Greg Clark
Main Page: Greg Clark (Conservative - Tunbridge Wells)Department Debates - View all Greg Clark's debates with the HM Treasury
(11 years ago)
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Chris Leslie
That is an option, and we certainly need to go back to the drawing board and make sure that we design the bank levy in a way that actually works. The proposition we have made in the amendment is to repeat the bank bonus tax that worked very successfully in 2009. That could be incorporated into the bank levy process—that is one option—to ensure that we get a fair share for the taxpayer, who has suffered as a consequence of the requirement to bail out the banks.
The Financial Secretary to the Treasury (Greg Clark)
Will the hon. Gentleman clarify whether his policy is for a one-off payroll tax or a permanent one?
Chris Leslie
This is where we need to look at the interplay with the bank levy. Clearly the levy should be a permanent way of ensuring that we net the right level of resource for the Treasury in recompense for the deficit that the banks created. It is possible to have a bank bonus tax that is more sustainable, but I am open to discussion with the Treasury about how that might work. Even if we netted less than the £3.5 billion that the first bank bonus tax brought in, it would still be considerably more on top of the bank levy, which clearly needs to be topped up. It is important that we look at that—
Greg Clark
Given that the hon. Gentleman clearly does not know whether it would be permanent or temporary, can he at least give an assurance to the Committee that he will not commit any spending to be funded by that levy that goes beyond any particular year?
Chris Leslie
I can tell the Minister that in this financial year it would be necessary for us to repeat that bank bonus tax. We will set out our tax and spending proposals when we write the manifesto for the general election. Heaven knows what kind of mess we will have to untangle after a further two years. It would be invidious to make decisions at this point in the cycle when the Minister will not tell us what is in the spending review in just two months’ time. We will make an assessment in two years’ time. I can certainly tell him that, from our point of view—this is a serious policy distinction—a bank bonus tax would be necessary now, particularly to help fund a compulsory jobs guarantee for young people. That is a necessity, given the unemployment figures we saw earlier today.
Chris Leslie
We feel that £2 billion could be raised this year from a repetition of the bank bonus tax. That would be an important contribution from those who are doing particularly well. I do not know whether the hon. Gentleman moves in those circles and whether he has seen, as though nothing much has changed in the world, how high bonuses continue to be. Yes, changes from the European Union and elsewhere are being forced on to the bonus culture, but bonuses are still excessively generous to the very lucky few. There are a number of reasons why the bank bonus tax would be good not just for the taxpayer, but in changing the culture in the sector itself. The tax raised £3.5 billion when it was last tried in 2009.
Greg Clark
At what rate would the bonus tax be to raise that amount of money this year?
Chris Leslie
I was anticipating that question from the Minister. This is the Minister who has tweaked and changed the rate, I think, five or six times in various Finance Bills, all to fit the £2.5 billion figure that he has totally failed to address. We need to go back to the drawing board on the bank levy and find a way of calculating it so that it properly yields the sums that we envisage. Of course, the bank levy has to be thought through, so that we get that resource in. It is totally unacceptable to have lost nearly £2 billion for the taxpayer in the past two financial years. Just think what that £2 billion could have achieved in that period. This is not small money. There is the classic chancellorial phrase, “A billion here, a billion there and very soon it starts to add up to real money”, but this is significant resource. It is to the great shame of Ministers that they have allowed that money to slip away from them.
Chris Leslie
The study commissioned by the Financial Times which showed the massive impact of the extreme austerity being pursued by the Government will bring home to many communities where some of the poorest people live the fact that that money and those resources are being taken out of their local economies.
Greg Clark
I am sorry to press the hon. Gentleman on this point, but can he answer a conundrum for me? He has helpfully said that he wants to raise £2 billion this year through his payroll tax. The Centre for Economics and Business Research estimates that this year’s bonus pool would be £1.6 billion in total. How will he raise £2 billion from that?
