and growth was forecast to be 2.3% this year. Now unemployment is rising and growth is stalled. With consumer confidence falling, inflation rising, no bank lending agreement, no plan for jobs, no plan for growth, no plan B, does the Chancellor really expect us to believe that he can meet his forecast for economic growth this year, or will he have to stand at the Dispatch Box at the Budget in six weeks and downgrade his very first growth forecast?

[Mr Osborne]

The right hon. Gentleman clearly had a lot of time to prepare that, but I am not sure it all came out as he expected. We have had to deal with his economic legacy and he is running away from his past. He was the City Minister who knighted Fred Goodwin. He is the economic adviser whose fiscal policy has led to fiscal disaster. He is the leadership candidate who, for reasons of political positioning, denies the deficit. The truth is this: we have a plan to clear up his mess. He has no plan at all.

[Karl MᶜCartney (Lincoln) (Con)]

2. What progress he has made in reforming the tripartite system of financial regulation.

[David Tredinnick (Bosworth) (Con)]

10. What progress he has made in reforming the tripartite system of financial regulation.

[The Chancellor of the Exchequer (Mr George Osborne)]

The tripartite system of financial regulation put in place by the new Chancellor and his advisers in 1997 failed spectacularly and cost the British people billions of pounds. That is why we are replacing the tripartite system with a much tougher and more coherent regime led by the Bank of England. We aim to have that system in place by the end of 2012. I repeat what I just said: we have today increased the rate of the Government’s permanent bank levy for this year in order to raise £2.5 billion net. This will mean that the banks pay more in tax in each and every year of this Government than they did in the last year of the previous Government. Through this new bank tax being made permanent and with the revenue announcement today, the banks will be making a fairer contribution to our economic recovery.

[Karl MᶜCartney]

Does my right hon. Friend regret the fact that the system of financial regulation, which was drawn up by the right hon. Member for Morley and Outwood (Ed Balls), failed to prevent the greatest financial crisis in our country in living memory?

[Mr Osborne]

Of course I regret it, because we are all having to deal with the consequences. We still do not know—the legislation will come before the House of Commons—whether the Opposition support changing the system of regulation that was established by the right hon. Member for Morley and Outwood (Ed Balls) in 1997. I guess we will find out. The Government are clear—we must fix the system of regulation that went so badly wrong, and we believe that giving the Bank of England the lead responsibility on that will help.

[Jane Ellison]

As the Chancellor knows, the Leader of the Opposition has admitted that the previous Government got regulation wrong. One area that was wrong was inadequate customer protection in the consumer credit market. Given considerable recent interest in the subject in the House, can he update us on the creation of the consumer protection agency?

[Mr Osborne]

My hon. Friend is right. It was an interesting admission from the Leader of the Opposition that things started to go badly wrong when he was an adviser at the Treasury. Maybe the man he did the photocopying for will make a similar admission. The creation of a consumer protection and markets agency will provide a stronger consumer voice and a consumer champion. It will be a world-class regulator. We are assembling the right team to run that agency, including many talented people who were at the Financial Services Authority. I am delighted that Martin Wheatley has been appointed as the chief executive designate. He has an outstanding record as a regulator around the world and his arrival bodes well for the future of the new agency.

[David Tredinnick]

Was the three-way split in financial regulation the worst financial decision taken by the previous Government, or has something else caught my right hon. Friend’s eye?

[Mr George Osborne]

There is the selling off of the gold at a record low and the pensions tax that destroyed our pensions system, but I have to say that, in terms of sheer cost to the British taxpayer, the system of regulation designed by the shadow Chancellor was pretty catastrophic.

[Mrs Sharon Hodgson (Washington and Sunderland West) (Lab)]

Why did the Chancellor endorse the report published by the right hon. Member for Wokingham (Mr Redwood) just a few weeks before the collapse of Northern Rock, which called for the deregulation of the mortgage market? Does he still support its conclusions?

[Chris Ruane (Vale of Clwyd) (Lab)]

Come on, straight answer.

[Mr Osborne]

The new Parliamentary Private Secretary is barracking; what a shame he has moved four Benches down, because he is probably going to get louder. I can tell the hon. Lady that I explicitly disagreed with that recommendation in the report at the time.

[Stewart Hosie (Dundee East) (SNP)]

It is understood that the new Prudential Regulation Authority intends to do less than the Financial Services Authority did to reduce the probability of bank failure. Given that the failure of any bank, even with a proper resolution regime, could contribute to a systemic crisis in confidence, can I have the Chancellor’s assurance that he will put all the pressure he can on the PRA to ensure that it continues with active supervision to minimise the probability of bank failure at any level?

[Mr Osborne]

The hon. Gentleman can rest assured that I will certainly do that. I do not think that he has given a fair representation of the role that we expect the prudential regulator to fulfil. What I will say about the prudential regulator and the fact that it will come under the aegis of the Bank of England is this: I hope that it will exercise discretion and judgment as well as simply making sure that boxes are ticked. The decision to allow Royal Bank of Scotland to buy ABN AMRO in 2007 might have ticked the various boxes in the regulations at the time, but it was clearly the wrong judgment. I expect and hope that in future our new regulator would be able to step in at that point.

[Ms Angela Eagle (Wallasey) (Lab)]

Instead of making politically convenient and economically ludicrous pronouncements that it was the UK’s tripartite system of banking regulation that somehow caused the global credit crunch, can the Chancellor explain to the House why his own flagship banking reforms are now running late and why his cosy private talks with the banks on bonuses have failed to materialise? Was not today’s panic announcement just further proof that with this Chancellor, as CBI chief Richard Lambert has said, it is all politics and no economics?

[Mr Osborne]

The hon. Lady asks why the legislation is “running late”. The previous shadow Chancellor wrote to me and asked for pre-legislative scrutiny, and I agreed to the request. Obviously, that has not been communicated to those on the Opposition Front Bench.

[Fiona Bruce (Congleton) (Con)]

4. What assessment he has made of the prospects for growth of the manufacturing sector.

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[Andrew Selous (South West Bedfordshire) (Con)]

T1. If he will make a statement on his departmental responsibilities.

[The Chancellor of the Exchequer (Mr George Osborne)]

The core purposes of the Treasury are to ensure the stability of the economy, promote growth and employment, reform banking, manage the public finances and generally clear up the mess left by the Labour party.

[Andrew Selous]

Will the Chancellor update the House on the progress made in making us one nation in pensions, so that people in the private sector do not have to pay for public sector pensions that they can only dream of receiving themselves?

[Mr Osborne]

We are seeking a more equitable balance. Lord Hutton is due to produce his final report just before the Budget, and we await that. However, we have already made it clear that we need to see savings for the taxpayer. Those were set out in the spending review, and, as I said, we are committed to them. However, in conversations with trade unions, I have been prepared to enter into discussions with them on an extended time frame—to June—about exactly how those savings can be found across schemes and different pay scales.

