Bankers’ Bonuses and the Banking Industry — House of Commons, 2015-02-25
Topic: Domestic Commerce
Ian Swales (Liberal Democrats, Centre to centre-left): It is interesting to take part in another Opposition day debate on this subject. The Opposition had 13 years to deliver their dream for the financial services and banking sector, but what they left us was, of course, a nightmare, and we have had to do a lot to tidy it up. Without wanting to threaten coalition entente cordiale, I should say that people who examine this subject trace some of the problems back to the deregulation that took place in 1986. It was so drastic that it has been called the big bang. It is certainly true that my coalition partners were still calling for lighter regulation as late as 2007 However, between us, we recognised that there was a nightmare to sort out, and a great deal has happened, principally the Financial Services (Banking Reform) Act 2013. Let me pick out three items. First, there is a new criminal offence that covers those who run banks and building societies and have engaged in reckless misconduct. The penalty is a maximum sentence of seven years in prison, or an unlimited fine. Secondly, we have worked closely with other countries to tackle risk by introducing strict requirements in relation to the capital that banks must hold. Thirdly, we have prevented banks from engaging in or promoting tax avoidance by making the 15 biggest banks sign up to a code of practice. My party wants more to be done about that: we think that there is room for a new offence of corporate failure to prevent economic crime. We believe that not just those who evade taxes but those who advise or enable them should be prosecuted We are still seeing scandal after scandal, and it is notable that most of the scandals that are still hitting the news arose on the last Government’s watch—or the seeds were sown then—so we have had a great deal to do. We introduced the banking levy, and we have kept it going. My party wants it to continue, so that banks go on contributing to the process of rebalancing our budget and helping our economy As we have heard from several Members today, bankers are paid a lot. I think that there is a fundamental cultural problem. When an organisation has money to allocate, it has to think about its stakeholders. It has to think about its customers in terms of services and pricing, and it has to think about its shareholders in terms of the reward on the capital that they have invested. It also has to think about investing in its own business. About 10 years ago, my daughter worked in a branch of Barclays bank that was still using punch card machines that I thought had gone out in the late 1970s Staff are, of course, part of the balance, but I think most of us feel that the balance between the various stakeholders in some of the big banks has been tipped too far towards senior staff. However, bonuses are a great deal lower than they were. They have fallen from nearly £11 billion, or £33,000 a head, in 2007 to less than £2 billion, or £6,000 a head, in 2013. They are rising a little as banks are getting their act together, but they are nowhere near as high as they once were As so often happens with Labour motions, the Opposition have tried to connect two completely disconnected issues. We can have a debate about banking and we can have a debate about youth unemployment, but it is not logical or correct to suggest that the one either depends on the other or is solved by the other Of course I support moves to reduce youth unemployment. For me, however, unemployment is not about percentages but about people, and 830 fewer people in my constituency have been out of work in the last year. Unemployment remains far too high, and it is particularly high in the north-east, but it has fallen by an average of about 1,000 people per constituency in the north-east over the past year. In my constituency, youth unemployment has fallen by 43% since the 2010 election, when I inherited my legacy The motion asks us to consider the issue of youth unemployment, and also to consider the proposition that the bankers’ bonus tax will help to sort it out. The bonus tax has become the magic porridge pot of Labour policy making. I have a list of nine uses to which Labour Members have put it so far, and I think that my hon. Friends could raise the number to about 11. The last occasion on which we discussed the subject was quite remarkable. The shadow Minister who opened the debate referred to one use for the tax while the Minister who closed it referred to a different one, so they obviously had not shared notes. Perhaps, given that we are so near to a general election, they will finally settle on a use for it Let us now think about what will actually happen. If I understand the Opposition’s policy correctly, they want individuals to pay 50% tax on their bonuses, and they want banks to pay 50% tax on those bonuses. Of course, banks have other employment costs, particularly national insurance. Barclays has calculated that, when all that is added together, it will be paying 115% tax on its bonuses. Is it really likely that a bank will continue to declare £1 of bonuses to ensure that a Labour Government receive £1.15 Matt, the famous cartoonist, must have been very prescient when he prepared his 2015 calendar. The cartoon for this very month shows a banker sitting behind a desk and someone else standing some distance away from him. The banker is saying "I cannot give you a bonus, but there is a £2 million reward for the person who finds my umbrella"—and there is an umbrella on the floor between them. In other words, banks will find ways around this It is not just Matt who has made the point. Referring to Labour’s bankers’ bonus tax, the right hon. Member for Edinburgh South West (Mr Darling) 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."