Chris Leslie
I do not recognise that figure. [Interruption.] The Minister is making various projections about the bonus pool, but even if the changes meant that we did not manage in years to come to yield what we now feel we can yield—he could equally make the argument that said, “Well, the European Union is making changes to limit bonuses,” which would obviously mean changes to salaries and elsewhere—what we are proposing would add considerably to the bank levy revenues that he has managed to generate. As we have set out in the amendment before the Committee, we need to incorporate a repeat of the bank payroll tax. It is important to recognise that, although I am happy for the Treasury to commission further research on the issue. If the Government are interested in this agenda and are starting to move in that direction, that might be useful.
Greg Clark
I thank the hon. Gentleman for giving way; he said earlier that he would do so.
The hon. Gentleman said that he had based his assumption on calculations. The authoritative source on these matters is the CBI, which has published figures consistently over time. It says that the bonus pool was £6.5 billion in 2010 and is £1.6 billion in 2013. Will he share with the Committee the calculations on which he has based his assumption about the bonus pool, and the source that he used? If he cannot do that, I hope he will desist, both in this debate and in future, from making any spending commitments that rely on a source that is fanciful.
Chris Leslie
I would be happy to enter into correspondence with the Minister about the matter. However, we feel that, according to a conservative estimate —I use the term, on this occasion, in a relatively pleasant way—£2 billion could be netted for the Exchequer, as opposed to the £3.5 billion that was netted in 2009.
Our amendment would require the Chancellor to
“review the possibility of incorporating a bank payroll tax within the bank levy”.
I am delighted that the Treasury has conceded that it wishes to engage in such a review. I am delighted that there has been a bit of movement in that regard. I would quite like to ask where the Liberal Democrats are on the issue, but then I would quite like to ask where the Liberal Democrats are generally—although I shall not dwell on that.
Greg Clark
I would like the hon. Gentleman to be more precise about the figures. He said that last time the payroll tax raised £3.4 billion—
Greg Clark
The hon. Gentleman says that it was £3.5 billion. I am sure he will confirm that he has read the analysis published last year by Her Majesty’s Revenue and Customs, which clearly states that £3.4 billion is a gross receipts figure and that the net yield was £2.3 billion. He will agree with that, I am sure.
Chris Leslie
No. The figures given in the HMRC study were estimates—and, incidentally, it was not a study by the Office for Budget Responsibility. For “HMRC”, read “Ministers”. They may well pooh-pooh the payroll levy and the bank bonus tax, but we feel that there is ample evidence to demonstrate how it operated before and how it could and should operate again. If only Ministers would adopt a more “can do” attitude, rather than trying to deflect attention from the massive embarrassment of having promised to raise £2.5 billion from a bank levy and having brought in only £1.6 billion in the last financial year. Although we said year after year that the levy would not be strong enough, they turned a blind eye, and indeed they have turned a blind eye to their banker friends for far too long.
The Government have provided tax cuts amounting to £19 million in the last week by reducing the 50p rate to 45p. A massive number of bank executives are earning more than £1 million this year. A cursory study of the annual reports and accounts of some of the banks concerned—Opposition Members may wish to listen to this rather than talking among themselves—reveals that this year’s bonus results created a staggering number of millionaires. In the Royal Bank of Scotland, 93 bankers were given bonuses of more than £1 million. Given the tax cut, they will benefit to the tune of more than £6 million in the current financial year. Barclays originally reported that it had 428 millionaires, given bonuses. I have been told that only a third are UK-based, but that would still mean that 140 Barclays executives are benefiting from nearly £23 million in tax cuts granted by the Minister because of the reduction in the top band of income tax. Seventy-eight millionaires at HSBC have received a combined tax cut of £3.3 million. Nineteen individuals at Santander are receiving a giveaway of more than £800,000. Twenty-five millionaires at Lloyds are receiving from the Treasury a combined tax giveaway in this financial year of £1.3 million. So they are doing very well, thank you very much, from this Government.
Geraint Davies
That is precisely right, because the creative challenge is how to get the banking community to invest in jobs and small business, and one way is to take some money from them and create some jobs and small businesses. If they cannot work out how to do it, that seems a reasonable thing to do.
Greg Clark
Through the hon. Gentleman, perhaps I may express the dilemma that was raised by his hon. Friend the Member for Ogmore (Huw Irranca-Davies). I fear that a cruel deception is being perpetrated on the unemployed. They feel that a sum of money will be available to them, but it simply is not possible to raise £2 billion when the total bonus pool is less than that. I think they should know that.
