Richard Burgon (Leeds East) (Lab) Today I am calling on the
Government to introduce a windfall tax on the banks, which have
exploited the cost of living crisis to make super-profits, just as
the energy companies did before them. Such a tax could create
much-needed funds to invest in our public services and to help bail
out those hit hard by the ongoing economic crisis. Before I make
the case for that, however, I want to look at where we are after 13
years of Tory misrule....Request free
trial
(Leeds East) (Lab)
Today I am calling on the Government to introduce a windfall tax
on the banks, which have exploited the cost of living crisis to
make super-profits, just as the energy companies did before them.
Such a tax could create much-needed funds to invest in our public
services and to help bail out those hit hard by the ongoing
economic crisis. Before I make the case for that, however, I want
to look at where we are after 13 years of Tory misrule.
British economic growth was recently downgraded again. Britain
has now seen well over a decade of economic stagnation. We are
living through the largest fall in living standards since records
began 75 years ago. This will be the first Parliament in history
in which people are poorer at the end of it than at the
beginning. What a record! Wages are set to be no higher in 2028
than they were 20 years before. That is the slowest wage growth
in 200 years, and it has cost the average worker £10,700 a year
in lost pay growth. Shockingly, 9 million younger workers have
never worked in an economy where they have seen sustained average
wage rises.
Income inequality in the UK is higher than in any other large
European country. We have a much weaker economy and much lower
living standards. That is the record of the Government’s agenda
of austerity, deep public service cuts and trickle-down
economics. They have created a social nightmare, too. Fourteen
million people live in poverty, including over 4 million
children. One in seven people is facing hunger, and 6 million
households are in fuel poverty. As the cost of living crisis
continues to hit families across the UK, this should be a time to
bail them out. It should be a time of public investment to boost
economic growth and living standards, and to rescue our public
services. Instead, the Government are plotting another £20
billion-worth of cuts to public spending. I cannot think of a
single policy that would cause more economic and social harm.
When we talk of a worsening economic and social crisis, we cannot
forget the class politics of it all: how it affects the 99% and
how it affects the 1%. We hear a lot about the cost of living
crisis, but it is not a crisis for the elites. For them, it has
been boom time. There have never been so many UK billionaires,
and British billionaires have increased their wealth by £120
million every single day over the past decade. The profits of the
UK’s largest companies are now 89% higher than before the
pandemic. Bankers’ bonuses have hit record highs. Bosses’ pay at
the largest 100 companies has been going up and up, and has
increased by 16% in the past year.
One sector that has been doing very well out of the crisis is
banking. Just like the oil and gas companies, the banks have used
the crisis to line their pockets. While millions of people
struggle to pay their mortgages and rents, the banks have been
cashing in. Higher interest rates have enabled them to charge
households more for mortgages and firms more for loans, but those
higher interest rates have not been passed on to savers.
(Strangford) (DUP)
I commend the hon. Gentleman for bringing forward the debate; I
spoke to him beforehand. Does he not agree that the closure of
high-street banks—there have been some 11 in my constituency of
Strangford— especially in rural communities, has left a massive
problem of rural isolation and that there should be a windfall
tax on the banks making profits, with that money routed to the
rural communities who have felt the brunt of the banks’ thirst
for enhanced profits over service, which seems to be their
calling card?
The hon. Member makes an important point. The example he gives of
the closure of so many high-street banks, which disadvantages
people in my community as well as in rural communities, just goes
to show that the banks’ huge increase in profits has not been
achieved through delivering a better service to consumers at all.
Higher interest rates have not been passed on to savers; they
have been hoarded by the banks, creating a windfall for them of
many billions for doing nothing productive.
Such a transfer from the public to banks would be unjustifiable
at any time, but it is especially so when so many people are
struggling to cover the essentials and our public services are on
their knees due to Tory cuts. The banks should face the same type
of tax on their unearned and underserved windfalls as the energy
companies.