[Stephen Pound (Ealing North) (Lab)]

T2. The Chancellor of the Exchequer will be aware of the statement made by the Northern Ireland Justice Minister yesterday. Will he explain the reason for the continued failure to make a decision?

[Mr Osborne]

I assume that the hon. Gentleman is referring to the request for additional support for the security situation in Northern Ireland. It is a request that I have taken very seriously, and we are interrogating the request properly—[Laughter.] I know that it comes as a complete surprise to Labour Members that the Treasury should actually interrogate spending requests from Departments, but we have decided that there is new management in charge at the Treasury, and that we should start doing that. We will treat the request with due diligence, but I am clear that security comes first. That will be my priority.

[Mr Tobias Ellwood (Bournemouth East) (Con)]

T3. Is my hon. Friend aware of recently passed US legislation—the Dodd-Frank Wall Street Reform and Consumer Protection Act—that obliges oil, gas and mineral extraction companies listed on US stock exchanges to declare how much they pay directly to a Government for the rights to mine those resources? This has a huge impact in Africa in tackling corruption, increasing transparency and stopping the backhanders that end up being given to Heads of State. Would he agree to meet me to see whether we can introduce such legislation here in the UK?

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

Does the Chancellor agree that any credible strategy for growth must include proposals for a fully capitalised, properly independent green investment bank? Will he assure the House that the Treasury has ceased to act as a roadblock to the creation of such a bank?

[Mr Osborne]

We are absolutely committed to creating the green investment bank. Indeed, we set aside money in the spending review to achieve that, and we will have an announcement in due course.

[Andrew Bingham (High Peak) (Con)]

T5. As the rising cost of motoring and fuel has such a significant effect on rural constituencies such as mine, can my right hon. Friend update the House on any consideration he is giving to mitigate such problems as part of next month’s Budget?

[Mr Osborne]

I completely understand the pressure that motorists in my hon. Friend’s constituency and others are facing, partly due to the increase in the oil price. We have a proposal, in the Budget introduced by the last Labour Government, for an increase on 1 April. As I have said, we are looking at that. We are also considering the case for a fuel duty stabiliser, and we will have announcements on this, potentially at the Budget.

[Lilian Greenwood (Nottingham South) (Lab)]

Does the Chancellor understand the anger that thousands of people in Nottingham feel when they are losing their jobs as a result of his policies, whereas the bankers who caused the credit crisis will be getting huge pay-outs and he has done nothing to stop them?

[Mr Osborne]

The reason difficult decisions are being taken is because of the policies of the Labour party. Until the Opposition—and in particular the man who had greater influence over Labour’s economic policy than any other—face up to that, they will not be a credible alternative. We are clear that we need to put in place steps to deal with the budget deficit and to ensure that the banks lend more, including in Nottingham, and pay less in bonuses than they did when Labour was in government. We expect to have announcements on that in the next week, but we need also to reform the way we help people who are unemployed, and that is what the Work programme will do.

[Mr Adam Holloway (Gravesham) (Con)]

T6. Given the astronomical levels of debt left to families in my constituency, can the Chancellor confirm that the planned cuts for this April that he inherited from Labour were just £2 billion less than those of the Government?

[Mr Osborne]

I can indeed confirm that, and this is one of the great paradoxes at the moment. The plan, which the previous Government all appeared to have signed up to, including the shadow Chancellor—that is, the plan put in place by the last Chancellor of the Exchequer—starts in eight weeks’ time and involves billions of pounds of cuts, amounting to just £2 billion less than what we are planning this year. We have not had any proposals from the Opposition; they have eight weeks to come up with a plan.

[Rachel Reeves (Leeds West) (Lab)]

In Leeds we will lose 11 citizens advice bureaux debt advisers next month because of the cancellation of the financial inclusion fund. Where would the Minister suggest that my constituents who are struggling with debt and excessive and escalating charges from doorstep lenders go for advice?

[Gavin Williamson (South Staffordshire) (Con)]

T8. Will my right hon. Friend join me in welcoming the decision by Moog Aircraft, which is based in my constituency, to invest millions of pounds in a new site to replace its old factory, securing 400 jobs in South Staffordshire? After 13 years of Labour’s decline in manufacturing, is this not a further sign that we are now seeing a manufacturing recovery?

[Mr Osborne]

My hon. Friend makes an excellent point. I join him in congratulating the company on its announcement. Under the last Labour Government the share of the economy taken by manufacturing halved; under this Government we are seeing a manufacturing revival.

[Naomi Long (Belfast East) (Alliance)]

Further to his answer to the hon. Member for Ealing North (Stephen Pound), will the Chancellor please confirm for the House that what the Minister for Justice in Northern Ireland has actually requested is not additional funding, but simply that the Treasury stands by the negotiated financial agreement that led to the devolution of policing and justice in the first place?

[Mr Osborne]

As I said to the hon. Member for Ealing North, we are carefully considering the request. I am clear that security comes first. Of course the Treasury has to apply due diligence to any request from a Department or devolved authority, but she should take it from me that we put security first.

[Tim Farron (Westmorland and Lonsdale) (LD)]

Our mountain rescue teams are staffed by outstanding volunteers doing professional work, but outrageously they have to pay VAT and vehicle excise duty on life-saving equipment. Is it not time that this Government put an end to this and refunded that VAT?

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[Mr Chuka Umunna (Streatham) (Lab)]

It is extremely important that the Government are seen to act on the recommendations of the Independent Banking Commission, when they come out, in the national interest rather than in the interest of any particular sector. Does the Chancellor think that it is wise for the Minister, the noble Lord Green, an immediate former chair of the British Bankers Association, to sit on the Cabinet Committee that makes decisions on such matters? He joined that Committee last month, just two months after leaving the chairmanship of HSBC, a bank for which he worked for more than 25 years and which will be profoundly affected by the decisions that the Committee makes.

[Mr Osborne]

First, I am glad that the hon. Gentleman welcomes the creation of the Independent Banking Commission. I hope that all hon. Members have an open mind about the recommendations that it will make, and that they agree that we should not close off any options until we have heard from John Vickers. He is doing an excellent job, and we await his final report later this year. The hon. Gentleman is ungenerous in his remarks about Lord Green, who brings enormous experience to the job of Trade Minister. I would just point out that he has replaced Lord Davies, who was appointed by the Labour Government at a time when he was chief executive of Standard Chartered, so it is not as though bringing top bank chiefs into the Government is an innovation.

[Andrea Leadsom (South Northamptonshire) (Con)]

In the light of the recent appalling press about Her Majesty’s Revenue and Customs’ problems with PAYE and, now, with national insurance contributions matching, is the Minister as concerned as I am about the imminent introduction of online filing for companies, many of which have said that they simply lack the preparedness to deal with it?

[Kelvin Hopkins (Luton North) (Lab)]

Manufacturing has undoubtedly been helped a lot by the depreciation of sterling, which took place under the last Labour Government. That was only possible because Labour wisely kept us out of the euro. There is now a possibility that interest rates might rise. Will the Chancellor be putting pressure on the Monetary Policy Committee not to raise interest rates?