Geraint Davies
Yes. Well, obviously, we clearly need to look at aggregate sums, but what is being debated here is—[Interruption.] What is being debated here is, is whether it is right that a community of people—I am talking particularly about people in the upper echelons of the banking community—who are making obscene bonuses should be given more and more money for doing no more work and having the taxpayers covering their backs in terms of risk, at a time when we are seeing an escalation of unemployment in various communities, including some that I represent, and when the very poorest are being asked to deal with obscene levels of pain in order to reduce the deficit problem.
Sammy Wilson
I will conclude on that basis. I hope that I have addressed some of the points made by coalition Members. The amendment should be supported on grounds of fairness, of improving the banking system and of ensuring that the money that the Government raise from this provision could be used to help to stimulate the economy.
Greg Clark
I am grateful to you, Ms Primarolo, for allowing me to get a word in edgeways in this debate. It has been a most illuminating debate. We have discovered that it is the policy of the Opposition to raise £2 billion from a bank bonus tax when the pool of bank bonuses this year is forecast to be £1.6 billion. The Opposition Front-Bench team was commended for proposing an imaginative measure. It certainly is imaginative. Indeed, it is the stuff of fantasy that more could be raised in revenue through a tax than is contained in the tax base to which it applies.
The Opposition have done this before, as I shall say later, and this is a familiar debate. We had this debate in 2011 and in 2012, and now the Opposition have tabled a more or less identical amendment on a policy that was introduced in the dying days of the last Labour Government for one year only—a payroll tax on banks. When the then Chancellor introduced it in December 2009, he insisted that it would be a one-off tax. Indeed, it was not even for a full year, but from December 2009 to April 2010. But in the Finance Bill Committee of the whole House almost exactly a year ago, the hon. Member for Pontypridd (Owen Smith) revealed:
“If Labour had won the election, it may have changed its view and continued the bank bonus tax.”
On reflection, he said,
“I think a Labour Government would have continued it”.—[Official Report, 18 April 2012; Vol. 543, c. 391.]
The annual reappearance of this temporary Labour tax should remind us all that whenever Labour proposes a temporary tax, it is best to assume that it is for life—
Greg Clark
The hon. Gentleman spoke for 45 minutes and I have about seven or eight minutes. I shall make some progress and try to give him an opportunity later.
The bonus tax raised a net amount of £2.3 billion for the Exchequer, and that was supposed to be that. Amazingly, the Labour party had no other plans to make the banks make any further contribution to the costs they imposed on taxpayers. I agree with the hon. Member for East Antrim (Sammy Wilson) on that point. After that £2.3 billion, it appeared that the banks had discharged their responsibility to the taxpayers. To be fair and to acknowledge the consistency of the Labour Government, they showed no indication during their 13 years in office that they wanted to extract a contribution from the banks, even when the Centre for Economics and Business Research estimated that bonuses amounted to £11.5 billion in 2007.
As we know, the Labour party was “intensely relaxed” about people getting filthy rich. We have taken a different view. We believed from the outset that it was right for banks to contribute more to the taxpayer than other companies which did not pose a risk to the Exchequer and to the taxpayer. We agree with the point about fairness, and that is why the Government introduced a permanent levy—not a one-off—on the balance sheets of banks in the first Finance Bill of the new Government.
As we intended that it should be permanent, rather than—as Labour preferred—for a single year, it was important to design it in a way that would raise money every year. The trouble with a bonus tax, as the former Chancellor eloquently put it, was that
“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.”
That was why it could work only for a single year.
Huw Irranca-Davies
Has the Minister looked down the back of the Treasury sofas to find the £900 million a year that is missing? What has gone wrong?
Greg Clark
I will come on to that point, and the hon. Gentleman will be satisfied with my answer, as I hope he will acknowledge.
