Finance (No. 4) Bill

Debate between Owen Smith and Stephen Williams

Wednesday 18th April 2012 Commons Chamber

[Owen Smith]

The Minister gives the lie to the argument that the Government have made about this figure, which allows them to state that it is £2.3 billion, not £3.5 billion, and is therefore lower than the £2.5 billion that they are ostensibly raising through the bank levy. Of course, both the £2.3 billion figure and the £2.5 billion figure are open to question. It is not just me who thinks that; many commentators have said so.

How did the Government manage to reduce the yield of £3.5 billion that is written in black and white on page 101 of the blue book to £2.3 billion? I could tell the Committee, but I will go one better and read out a comment piece from the Financial Times from earlier this year:

“The Treasury reached its £2.3bn figure for last year by lopping off £1.2bn from the original £3.5bn figure—citing the income tax and NI which the exchequer may have lost due to banks paying lower bonuses than they might have done. (A speculative behavioural assumption).”

As anybody who has read “The Exchequer effect of the 50 per cent additional rate of income tax” will know, highly speculative behavioural assumptions are the bedrock of this Government’s economic policies. The article went on to forecast that the bank levy, which was meant to reach £2.5 billion in 2012, would actually reach only £1.3 billion. In truth it reached £1.8 billion, but it certainly did not reach the £2.5 billion that is claimed repeatedly by Government Members.

[Stephen Williams]

The shadow Minister said that the figure of just over £1 billion being lost because of behavioural change was speculative. Of course, the previous Chancellor stated that the bank bonus tax was introduced in the last Parliament to drive down the awards of bonuses. It was meant to change behaviour. The previous Chancellor therefore speculated at the time that there would be a reduction in the number of bonuses and, therefore, in the income tax and national insurance contributions taken in by the Treasury.

[Owen Smith]

That would have been a good intervention, were it not for the fact that the £3.5 billion that was realised is written in black and white on page 101 of the OBR document. It is clear how much money was raised—£3.5 billion. [Interruption.] If the Minister wants to intervene to correct me on that, he can do so.

--- Later in debate ---

[Owen Smith]

I shall keep going for a moment.

That is before we consider the actual tax cuts being introduced in the year-on-year reductions in corporation tax and the other changes to the controlled foreign companies legislation.

[Stephen Williams]

The hon. Gentleman says that banks will all get a tax cut because of the reductions in corporation tax. That assumes that they have taxable profits. Many have accumulated losses and will not be paying corporation tax for quite some time, whatever the rate.

[Owen Smith]

I would not dispute that for a moment. Many of the banks are under water and so will not end up paying tax for a significant period, but not all of them, and that is my point. Broadly speaking, the banks and financial services account for about 8% of corporation tax in this country. Overall, there will be a reduction to the Exchequer, through the cut in corporation tax to 22%, of about £5.5 billion per annum. That is leaving aside the CFC changes. On average, then, we would expect the financial services and banks to get about £450 million off their tax bills as a result of the Government’s changes. That is the point I am making. The question that needs to be asked in the round is what we are doing to tax corporations and tax our banks.