Huw Irranca-Davies
Main Page: Huw Irranca-Davies (Labour - Ogmore)Department Debates - View all Huw Irranca-Davies's debates with the HM Treasury
(11 years ago)
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Chris Leslie
We are repeating the intervention and the response I gave earlier. I just disagree with the hon. Gentleman. I do not think it is an inalienable right of bankers to continue to receive multi-million pound bonuses. The world has changed, as even many Government Members recognise. Defending the indefensible will not do him any good.
Huw Irranca-Davies (Ogmore) (Lab)
May I suggest an alternative hypothesis to my hon. Friend? The runaway bonus inflation that we are seeing once again suggests that the top earners are almost anticipating a bonus tax, in which case we may as well give it to them and fund jobs for the young unemployed.
Chris Leslie
That is the other crucial part. We are often criticised by the Government, who ask, “Where are your policies? What are you proposing to do about the economic situation?” but here is a pretty good suggestion for them. Let us learn from their mistake of scrapping the new deal and the future jobs fund, which my hon. Friends will remember, and do something to help to get young people in particular back to work. There is a separate issue with the long-term unemployed. We have talked separately about changes to the highest rate of pension relief, which could help to fund something for the long-term unemployed, but we could use the bank bonus tax to help to get young people back into work. It is essential that we get people back into the habit of working and paying taxes, and if they turn down those job opportunities, they should forfeit benefits as a result. The proposal has to be part of a tough policy, to ensure that we always focus on work as the best antidote to an inflated welfare budget, but to get our economy moving again too.
Geraint Davies
I will give way in a moment.
After all, one of the big issues that is waved around by the Government is, “We must get the welfare bill down and Labour will not do anything about it.” The flagship of that proposition is, “Housing benefit has doubled to £20 billion in the past 10 years. What is the Labour party going to do about that? We are going to introduce the empty bedroom tax.” In fact, 70% of that increase has come about through escalating private sector rents, and local councils being forced to use the private sector for people in need of housing, because not enough social housing is being built.
If we could somehow get the banks to build social houses, perhaps by allowing them to own partly some of those assets, and by doing so create jobs for people who would pay tax, people would have houses and the housing benefit bill per household would go down because rents would go down—housing benefit is linked to rent levels. We need to think about how to put this together, and part of that debate clearly relates to the banks. When there are obscene bonuses and the recipients are receiving tax cuts, it is not fair, certainly from where I stand, when I am seeing local unemployment up 42%.
Geraint Davies
I will give way to my hon. Friend the Member for Sefton Central (Bill Esterson) first.
Geraint Davies
I agree that part of the previous problem was the false assumption that the value of property would continue to escalate. Lenders would grant 110% mortgages on the presumption that, within a couple of years, the equity would catch up and there would not be negative equity. Therefore, borrowers would start with negative equity. The issue of sub-prime debt is a big problem.
One of the flagship proposals of the current Budget is for the state to come in and subsidise deposits by lending up to four fifths of the 25% deposit. There are people in the financial community who are thinking, quite reasonably, “Hold on; this could be the start of another sub-prime debt problem.” The problem we have is that people cannot afford to save the deposit that would enable them to become an owner-occupier. They are paying a rent that is too high because there are not enough houses, so they cannot save the deposit. There is a logic that asks, “Can we help them with that deposit?” I agree with that logic that far, but we must be very careful. People have said, “Oh well, no one is taking up the offer,” but if this suddenly becomes a very significant amount of money and it is not properly balanced as a risk, we could be going down the path that started the problem in the first place.
That said, ultimately communities are desperately in need of houses. Historically, council houses were invented because the marketplace was failing to deliver affordable, quality housing for very large parts of the community, and we had Rachmanism. I fear, actually, that we are witnessing the start of its re-emergence. So investing in assets in which people can have stable family lives, as a platform to get jobs, is good. We will not solve the problem today, but part of this debate is clearly about reviewing whether we can do some extraction from the banking community. That community have just been given back a lot of money, they have been causing many of the problems and there is a risk premium. They should be paying back to the taxpayers who are covering their back. Then we can think creatively about how to engage the banking community in small business development, housing development and so on.