The pre-tax profits of the big four banks—Lloyds, Barclays, HSBC
and NatWest—show why that would be a just tax. In the first nine
months of 2023, they made a staggering £41 billion in pre-tax
profits, which is almost double the £23 billion they made in the
same period last year, according to research by Unite the union.
The question we must answer is this: will we allow the Government
to claim that more austerity and cuts are inevitable and that
public investment is unaffordable, or are we to build a better
tax system that focuses on making the wealthiest pay their fair
share?
(Tiverton and Honiton)
(LD)
On that point about a better tax system, my understanding is that
business likes certainty and that banks, like businesses, need to
be able to predict the future fiscal regime, but earlier this
year this Conservative Government cut the bank surcharge from 8%
to 3%. So rather than a one-off windfall tax, would it not be
better to reinstate the bank surcharge at 2016 levels, reinstate
the bank levy at its previous rate from earlier this year and so
have an additional £18 billion for His Majesty’s Revenue and
Customs between now and 2027?
The hon. Member makes a valuable intervention. I will come to how
it was unjustifiable for the Government to reduce the surcharge
in that way. Both approaches are possible and desirable, with
yes, a windfall tax, but also reversing that cut.
If we build a fairer, better tax system that focuses on making
the wealthiest pay their fair share, we can invest in rebuilding
the economy so that it serves the majority of people, we can
invest in renewing our public services, and we can give people
back some hope. A windfall tax on unexpected and undeserved bank
profits can play an important role in creating that fairer tax
system. Banks are not reinvesting their profits in the economy;
they are handing out huge pay and bonuses, which could go even
higher, aided and abetted by the Government’s decision to scrap
the bonus cap.
That all comes at a time when the banks are turning their backs
on local communities. As the hon. Member for Strangford () mentioned, bank branches have been disappearing from
our high streets at an alarming rate. Since 2015, almost 6,000
branches have permanently closed their doors. At a time of
deepening social crisis, while banks collect record profits, they
have made it even more difficult for working people to access
their finances and get financial advice.
Does the hon. Member not feel that there is something immoral
about banks making high profits, closing branches and seeing
their profit margins actually grow, while people are being left
disadvantaged? There is something immoral about that. People are
being disadvantaged, while others are making more.
The hon. Gentleman is completely correct: there is something
immoral about the way that banks’ profits are soaring while they
are not delivering a better service for their customers,
particularly vulnerable customers—the less affluent, the disabled
and the elderly. That is not how we should be going about things,
and he makes an important moral case.
Based on the latest quarterly results, a windfall tax in the UK
could raise between £4 billion and £16 billion this year from the
profits of the big four banks alone, depending on the form that
that windfall tax takes. That is billions of pounds that could be
used to boost public investment and to tackle the soaring
inequality that we are facing. Spain’s progressive Government
offer us an example. They introduced a 4.8% windfall levy on
certain bank incomes and commissions above a threshold of €800
million. Replicating that here could raise almost £4 billion this
year. Even Margaret Thatcher introduced a form of windfall tax,
with a 2.5% tax on banks’ non-interest-bearing deposits. In words
that sound all too familiar today, Thatcher said that the banks
had
“made their large profits as a result of our policy of high
interest rates rather than because of increased efficiency or
better service to the customer.”
Such a tax in the UK, according to Positive Money calculations,
could raise up to £11 billion today, and a windfall tax, in
whatever from, would be popular. According to a poll commissioned
for the TUC, three quarters of the public support a windfall tax
on banks’ excess profits, including 76% of people who voted
Conservative in 2019.
Perhaps the simplest move—we heard this in an earlier
intervention—would be to reverse the tax break for banks that the
Government introduced in last year’s autumn statement. They
slashed the bank profits surcharge from 8% to 3%, saying that
this was to cushion them against the impact of higher corporation
tax rates. But this surcharge, along with the banking levy, was
one of the special taxes raised on banks after the financial
crash due to the greater risks that banks posed to our wider
economic stability. The risk they pose clearly still remains and
so too should the surcharge.