[Mr Osborne]

The Monetary Policy Committee is independent of this Chancellor—and, indeed, of previous and future Chancellors—and that is how we intend to keep it. On the hon. Gentleman’s point about the devaluation of the currency, I would just observe that it is incredibly important that the manufacturing industry makes itself even more competitive, and it could use the devaluation as an opportunity to do that. Some Government policies—on taxation and on employment law, for example—will also help in that regard, but the thrust of his question is right: we should not rely solely on the devaluation to make our manufacturing industry globally competitive.

[Mr Douglas Carswell (Clacton) (Con)]

The Chancellor is entirely right to emphasise the need to be careful with public money. Will he therefore please explain his role in approving the deal to make the UK taxpayer liable for billions of pounds to bail out the euro under the European stabilisation mechanism? Will he respond to my freedom of information request, and publish the advice that he was given on the agreement on assuming office?

[Mr Osborne]

First, I will look at my hon. Friend’s FOI request, because I have not seen it. The broader point that I would make is that my predecessor as Chancellor, in the weekend between the general election and the creation of the new Government, agreed to the creation of the European stability facility. That involves a UK commitment which takes place on the basis of qualified majority voting; we do not have a veto. I made it clear to the previous Chancellor at the time that I did not support what he had done. However, it has happened and we have to live with the consequences.

[Ian Austin (Dudley North) (Lab)]

In a speech to the City in 2008, several months after the collapse of Northern Rock, the then Leader of the Opposition—now the Prime Minister—complained that the City had been subjected to too much regulation and to “excessive bureaucratic interventionism”. He also said that

“government needs to do less taxing and regulating”.

Can the Chancellor tell us what he meant?

[Mr Osborne]

I am reminded of the speech in the City made by the right hon. Member for Morley and Outwood (Ed Balls), when he said in 2006:

“In my first speech as City Minister at Bloomberg in London, I argued that London’s success has been based on…light-touch…regulation”.

He also said that he hoped the City would take comfort from the way the Labour Government had responded to new risks and to events. That is the Bloomberg speech that he likes to forget.

[Mr David Davis (Haltemprice and Howden) (Con)]

There is a lot of public disquiet about alleged enormous sweetheart deals done with major public companies—Vodafone and others—in the last five years. Three or four months ago, I tabled a question asking how many of these deals had been done, costing more than £100 million at a time. The answer I received was that the information requested was “not readily available” and could be provided “only at disproportionate cost”. I received a similar blocking answer this morning. When is the Minister going to tell the House what HMRC has been up to?

[Alison McGovern (Wirral South) (Lab)]

I was just checking and realised that the Government’s own business planning projections show that the proportion of young people on the dole by the end of this Parliament will be reduced by less than 1%. Will the Chancellor explain what his plan is to increase the number of jobs made available to those young people?

[Mr Osborne]

This country has a problem with youth unemployment that has been apparent for a decade. Even in the boom years during the middle part of the last decade, youth unemployment was increasing and a whole generation was being left behind. I hope that we can achieve some kind of cross-party consensus on trying to reform our welfare system so that people do not get trapped in poverty and work always pays. We are reforming the new deal and replacing it with the Work programme so that we are more effective at giving young people the training they need and the opportunities that have been lacking for the last decade.

[Stephen Williams (Bristol West) (LD)]

Following on from the question from the right hon. Member for Haltemprice and Howden (Mr Davis), many of us will have seen—and some of us, myself included, will approve of—the demonstrations organised by UK Uncut outside certain high street well-known names. What are the Government doing to tackle corporate tax avoidance schemes by some large corporates; and what is the Chancellor going to do to make sure that the actions of some well-known and popular figures, such as premiership football stars and grand prix drivers, are also tackled?

Economic and Financial Affairs Council

George Osborne Excerpts

Thursday 27th January 2011 Written Statements

[The Chancellor of the Exchequer (Mr George Osborne)]

The Economic and Financial Affairs Council was held in Brussels on 18 January 2011. The following items were discussed:

Presentation of the Presidency Work Programme

Hungarian Finance Minister Matolcsy presented the presidency work programme for ECOFIN for the first half of 2011. He identified his main priorities as the European semester, economic governance, financial services and the creation of the European stability mechanism.

Communication from the Commission: towards a Single Market Act

The Council held an exchange of views on the Single Market Act which was published on 27 October 2010 and is out for consultation until 28 February 2011. Ministers had a positive discussion and agreed that it would be important for ECOFIN to continue to engage on those issues that are led by Finance Ministers. The Government support the single market and believe that future reforms should be strongly focused on measures that encourage growth. The Council agreed to re-examine the issue in due course.

Follow-up to the December European Council meeting

The Council took note of the presidency’s plans for the follow-up to the European Council’s meeting on 16 and 17 December which called for work on legislative proposals aimed at strengthening EU economic governance to be accelerated, so that they can be adopted by June this year.

Annual Growth Survey

The Council held an exchange of views on a presentation by the Commission, which covered the main elements of its annual growth survey published on 12 January. The adoption by the European Commission of the annual growth survey will mark the beginning of the first cycle of the European semester. The Government are content with the Commission’s focus on growth, in line with objectives for the single market. ECOFIN will agree Council conclusions on this in February.

Review of draft National Reform Programmes (NRPs)

Ministers discussed a review of member states’ draft national reform programmes (NRPs) which set out member states’ reform priorities and plans. The Government are content with the Commission’s positive assessment of the UK draft NRPs and believe that the focus of all member states NRPs should be on tackling bottlenecks to growth. In March the spring European Council will provide guidance to member states for finalisation of their stability and convergence programmes (budgetary policies) and national reform programmes (structural reforms). Full NRPs are due in April.

Implementation of the Stability and Growth Pact

The Council concluded that action by Malta to reduce its excessive deficit represented adequate progress.

Introduction of the euro in Estonia: Practical experience

The presidency noted that the introduction of the euro in Estonia had gone very smoothly, and warm congratulations were extended.

Economic and Financial Affairs Council

George Osborne Excerpts

Tuesday 18th January 2011 Written Statements

[The Chancellor of the Exchequer (Mr George Osborne)]

The Economic and Financial Affairs Council will be held in Brussels on 18 January 2011. The following items are on the agenda:

Presentation of the Presidency Work Programme

The Hungarian presidency will present its ECOFIN work programme for the first half of 2011.

Follow-up to the December European Council meeting

Council will discuss the outcomes of the European Council, where leaders agreed on a permanent mechanism to be established by euro area member states to safeguard the financial stability of the euro area as whole. The Government achieved their priorities on the European stability mechanism: that it will be for only euro area member states; replace the European financial stability facility (EFSF) and the European financial stabilisation mechanism (EFSM); and that in the future, article 122(2) TFEU will not be used for safeguarding the financial stability of the euro area.