Balance sheets, unlike bonuses, cannot be hidden. They are more stable than bonus pools and so offer a far better way to collect a levy to benefit the public. Moreover, balance sheets are a better reflection of the risks, to the banking sector and to taxpayers, than remuneration, as set out by the International Monetary Fund in its 2010 report to the G20. That is why France and Germany quickly joined us in applying bank levies. They have subsequently been joined by Austria, Belgium, the Netherlands, Portugal and others. It is fair to say that those countries have not chosen to charge as much as we have. Relative to the size of our financial sector, our levy raises five times that raised by the French levy and two and a half times that raised by the German levy, but not one of these countries has thought fit to introduce a permanent bonus tax.
A permanent bonus tax would, of course, have been a catastrophically unreliable source of revenue, which is why I am very concerned that the spending commitments proposed by the hon. Member for Nottingham East (Chris Leslie) seem to be based on it. When the Labour tax was imposed, the Centre for Economics and Business Research estimated that the total pool of City bonuses was £6.7 billion. As I said earlier, it estimated that last year bonuses were £1.6 billion—less than a quarter of the 2010 level. With regard to the proposals from Europe, there might be some expectation that the levels will fall further.
A balance sheet tax is obviously a more stable, sustainable and sensible revenue base. However, to address the points made by the hon. Member for Nottingham East, balance sheets are not entirely invariable, which is why we have introduced a second element to the policy. We have specified that the bank levy should raise at least £2.5 billion a year, which is why we have clauses 200 and 201. The clauses increase the bank levy from 0.088% to 0.142% from 5 January 2014. The reason for these increases is simple: the forecast published by the independent Office for Budget Responsibility in December implied that without amendment receipts for future years would fall short of the £2.5 billion required and to which we are committed.
We announced in the autumn statement, as soon as these forecasts were published, an increase in the rate, which the Bill implements, to correct the shortfall. The March 2013 forecasts made by the OBR show that the levy is now forecast to raise more than £2.5 billion this year, and in all subsequent years. When the bank levy was first set, in Budget 2010, it took account of the planned reductions to corporation tax that were announced at the same time. Since then, as hon. Members know, the Government have been able to make further cuts to corporation tax. We have taken the view that this should not be passed on to the banks. Accordingly, clause 201 increases the bank levy to recover the benefit that would have been received from the cut in corporation tax.
To answer the point made by the hon. Member for Ogmore (Huw Irranca-Davies), the effect of these changes would be to cause the bank levy to yield not £2.5 billion in future, but £2.7 billion this year, and £2.9 billion for every year into the future. This extra revenue more than makes up for the shortfall in revenues experienced during the first two years.
Let me say something about clause 202, the other measure in the Bill relating to the bank levy. The clause removes an anomaly that would have been exploited, whereby banks could have claimed both a tax credit and a deduction for the same foreign bank levy. The view of Her Majesty’s Revenue and Customs is that the existing corporate tax rules prevent such a deduction, but the case law is old and we saw fit to put the matter beyond doubt.
I fear the Opposition have made a mistake in preferring a payroll tax to a bank levy. As countries across the world demonstrate, a bank levy is a better reflection of systemic risk: it is permanent, it raises more money and it is sustainable, not being undermined by avoidance. If the Opposition persist in basing their spending plans on such a flimsy source of revenue as the bonus tax, which actually exceeds what is paid in bonuses this year, then I fear that they have not learned the lesson that they surely must: jeopardising our public finances would take this country back to the edge of ruin from which this Government have hauled it back. If the hon. Member for Nottingham East had any embarrassment or rigour, he would withdraw this ridiculous amendment. I commend clauses 200, 201 and 202.
Chris Leslie
The Minister’s smile could not be stifled by the ridiculousness of his last comments. This is déjà vu all over again. We have heard it before from this Minister time after time, year after year. “Our bank levy,” he said, and the Prime Minister has said from the Dispatch Box, “will always raise £2.5 billion.” Last year, however, it was £1.6 billion; this year it is £1.8 billion. The amount of money lost is staggering. We will, therefore, want to test the view of the Committee. The Minister has to get a grip on this issue. He has been haemorrhaging money, and the £2 billion that has been lost should have been put to the better purpose of helping young people get off the dole and back into work. That is what we on the Labour Benches believe.
Question put, That the amendment be made.