Huw Irranca-Davies
Conservative Members have asked whether this is a tax-raising scheme or a scheme to create jobs and homes. I put it to my hon. Friend that I am bemused as to why it cannot be both. Surely a scheme that takes from where there is disproportionate wealth and redistributes, not simply in terms of cash in pocket, but into jobs, and taxes paid by people in those jobs, has such a glorious splendour about it that I struggle to see the dilemma.
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.
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.
Huw Irranca-Davies
May I suggest, through my hon. Friend, by way of riposte, that the cruel deception that is being perpetrated is that there is a lack of ingenuity within the Treasury that could extricate some of the undeserved wealth and redistribute it to put people in jobs? I fail to agree that there is a lack of expertise or resourcefulness there; that is an admission of supineness, of surrender. We should be looking for imaginative ways, like the amendment before us, to get people back to work, by taxing those who are disproportionately wealthy and undeserving.
Geraint Davies
I will give way in a moment.
I went to visit UK Trade & Investment, which has 83 offices around the world. Its mission is to market Britain for trade and inward investment. I was in its office in Dusseldorf and it told me that typically it would market Britain as a great place to come to—a low-tax, stable society with a platform into various markets, a skills base and great universities.
For example, a German distiller might come along and say that it wanted to set up a factory in Britain. That would go on to UKTI’s computer platform and the RDAs would then bid for it, saying, “We want that in Yorkshire” or “We want that in Lancashire” and setting out their case. Immediately after the RDAs were destroyed, there was a queue of companies looking to invest in Britain through UKTI, but there was no one to bid for that investment. It was crazy to destroy them, especially at a time when we want growth and regional balance.
The Government said the RDAs were too expensive, but now they ask why we have growing unemployment, zero growth and increased housing benefit costs in London. It is because rents are going up, we are not building houses and we do not have regional balance. Therefore, the amendment is partly about thinking of creative ways to move forward and engage the banking community in a sustainable growth plan that has a regional dimension.
Huw Irranca-Davies
Does my hon. Friend agree that the life sciences cluster at Swansea university, which brings together the best of the private sector, with micro-businesses, small and medium-sized enterprises and technological innovation, is working also because the project is supported by local and national Government in Wales? It is not about one or the other; it is about both. I have visited a company in Maesteg, at the top of the Llynfi valley, a former coal mining area, which is investing in life sciences. Does he also agree that the sort of intervention that that company would love to see is in a jobs guarantee to help it increase its manufacturing base? That is the sort of clever intervention the state can make to grow SMEs and micro-businesses, not just the Tatas of this world.
Geraint Davies
I completely agree. There are clearly certain growth markets within the global market environment, and life sciences is one that is of great interest in Swansea, as are biotech and green technologies and all the rest of it. What the public sector can allow is a critical mass of research that benefits from economies of scale and a shared risk that would not be taken by individual operators, and that can attract inward investors. What we want is a benign partnership, as we have in Wales, with a Labour Government and local authorities working with universities, perhaps on a city-region basis, which is the future, to deliver benefits for all. That is what we want, rather than the laissez-faire approach.
I will have to bring my comments to a close in a moment, because obviously other Members wish to speak, but I promised first to give way to the hon. Member for Stroud (Neil Carmichael).
Alison Seabeck
My hon. Friend has put his position on the record, so I will not take further interventions on that point.
I come back to the amendment and its call for a review.
Huw Irranca-Davies
My hon. Friend has raised the issue of the disparity between the £2.5 billion that the Prime Minister said on repeated occasions would be raised by the bank levy and the nearly £1 billion that is now missing. Does she share my hope that when he responds the Minister will identify where that £1 billion a year is? If we could find it, it could go towards the job creation schemes that we are talking about. Some £1 billion is being nicked from the Treasury every year.