Implementation of the Stability and Growth Pact

The Council will discuss the assessment of action taken by Malta in the context of its excessive deficit procedure on the basis of a communication from the Commission. Actions taken by other member states could also be assessed on the basis of the Commission’s autumn economic forecast and the fiscal notifications. The Government expect the Council to agree that Malta has taken effective action regarding its deficit, in line with Council recommendations.

Introduction of the euro in Estonia: Practical experience

In line with past practice, the Council will have an exchange of views following the introduction of the euro in Estonia on 1 January 2011.

Annual Growth Survey

The adoption by the European Commission of the annual growth survey will mark the beginning of the first cycle of the European semester. From now on, every year the Commission will present its growth survey covering fiscal, structural and macroeconomic issues. This communication, which will be presented to the European Parliament and the Council, will serve as a basis for the guidelines and conclusions drawn up by the March European Council with a view to the medium-term budgetary strategies and national reform programmes to be adopted in April. The Government are content with this approach, given that they secured special wording in the new code of conduct which allows the UK to submit its budget to the EU after it has been approved by Parliament, rather than in draft, as will be the case for other member states.

Review of draft National Reform Programmes (NRPs)

There will be an exchange of views on member states’ draft national reform programmes (NRPs), which set out member states’ reform priorities and plans and were submitted to the Commission in November. Full NRPs are due in April. The Government believe that the focus of the NRPs should be on tackling bottlenecks to growth.

Communication from the Commission: towards a Single Market Act

There will be an exchange of views on the Single Market Act, which was published on 27 October 2010, and is out for consultation until 28 February 2011. The Government support the single market and believe that future reforms should be strongly focused on measures which encourage growth.

Bank Bonuses

George Osborne Excerpts

Tuesday 11th January 2011 Commons Chamber

[Alan Johnson (Kingston upon Hull West and Hessle) (Lab)]

(Urgent Question): To ask the Chancellor of the Exchequer to make a statement on bankers’ bonuses.

[The Chancellor of the Exchequer (Mr George Osborne)]

We inherited from the previous Government a failed system of banking regulation and a situation where billions of pounds had been provided to bail out bankers with nothing demanded in return. It was a something-for-nothing deal that rightly left the British people seething with anger, and the British people and this Government will not accept extravagant bonuses this year without a change in behaviour. So this is what we are doing.

First, we are replacing the disastrous tripartite system for regulating banks that was established in 1997. Instead, our plan is to put the Bank of England clearly in charge. Secondly, we have created the Independent Commission on Banking to review the structure of the banking sector and address the issue of banks that are too big to fail. The previous Government’s failure to address that issue brought this country’s economy to its knees. The commission will report this autumn. Thirdly, we have introduced a permanent levy on the banks, in the face of opposition from the previous Government. This new banking tax started coming into effect last week and, once fully operational, will raise £2.5 billion each and every year, or £8.8 billion over this Parliament. We are also looking at the International Monetary Fund’s proposed financial activities tax, and we will work with international partners to secure agreement. Fourthly, we have demanded that the banks sign up to the code of practice on taxation—[Hon. Members: “Ooh!”] Well, the previous Government created the code, but we discovered that only four of the 15 major banks had signed up to it when we came into office. All 15 have now signed up to the code of practice. We are also legislating in this year’s Finance Bill for tough anti-avoidance measures directed at some of the practices in the financial sector that no one had previously attempted to stop.

Specifically on remuneration and bonuses, on 1 January this year we introduced the most stringent code of practice of any financial centre in the world. For the first time, there will be a strict limit on the amount of bonus payable in up-front cash. Also for the first time, there will be a requirement that 50% of bonuses be paid in shares or other non-cash instruments, which bank employees will not be allowed to sell on for an appropriate period. Guaranteed bonuses will become the exception and not the rule, as was the case under the previous Government, and crucially, the new bonus code has been significantly extended. It will cover payments and bonuses at 2,500 firms, whereas the code that we inherited covered pay and bonuses at only 25 individual financial firms.

When it comes to the Royal Bank of Scotland, I am having to deal with the thoroughly inadequate contract negotiated by the previous Cabinet; the House might not be aware that it puts no constraints on RBS bonuses for this year. Indeed, the contract signed by the previous Government explicitly encourages RBS to pay bonuses at market rates. Despite this, we have made it clear to RBS that we will have a smaller bonus pool than last year and that it should be a back-marker in the industry, instead of the front-runner it once was.

In the coming weeks, all the banks will be announcing their pay and bonuses for this year. I confirm that we are in discussions with the banks to see if we can reach a new settlement, where the banks pay smaller bonuses than they would otherwise have done; are more transparent about those they do pay; make a greater contribution to local communities and regional economies; treat customers more fairly; and, above all, lend materially and verifiably more than they were planning to lend to the businesses of Britain, especially the small businesses, so that they can grow and create jobs this year.

This is what a new settlement with the banks should look like: they should lend to the British economy; contribute to the British Exchequer; provide jobs for British people; be responsible on pay and bonuses; and make sure that Britain is a world centre of a properly regulated and internationally competitive financial services industry. If the banks cannot commit to that, I have made it clear to them that nothing is off the table. I will keep Parliament informed of our discussions—and if the Opposition who created this banking mess have a better idea, let us hear it.

[Alan Johnson]

We are here to hold the Government to account. I have with me the coalition agreement, and I believe that I can still sense the scent of the rose garden upon it. This is what it says in paragraph 1:

“We will bring forward detailed proposals for robust action to tackle unacceptable bonuses in the financial services sector”.

Where are those detailed proposals? When will we see them? Here is what the Chancellor said in his spending review statement in October:

“Fairness also means that, across the entire deficit reduction plan, those with the broadest shoulders will bear the greatest burden; those with the most should pay the most, and that includes our banks… Today we set out very clearly, for all to take note of, our objective in taxing the banking industry going forward… Our aim will be to extract the maximum sustainable tax revenues from financial services.”—[Official Report, 20 October 2010; Vol. 516, c. 951-956.]

But he has given the banks a tax cut from £3.5 billion to £1.2 billion and they will benefit more than any other sector from the cut in corporation tax. Cuts affecting children will contribute well over £5 billion and students will contribute £2.9 billion. Does the Chancellor think that children and students have the broadest shoulders? The man who said in opposition that no bonus should be higher than £2,000 will not even implement legislation forcing transparency about those receiving more than £1 million.

Where is the Deputy Prime Minister who, when not signing student pledges not to increase tuition fees or unveiling posters about VAT bombshells, was saying:

“Doesn't it make you angry that the banks have been allowed to ride roughshod over our economy, and are still handing out bonuses by the bucket load?”?

So in just seven months, the coalition goes from the scent of the rose garden to the stench of broken promises. The Chancellor who said, “We’re all in this together” bows to the rich and powerful while bearing down on everyone else. His sneering arrogance will not get him out of this one.