The TUC general secretary, Paul Nowak, rightly described the
slashing of the surcharge as starving our public services of
much-needed funds at the worst possible time. Reversing it could
provide key funds to, for example, introduce universal free
school meals, scrap the two-child cap or fund a proper pay raise
for junior doctors. The TUC estimates that the Treasury will lose
at least £1.5 billion a year over the next four years, although
it believes that it is likely to be more given the recent boost
to bank profits.
Positive Money estimates that reversing cuts to both the bank
surcharge and the levy could raise more than £4 billion this
year. We need to be clear about this: it was a political choice
for the Prime Minister to slash the surcharge on the banks just
as it was a political choice to scrap the cap on bankers’
bonuses. Doing so is a sign of what is so wrong in our current
taxation system.
It is clear that more of the same Tory dogma of the past 13 years
of cuts and trickle-down economics is not the answer. All that
that would succeed in doing is deepen the social crisis that is
harming so many families in Britain. It is time that we put a
stop to that. It is time to tackle the tax perks handed to the
wealthy. The banks were bailed out when they were in trouble
during the 2007 global financial crisis. It is now time for them
to be taxed fairly to help bail out communities that are
suffering because of the Tory party’s focus on building an
economy that serves the wealthy few while the vast majority fall
ever further behind. A windfall tax on bank profits is a just
policy, it is economically sound and it would be welcomed by
people across this country. I look forward to the Minister’s
response.
7.39pm
The Economic Secretary to the Treasury ()
I congratulate the hon. Member for Leeds East () on securing this debate. He
is an assiduous attender in the House, he cares a lot about these
issues and I respect him deeply. In particular, I love his
conversion, like that of his very good friend the Leader of the
Opposition, to quoting and loving Margaret Thatcher. I cannot
wait to hear the reports of how that goes down when he visits his
local Labour party at the end of the week.
I am pleased that this debate provides me with an opportunity to
set out the measures that the Government have already taken to
ensure that banks make a fair and sustainable tax contribution,
but before I get on to that, I cannot resist dealing with some of
the points that the hon. Gentleman made about the economic
context in which this country finds itself. He mentioned economic
growth. It is important that he recognises that when they
assessed the autumn statement that the Chancellor recently
delivered to the House, the Office for Budget Responsibility and
independent forecasters said that the pro-growth measures it
contained represented the largest boost to economic growth over
the forecast period of any fiscal event in a generation.
I think the hon. Gentleman said that austerity and public sector
cuts were somehow inevitable, and that somehow the Treasury,
Chancellor and Government felt that that was a good thing. We
completely reject that characterisation. All I would say is that
borrowing an extra £28 billion, as proposed by his Front-Bench
team and the shadow Chancellor—I do not know whether it is the
hon. Gentleman’s idea or proposal—will end up raising inflation
and raising interest rates, which is what makes austerity and
cuts more likely.
Let me deal with the real substance of the hon. Gentleman’s
remarks on the banks and a windfall tax. First, it is important
to highlight that financial and related professional services are
a vital part of the UK economy. They employ nearly 2.5 million
people, two thirds of them outside London. Indeed, I am sure that
the hon. Gentleman has many members of Leeds’ thriving financial
and professional services sector in his constituency.
As I laid out to TheCityUK’s national conference earlier this
month, I am committed to delivering the Chancellor’s vision for a
financial services sector that is open, sustainable, innovative
and competitive, while also acting—this is very important—in the
interests of communities, people and citizens all across our four
nations. I urge the hon. Gentleman to consider my view and the
Government’s view that such ambitions do not contradict each
other; rather, it is the UK’s globally competitive financial
services sector that supports jobs throughout this country and
underpins access to finance—for individuals if they want to buy a
home, for households, for businesses that need to borrow to
expand and invest, and for consumers throughout the country.