Alison Seabeck
My hon. Friend is absolutely right in suggesting that if there is a £1 billion gap, it should be explained. I am sure that the Prime Minister would like to know, given that he has repeatedly stood at the Dispatch Box using that figure, which seems to have been plucked from the sky.
Huw Irranca-Davies
It would be completely remiss of anybody in the House even to suggest that the Prime Minister was in any way misleading the House when on repeated occasions he cited the figure of £2.5 billion a year. But could it be possible that he has been misled inadvertently by Treasury officials or other Ministers?
Alison Seabeck
That is exactly my point. Has the Prime Minister been given duff information? If he has, that is pretty shocking. Ministers should take responsibility if that is the case.
I come back again to my point. The amendment is calling for a review, which is absolutely right. The hon. Member for Bristol West (Stephen Williams), who spoke in the previous debate, is not in his place, but I hope that this time the Liberal Democrats will not pursue the line taken by the hon. Gentleman, which was that it is unreasonable for the Treasury to carry out a review—of a mansion tax, in the context of the previous debate. He seemed to have forgotten that the Government are carrying out a review, at taxpayers’ expense, into the future of Trident. Obviously, that is basically a review for future Lib Dem policy. As I said, it is a shame that the hon. Gentleman is not here, because there was a bit of a contradiction between the two positions from the Liberal Democrats.
In Plymouth and the rest of the south-west, we are still lagging behind the rest of the country when it comes to finding the full-time jobs that young people desperately need. The number of unemployed is still higher than in 2010 and the number of long-term unemployed is growing. Although the Government keep telling us that more people are employed—the mantra has come from them again today—their figures hide the simple fact of the contrast with the position in 2008.
Then, when people were asked whether they felt they were working excessive hours, the answer came back as a resounding yes; people felt that they were working more hours than was reasonable. Now that figure is different—in large numbers, people are seeking more hours to work. It is estimated that there is a shortfall of 20 million working hours, which equates to a real unemployment figure that runs closer to 3 million. Questions have also been asked of people who work part-time and want to work full-time. The number who want to switch from part-time to full-time is 1.5 million—that is just in the three months running up to February.
There is clearly a problem. People are working part-time; indeed, some are trying to hold down two or three part-time jobs, as was evidenced during a street surgery that I held in Whitleigh a couple of weeks ago. Some people have used their redundancy money to set up as self-employed, and those figures are slightly skewing the evidence on what is happening on the ground. Some people have been transferred from the public sector to the private sector, often on reduced hours. That shift partly explains the rise in the number of jobs in the private sector; they are not new jobs but simply transferred jobs.
The tax proposal in the new clause would fund a job for every young person who had been out of work for a year or more. That number is up, year on year, by 37%. They would have to take up that job or risk losing their benefits. This is no soft touch but a serious attempt to give hope to young people and to help them get a foot on the ladder and contribute to society. Unemployment among young people is higher in this country under this coalition Government than it was at any time under Labour. The number of people claiming jobseeker’s allowance in my constituency remains above the national and regional average. Reinstating Labour’s bank bonus is therefore the right thing to do.
Huw Irranca-Davies
The hon. Gentleman is making a very powerful speech. Has he had the same conversations as I have with lower-paid bank clerks and bank staff who are equally appalled by the excesses of their extremely well-remunerated paymasters right at the top of the organisation? They would look at this amendment and think that it is completely fair and should be delivered for them, as well as for us.
Sammy Wilson
The hon. Gentleman brings me to my next point. Even some within the banking industry would say that there is no economic rationale for the obscene bonuses that are given at the top of the industry, and that there is no necessity for those bonuses to make it work efficiently. On a weekly basis, businesses and individuals come to me and say that if anything is strangling growth and the potential for it, in the economy today, it is the performance of the banking industry. When I hear about of some of these bonuses, I wonder what they are being paid for. They are certainly not being paid because the banking industry is performing well in helping to grow the economy and lift us out of recession.
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.