--- Later in debate ---

[Mr Osborne]

I do not know how much longer we are going to have to wait for a serious economic proposal from the shadow Chancellor. I suspect that time is running out for him. Let me repeat that we have introduced a code of practice that extends to 2,500 firms. There were 25 firms covered by the code of practice presided over by the right hon. Gentleman when he was in the Cabinet. We have introduced a permanent bank tax, which he and the Cabinet stood against during the general election.

The shadow Chancellor says that he wants a properly regulated banking system. However, he has opposed our proposals to regulate the banking system, we still do not know whether he supports the proposal to give the Bank of England a serious role, and—let us be clear about this—he has absolutely no idea about how to increase lending in the British economy, which he did nothing to achieve when he was in the Cabinet. Part of the pattern of an Opposition who have no serious plans to clear up the mess that they created is their habit of jumping on every passing bandwagon,

People will look at the shadow Chancellor and say that, although it is difficult to think of a way in which he could reduce his economic credibility further after the week that he has had, he has done just that today.

[Mr Andrew Tyrie (Chichester) (Con)]

First, what steps are the Government taking to ensure that an international agreement is reached on the need for more transparency in regard to bonuses and remuneration? Secondly, does the Chancellor believe that shareholders should be much more actively engaged in restraining pay and remuneration, given the evidence that we heard from the chief executive of Barclays this morning that no conversations on the subject had taken place between Barclays and its shareholders?

[Mr Osborne]

I certainly want to see much more international action on transparency, and I have held discussions with all the European Finance Ministers about how that can happen. We also want the Basel III arrangements to be implemented by all the G20 countries, and to be translated properly into European law.

I strongly agree with the my hon. Friend’s sentiments about shareholders. We want them to be more involved in pay and remuneration, and we want to find a way of improving corporate governance in that regard. That is one of the issues that we are discussing with the banks, and I know that the Department for Business, Innovation and Skills is considering it as well.

[Several hon. Members]

rose—

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[Mr Osborne]

Bonuses amounted to £11.5 billion when the right hon. Lady was in the Cabinet, although that has not been recognised by any Labour Member who will stand up and ask a question today. What we are trying to do is persuade banks to make a greater contribution to communities, business and the regional economy, which we want to be supported.

[Lorely Burt (Solihull) (LD)]

On 1 September last year, the last Chancellor said that the bankers’ bonus tax had failed to change the City’s attitude to pay. He said that the tax was likely to be a one-off, and would not be reinstated by the coalition because it had failed to change bankers’ behaviour. Does my right hon. Friend agree with that?

[Mr Osborne]

The last Chancellor of the Exchequer has directly addressed the question of whether the bonus tax in the form in which he introduced it last year could be repeated this year. He thinks that it could not, because behaviour has changed. Indeed, we have seen base pay rise in response to the bonus tax. However, as I made clear in my statement, we are seeking a new settlement with the banks, and nothing is off the table if they cannot agree to that.

[Mr Michael Meacher (Oldham West and Royton) (Lab)]

Why is the right hon. Gentleman not extending the existing tax on bankers’ bonuses, which has yielded £3.5 billion in the past year? Does that not prove that this is a Government of the rich, by the rich and for the rich, and does the right hon. Gentleman not realise that this rancid stink about bankers’ bonuses simply will not go away?

[Mr Osborne]

The right hon. Gentleman may not know it, or perhaps he did not really believe it, but he fought the last election on a manifesto—written, incidentally, by the Leader of the Opposition—that committed the then Government to opposing a unilateral levy. We have introduced such a levy, and it will raise almost £10 billion in the current Parliament. We are extracting from the banks revenue that the last Government did not extract. Indeed, they opposed the method that we have introduced.

[Mrs Anne Main (St Albans) (Con)]

In the future, will my right hon. Friend come to the House and let us know the extent to which the banks have complied with the requirement to lend more to businesses in my constituency? There was little sympathy for them under the last Government, when big bonuses were provided and they received little help from the bankers who received those bonuses.

[Mr Osborne]

An absolute central part of any settlement we might reach with the banks will be a material and verifiable increase in the amount of lending to British businesses, especially medium and small businesses. [Interruption.] Labour Members mutter, but they secured absolutely nothing for British business when they bailed out the banks. They had the money in their hands to give to the banks, and they secured absolutely nothing in return.

[Rachel Reeves (Leeds West) (Lab)]

A quick glance at today’s newspaper financial pages shows that the share price of RBS is 40p today compared with 52p this time last year, while that of Lloyds was 66p today compared with 64p a year ago. My constituents in Leeds West would not expect bonuses for such performance, so why should taxpayers’ money be used for the bonuses of our nationalised banks?

[Mr Osborne]

The deal that the previous Government signed with RBS as a condition of being part of the asset protection scheme stated that it should not pay bonuses in 2009, but that for the bonuses awarded in 2010—the period we are talking about now—it should pay the market rate. That was the deal that Labour signed up to. I am trying to reduce the RBS bonus pool, and I have made it very clear—as has the Prime Minister—that it should be a back-marker, not a market leader.

[Mr Edward Leigh (Gainsborough) (Con)]

Is not the problem with the leading bankers that they are often arsonists and firemen rolled into one? The trouble with the previous Government is that they left the arsonists in charge of the haystack. They bailed them out, but they did not protect the depositors adequately, and now they want to shoot the firemen. What is that going to achieve?

[Mr Osborne]

Well, I think we still have the haystack at the end of all that. My hon. Friend makes an important point, however. Of course I understand and share the feeling of anger that if we do not get a change of behaviour, these bonuses could be paid, and that is what we are addressing. However, this House will have an equally important—indeed, possibly even more important—issue to deal with later this year: the report from the Independent Commission on Banking, which we have established, again in the face of Labour opposition, to look at the whole issue of “too big to fail”. That is what my hon. Friend was talking about. The commission will look at how we can ensure that the British taxpayer does not stand behind the banks, but that the banks can be allowed to fail in an orderly way without bringing down the British economy.

[Mr Andrew Love (Edmonton) (Lab/Co-op)]

In August 2009, the right hon. Gentleman said that it was “totally unacceptable” for bonuses to be paid while the Government were guaranteeing the banking system, and added, “It must stop.” Why has it not stopped?

[Mr Osborne]

Because I am clearing up the mess left to me by the hon. Gentleman’s party. This Government have done more in the last seven months to create a safer, more properly regulated banking system than Labour did in 13 years. As of the beginning of this year, we have a new code of practice that applies to 2,500 firms, compared with the 25 firms that were regulated under the previous Government, and, as I have said, we are seeking this new settlement with the banks that will, I hope, lead to a material increase in the amount of money that they lend to the British economy, and a material decrease in the amount they would otherwise have paid in bonuses.

[Nadhim Zahawi (Stratford-on-Avon) (Con)]

Is the Chancellor aware that Sir Fred Goodwin took home £15 million under the previous Government?

[Mr Osborne]

The clue is in the question: his title is “Sir”—and he was given that knighthood by the previous Prime Minister.