Before we consider the potential merits of a bank windfall tax, I
want to reflect on some of the bigger picture in respect of the
health of the UK banking sector as a whole. We should be
encouraged to see a strong, well-capitalised and competitive
banking sector in the UK, in no small part owing to the
significant regulatory and market reforms that have been
implemented since the global financial crisis. Banks are the most
important source of credit, providing individuals and businesses
with the financial resources to succeed. For example, in 2022
banks lent a total of £65.1 billion to small and medium-sized
businesses, which make up the majority of businesses in our
country, and helped 370,000 first-time buyers on to the property
ladder. That illustrates that these institutions are not in the
pockets of fat cats; they serve the nation. They serve ordinary
working people and early-stage entrepreneurs and
businesspeople.
In addition, the retail savings market currently offers a range
of competitive options to savers, who can now access the highest
rates in recent years on a variety of instant-access and
fixed-term products. The hon. Members for Strangford () and for Leeds East brought up the issue of bank
branches, and I share their view that we need to maintain access
to cash for rural communities. Indeed, the hon. Member for Leeds
East will see from me and this Government that we believe we
should speed up and spread banking hubs throughout as many of our
communities as possible.
I opened one of those banking hubs a fortnight ago in Axminster.
I agree with the Minister that it is fantastic to see those
facilities and I know my constituents are very grateful. When
will we see the opening of the next tranche, such as a banking
hub for Sidmouth?
This is a rolling programme. We are trying to speed it up and in
due course there will, of course, be changes and updates to
it.
It is equally important that banks make an equitable and
sustainable tax contribution, and the Government have taken
significant steps since 2010 to ensure that. First, as the hon.
Member for Leeds East knows, we introduced the bank levy in the
wake of the financial crisis. It was designed to encourage banks
to move away from risky funding models and ensure that they make
a fair contribution. The levy has raised vital revenue to help
fund the public services we all rely on—over £28 billion so
far—and, long after the financial crisis, it continues to bring
in over £1 billion a year.
Secondly, in 2016 we introduced the bank corporation tax
surcharge. Banks currently pay an additional 3% rate of tax on
their profits, which, when combined with standard corporation
tax, means that banks pay more tax on their profits—we would not
know it from the hon. Gentleman’s speech—than most other
businesses, and a higher overall rate than when the surcharge was
at 8%. The surcharge has raised over £13 billion and continues to
bring in over £1.3 billion a year. We have also taken action to
prevent banks from claiming tax relief on losses incurred during
the financial crisis or on compensation payments for payment
protection insurance and other cases of misconduct.
This money is the public’s money. These measures help to support
the needs and ambitions of our country’s citizens when it is
appropriate for the state to do so. I know that that is why the
hon. Gentleman is so keen to see a windfall tax introduced. I
share his concern for supporting the interests of his fellow
citizens, but the measures I have outlined demonstrate how the
Government already ensure that banks make a fair and sustainable
tax contribution.
Having outlined how our current approach has generated
significant tax revenue for the UK, I want to conclude by turning
to how deviating from the approach I have set out—for example, by
adopting a windfall tax as the hon. Gentleman suggests—would
carry significant risk for the health and competitiveness of our
banking sector, which in and of itself would be a significant
risk for the health and competitiveness of our economy.
A jurisdiction’s overall tax burden clearly informs decisions
made by internationally active banks about where to operate. It
is also clear that other international financial centres, which
are our competitors, recognise that too. I want to be very clear
that a higher level of bank taxation in the UK would
significantly worsen our competitive position in relation to key
global financial hubs in the US, Asia and Europe. It would have a
threefold negative impact. First, it would put existing jobs at
risk. Secondly, it would damage the chances of future jobs being
created through new activity being set up. Finally, rather than
raising significant yield for the Exchequer, I fear that it would
have the opposite effect; it would jeopardise the considerable
tax revenue that is already generated by the banking sector.
The banking sector’s contribution to the UK’s economy should not
be underestimated. The amount of tax paid by banks is rightly
proportionate to that contribution. Let me be clear: the
Government still maintain that the sector should continue to make
a fair and sustainable tax contribution. We have taken steps
since 2010 to ensure that. It is no contradiction to say that we
need a strong and competitive banking sector that supports
individuals, households and businesses, because that has
foundational importance to our economy.
Question put and agreed to.
|