[Stewart Hosie (Dundee East) (SNP)]

In the real world, jobs are being lost, wages squeezed, and taxes are rising, while businesses cannot get the credit they need and home buyers cannot get the mortgages they want. Does the Chancellor not recognise that that austere backdrop makes the very idea of a £7 billion bonus-pot toxic in the real world? Does he not regret washing his hands of this last night, and, effectively, giving the green light to a return to the bad old days of big bonuses?

[Mr Osborne]

It is precisely the real-world situation—where businesses need more lending, communities need support and we need more investment in our regional economies—that I am seeking to address. As the hon. Gentleman well knows, as a Member from Scotland, we need a successful, properly regulated financial services sector that employs tens of thousands of people in Scotland and, indeed, hundreds of thousands of people across the United Kingdom. That is what we are seeking to agree with the banking system. The fantasy world is the one that the Labour party occupies, where it bears no responsibility for the mess in which it has left this country.

[Jo Swinson (East Dunbartonshire) (LD)]

The Chancellor must understand the level of public anger about huge bank bonuses and recognise that obscene rewards for short-term gain without regard to the long-term consequences were part of the problem that led to the banking collapse in the first place. Surely it is to avoid a repeat of that that bank bonuses should be restrained and, importantly, weighted towards sustainable long-term performance, rather than short-term speculation.

[Mr Osborne]

I agree with all of that. We want to see bonus restraint; we want to see bonuses lower this year—[Interruption.] Lower this year than they were under the Labour Government. That is one objective. Secondly, we want to see bonuses deferred. Thirdly, we want to make sure that they do not reward risk-taking that goes badly wrong—that is why we want the ability to claw back. We also want to get away from the system—again, this thrived under the previous Government—of guaranteed bonuses, which people got regardless of what happened to their financial institution. That is precisely what the code of practice addresses, it is precisely why we are looking at greater transparency and greater shareholder involvement, and it is precisely why I want this new settlement with the banks.

[Mr Dennis Skinner (Bolsover) (Lab)]

Is not the truth of the matter that this Government want the students, the homeless and the disabled to pay for this deficit, while their banking friends—the Tories’ banking friends—will get off scot-free, despite causing the problem in the first place? It is a bucket load of hypocrisy.

[Mr Osborne]

Again, the hon. Gentleman has amnesia. He seems to forget that for 13 years he supported a Government who allowed this problem to develop. Indeed, as far as I can tell, half the people who were in that Cabinet have gone on to work in the City.

[Margot James (Stourbridge) (Con)]

I congratulate the Chancellor on his Department’s excellent record on tackling banking excess, which contrasts so favourably with the lamentable record of the Labour party when it was in government. Bonuses are only part of the mix of compensation, so could he update the House on the progress that the Independent Commission on Banking has made on tackling remuneration?

[Mr Osborne]

The Independent Commission on Banking is examining the structure of the banking industry and is specifically examining the “too big to fail” issue. It is examining competition in the banking industry, because in recent years we have seen an enormous consolidation of the industry. On taxation, I should of course have mentioned that banks pay income tax on the bonuses and employers’ national insurance at 12.8%.

[Mr George Howarth (Knowsley) (Lab)]

The Chancellor said in his statement that he expects the banks to make a greater contribution to local economies and local communities. Can he tell the House how much he expects them to set aside for that purpose and how he proposes that they should distribute it?

[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.

[Barry Gardiner (Brent North) (Lab)]

Was it coincidence or careful Treasury planning that ensured that the amount projected in this year’s bonuses was the same as the £7 billion that the Government have taken in cuts? Does the Chancellor understand why people in this country make an equation between those two and are so very angry about it?

[Mr Osborne]

Of course I understand the British people’s anger at the economic mess that the banking community and the previous Government helped to create, but they also support those with a serious economic plan to put right those mistakes. At the moment, they are not hearing a serious economic plan from the Labour party.

[Dr Julian Huppert (Cambridge) (LD)]

What progress has the Chancellor made in discussions about implementing a Tobin or Robin Hood tax either with other countries or alone?

[Mr Osborne]

The financial transaction tax is something that the international community is looking at and it is on the agenda for the G20 discussions. Almost everyone who looks at the idea accepts that it would have to be done internationally or else business would probably disappear overnight. It is on the international agenda and we are engaging in that discussion.

[Tony Lloyd (Manchester Central) (Lab)]

The Chancellor should realise that the public will be angry at a Government who do not take action against the bankers who caused the financial crisis and have got back to bonuses as usual. Can he, for the record and in a moment of transparency, tell the House whether there is any disagreement in the Cabinet about the Government’s policy?

[Mr Osborne]

The Cabinet is completely agreed. [Interruption.] I know that the Labour party finds the idea of a united Cabinet difficult, but there is a united Cabinet that wants to see the banks lending more than they did under the previous Government and paying less in bonuses than they did under the previous Government, with more transparency, more shareholder involvement and more contributions to the community. That is what we seek to negotiate and I am doing that with the Business Secretary on behalf of the Cabinet.

[Harriett Baldwin (West Worcestershire) (Con)]

Last year, there was a one-off tax on bank bonuses. Can the Chancellor confirm that this year the higher bonuses will attract the 50% income tax and 12.8% employers’ national insurance rates?

[Mr Osborne]

Of course it is right that they attract both income tax and employers’ national insurance contributions. I know there is an issue with the economic credibility of the Labour party at the moment but it is worth reading what the previous Chancellor, the right hon. Member for Edinburgh South West (Mr Darling), said when he explicitly and directly addressed the question of whether the tax he introduced a year ago could be reintroduced in exactly the same form. He said that it would be difficult to do and that it would have to be a one-off because people would find all sorts of imaginative ways of avoiding it in future. We have to deal with that reality, but as I have made very clear, we seek a new settlement with the banks and if we do not agree a new settlement—if they are not able to meet our requirements—then nothing is off the table.

[Mr David Lammy (Tottenham) (Lab)]

Unemployment in Tottenham is now the highest in London, benefits have been cut and students are being asked to bear the burden. Will the Chancellor take the opportunity to condemn the statement of Bob Diamond this morning that bankers should stop apologising for the economic crisis?

[Mr Osborne]

The apology should start with the previous Labour Government. Unemployment is high in the right hon. Gentleman’s constituency because it rose under the previous Labour Government and we are having to deal with welfare costs because they soared under the previous Labour Government. When it comes to student fees, I believe that he was the Minister responsible for higher education who commissioned Lord Browne to do his report. Frankly, opportunism and the Labour party go hand in hand these days.

[Penny Mordaunt (Portsmouth North) (Con)]

When my constituents complain about bankers’ bonuses, it is usually in the same breath as highlighting poor banking practices such as overcharging as well as issues with their ability to get credit for their business. What assurances can the Chancellor give that those poor practices will stop?

[Mr Osborne]

It is explicitly those sorts of practices that are part of the discussions we are having with the banks. We want to ensure that they treat customers, including small businesses and households, more fairly, to look at the overcharging issue and to make sure that families and business are given good advance warning of the need to renegotiate terms. That is all part of what we seek to renegotiate. As I have said, we have heard absolutely no positive proposals from anyone in opposition. That says a great deal.

[Mr Chuka Umunna (Streatham) (Lab)]

The Chancellor has given the impression that the new bonus restrictions have been implemented at his instigation, whereas, of course, they have been introduced to ensure compliance with EU rules, particularly those of the capital requirements directive and the Committee of European Banking Supervisors. The directive was opposed by Conservative MEPs. As for disclosure, Stephen Hester has indicated that the industry is quite relaxed about the implementation of a unilateral disclosure scheme. In the light of his comments, will the Chancellor reconsider the implementation of such a scheme, so we can at least know what is paid in the sector?

[Mr Osborne]

As I said, we are looking for greater disclosure. We are also seeking agreement at European level, because this is an international industry. These are perfectly sensible steps to take, and we have introduced in this country the toughest financial code on bonuses of any financial centre of any size anywhere in the world.

[Sajid Javid (Bromsgrove) (Con)]

The UK financial industry will pay £54 billion in taxes this year—more than any other industry—and its 1 million employees will pay a further £25 billion in income tax. Does the Chancellor agree that those tax revenues will help to pay for our schools and hospitals, and to cut the record budget deficit left by the Labour party?

[Mr Osborne]

It is, of course, important—I said this in my statement—that we have a successful but properly regulated financial services industry, which employs hundreds of thousands of people, including thousands of people in many constituencies represented in the Chamber. It used to be the case—although perhaps it is not the case any more—that senior Labour politicians would at least acknowledge that. That is why I would much rather reach a settlement with the banks, and that is what we are seeking to do. We want a successful industry that pays a proper contribution to the Exchequer and lends more to British business, and that is my objective.

[Ian Murray (Edinburgh South) (Lab)]

Does the Chancellor of the Exchequer think it fair that pensioners and hard-working families in my constituency are paying 2.5% more in VAT as a result of his Government’s broken promise on VAT, while the bankers get away scot-free?

[Mr Osborne]

We have introduced a permanent bank levy. An argument was made at the general election by Labour Treasury Ministers and the Labour Prime Minister that we should not introduce a levy unilaterally, as it would make Britain uncompetitive. That argument was aired then, and we have now introduced a permanent bank levy. I do not know whether the Labour party supports it or not, but it will raise almost £10 million during this Parliament, and it applies each and every year, rather than being a one-off.

[Matthew Hancock (West Suffolk) (Con)]

Has the Chancellor noted that in The Guardian this morning, when given the opportunity to support the idea of continuing the bank payroll tax, the right hon. Member for Edinburgh South West (Mr Darling), whom I cannot see in the Chamber, refused to back the opportunistic policy of the Leader of the Opposition?

[Mr Osborne]

The former Chancellor has clearly made his views known, and I would suggest that he has more credibility on the subject than the shadow Chancellor.

[Jim Sheridan (Paisley and Renfrewshire North) (Lab)]

While the Chancellor acquiesces to the bankers’ demands, his Government propose to cut the sick pay of workers who are genuinely off sick. May I therefore ask the Chancellor: where is the fairness in that?

[Mr Osborne]

Where is the fairness in a record budget deficit? That is what we have to address. We are taking difficult measures; I know that every single one is opposed by the Opposition, who created that deficit, but that says more about them than it does about our plan.

[Justin Tomlinson (North Swindon) (Con)]

What percentage of bankers based in the City of London are British citizens, and therefore taxed at the higher rate on their bonuses?

[Mr Osborne]

Two hundred and fifty thousand people or thereabouts are eligible for the 50p rate, which came into effect in April. As I have said, other taxes, too—such as employers’ national insurance—are levied on bonuses, and in the Finance Bill, which we have published in draft, we have taken specific measures, on which we will seek to legislate later this year, to deal with some of the avoidance practices in the financial sector that were allowed to proliferate under the previous Government.

[Phil Wilson (Sedgefield) (Lab)]

In October 2009 the Chancellor said that high street banks should be banned from paying bonuses above about £2,000 in cash. Is that his policy today as well?

--- Later in debate ---

[Mr Osborne]

I have made it very clear that I want to see bonuses lower this year than they were in the last year of the Labour Government. That is the objective. The Labour party either supports that or it does not, but that is what we are seeking to achieve with the banks.

[David Rutley (Macclesfield) (Con)]

I share and understand the concerns that people have about the sheer scale of bankers’ bonuses, but it is also vital to look at how bankers are measured. When the Governor of the Bank of England came to the Treasury Committee in November, he said that he felt it was better to reward bankers according to return on assets rather than return on equity. I wonder whether the Chancellor believes that that view merits further consideration.

[Mr Osborne]

That is one of the issues being considered, and I noted the Governor’s comments. The code of practice has a number of constraints on how bonuses are paid. It is a vast improvement on last year’s situation, and will help create a better regulated banking sector.

[Sheila Gilmore (Edinburgh East) (Lab)]

When the Chancellor’s colleague the Prime Minister said in 2009 that no bank with significant taxpayer support should pay bonuses of more than £2,000, was he jumping on an Opposition bandwagon or was it a serious policy initiative? If it was the latter, what has changed since 2009?

[Mr Osborne]

That was about the time when the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), the then Prime Minister, said:

“The day of big bonuses is over.”

That is the kind of rhetorical—[Interruption.] That is the situation that we have inherited—no proper code of practice, no permanent bank levy, no plan for improving the system of regulation. We are putting in place measures that we believe will materially improve lending in this economy and the regulation of our banking system. Every single one of them has, for opportunistic reasons, been opposed by the Labour party.

[Mr Aidan Burley (Cannock Chase) (Con)]

On BBC television yesterday, the Leader of the Opposition stated that Labour’s bankers tax brought in £3.5 billion whereas the Government’s levy would bring in only £1.3 billion. Will the Chancellor confirm that the right hon. Gentleman got his figures incorrect? Actually, Labour’s bankers tax brought in just £2.3 billion, whereas the Government’s levy will bring in more, at £2.5 billion.

[Mr Osborne]

My hon. Friend is right. When the bonus tax was introduced by the previous Chancellor, he explicitly said that there would be displacement activity and that the net receipts to the Treasury would be less. Those have been looked at by the Inland Revenue and verified by the independent Office for Budget Responsibility. They are less than the £2.5 billion or thereabouts that our bank levy will raise on a regular year-on-year basis once it is fully up and running.

[Kevin Brennan (Cardiff West) (Lab)]

What are ordinary hard-working constituents listening to the Chancellor’s announcements from millionaires’ row today to do but conclude that his message to them is that we are not all in this together, and that his message to the bankers is, “Carry on filling your boots?”

--- Later in debate ---

[Mr Osborne]

The hon. Gentleman was, I believe, a Minister in the Labour Government. In the first year of this Government we are seeking lower bonuses than were paid in the last year of the Labour Government. Perhaps he will explain that to his constituents.

[Tony Baldry (Banbury) (Con)]

Will my right hon. Friend give the House an indication of the time scale within which he expects the banks—particularly those such as RBS, in which the taxpayer has a substantial shareholding—to make proposals on how they will increase responsible lending, on reasonable terms, to small and medium-sized businesses in my constituency and the constituencies of right hon. and hon. Members across the House?

[Mr Osborne]

The discussions are taking place now. In the next couple of weeks, I expect to be able to come back to the House with the conclusions of those discussions. The pay packages and bonuses for UK banks will be announced either right at the end of January or in early February; those for American banks will be slightly earlier.

[Toby Perkins (Chesterfield) (Lab)]

A lot of people will be particularly disappointed, because how the Chancellor is speaking today is so very different from how he spoke in opposition. As someone who has recently been going downhill fast, does he understand how depressed people will be about what they are hearing from him today compared with what he said as shadow Chancellor?

[Mr Osborne]

I hope that what people are hearing from us today are serious proposals: to increase lending in our economy, which is very important; to reduce the bonus pool, so that it is not as large as it was under the Labour Government; and to increase the contribution to communities in the way that we all want to see. That is what we are seeking to agree with the banks. As I say, there is absolutely no proposal to the contrary from the Labour party, which actually created this mess, and feathered the nests of the banks, while it was in office.

[Jesse Norman (Hereford and South Herefordshire) (Con)]

Does the Chancellor share my view that one reason why there was no bank levy under the Labour Government was because, in Lord Mandelson’s words, they were

“intensely relaxed about people getting filthy rich”?

[Mr Osborne]

That was one of the things that Labour Cabinet Ministers said at the time—and indeed, quite a few of them have lived up to it since leaving office.

[Steve McCabe (Birmingham, Selly Oak) (Lab)]

The Deputy Prime Minister threatened very serious action against bankers who sought to pay themselves unjustifiable bonuses. Should we regard the Chancellor’s answer today as a description of the very serious action that the Deputy Prime Minister was talking about?

[Mr Osborne]

I have made it very clear that nothing is off the table unless we can agree a settlement with the banks that allows an increase in lending, an increase in community contributions and a lower bonus pool.

[Andrew Selous (South West Bedfordshire) (Con)]

Does the Chancellor agree that, in addition to getting the banks to lend more to business, we should be focusing on getting the maximum sustainable tax take from banks? That involves concentrating on the tax take, not just tax rates—a mistake that the Opposition often make.

[Mr Osborne]

Absolutely. What we want is the maximum sustainable tax revenue—that is the objective of this Government—and, indeed, to get the maximum sustainable lending into the British economy. We are trying to link the two in a settlement. I have no idea what the Labour party is proposing, but this is the sensible way forward.

[Luciana Berger (Liverpool, Wavertree) (Lab/Co-op)]

May I give the Chancellor another opportunity to answer the question? When are we going to see the detailed proposals for robust action, as promised on page 9 of the coalition agreement, specifically to target—bankers’ bonuses?

[Mr Osborne]

“It says here.”

What I would say is that we have introduced the code of practice, which extends the coverage of the code to 2,500 firms rather than 25. We are taking that action, and as I have said, we are also seeking a lower bonus pool than existed when the party that the hon. Lady supports was in government last year. That is a sensible step forward in the current climate.

[Chris Heaton-Harris (Daventry) (Con)]

Is it not a shame that the something-for-nothing deal that was done goes far beyond just bankers’ bonuses, and has meant that small businesses in my constituency have to struggle to get a continuation of a line of credit? Can the Chancellor help me in my dealings with NatWest in this particular process in relation to a number of small businesses in Daventry?

[Mr Osborne]

Of course I shall be happy to look at my hon. Friend’s constituency case. He highlights the central issue that the previous Government completely failed to address: how to increase lending to the small and medium-sized business sector. That is one of our central economic objectives; that is why we are in discussions with the banks. The previous Government achieved nothing in that regard; we hope to achieve something, and we will come to the House and report on our progress.

[John Mann (Bassetlaw) (Lab)]

In the Chancellor’s judgment, what is the maximum bonus that Barclays should offer its chief executive Bob Diamond for 2010?

[Mr Osborne]

Less than he was paid in 2009.

[Bob Blackman (Harrow East) (Con)]

Hard-pressed taxpayers in my constituency will rightly be annoyed at the disgraceful deal done by the previous Labour Government. What leverage will my right hon. Friend bring to ensure that bonuses are paid on the basis of bankers’ performance rather than just financial information?

[Mr Osborne]

That is precisely why we are improving the governance around bankers’ pay and remuneration, and why we are changing the system of regulation to replace the failed tripartite system created by the previous Government and voted for by many Opposition Members. We have done more in seven months than they did in 13 years, when they lived off a philosophy that there would be no more boom and bust. We are now picking up the pieces of that failed philosophy.

[Andrew Percy (Brigg and Goole) (Con)]

Constituents in Brigg and Goole are rightly concerned about the bonuses, but they also remember that it was Ministers in the previous Government who spent at least 12 of 13 years supping cocktails with bankers, praising them around the world and dishing out knighthoods to them. I therefore congratulate the Chancellor on his comments on social responsibility and the community fund. Can he tell us when that community fund for the banks will be established, and whether small as well as larger good causes locally will be able to benefit from it?

[Mr Osborne]

I do remember exactly that story of the Labour Government; indeed, I was reminded of it recently when I saw Tony Blair, that well-known consultant for J. P. Morgan. We are trying to sort out the situation that we inherited—a complete mess with no plans to put it right. Now, seven months in, the Opposition still have no serious economic policy to put forward.

[Andrew Bridgen (North West Leicestershire) (Con)]

Is the Chancellor of the Exchequer as appalled as I am by the mock anger of those on the Opposition Benches, which is a blatant attempt to mask the fact that they completely failed to regulate the banking industry that amounts to no more than blatant opportunism, and smacks of canting hypocrisy?

[Mr Osborne]

It is blatant opportunism, and it is a substitute for a serious economic policy. People will have long memories about what happened when Labour was in charge of our economy.

[Pat Glass (North West Durham) (Lab)]

The Chancellor has said several times that nothing is off the table if the banks do not conform to the code of practice. Can you explain to me and to people here today what exactly is on the table, and what you will do if they do not conform?

[Mr Speaker]

Order. I will do nothing at all, but I think the Chancellor might.

[Mr Osborne]

As I have said, what is on the table at the moment is the discussion that we are having to increase lending in a material way—in other words, more than would otherwise have been the case—and to reduce bonuses more than would otherwise have been the case. I have made it very clear to the banks that nothing is off the table if we do not agree this settlement, and we will look at all the options available to us.

[Mr Speaker]

I thank the Chancellor and all colleagues for their succinctness, which has enabled every Member who wanted to ask a question to do so, and to secure an answer.