The
Committee consisted of the following
Members:
Chair:
Mr
Edward Leigh
†
Duddridge,
James (Lord Commissioner of Her Majesty's
Treasury)
†
Garnier,
Mark (Wyre Forest)
(Con)
†
Hemming,
John (Birmingham, Yardley)
(LD)
†
Hinds,
Damian (East Hampshire)
(Con)
†
Hoban,
Mr Mark (Financial Secretary to the
Treasury)
†
Hopkins,
Kelvin (Luton North)
(Lab)
†
Leslie,
Chris (Nottingham East)
(Lab/Co-op)
†
Mann,
John (Bassetlaw)
(Lab)
†
Michael,
Alun (Cardiff South and Penarth)
(Lab/Co-op)
†
Mordaunt,
Penny (Portsmouth North)
(Con)
†
Sharma,
Alok (Reading West)
(Con)
†
Tami,
Mark (Alyn and Deeside)
(Lab)
Wilson,
Sammy (East Antrim)
(DUP)
Alison Groves, Committee
Clerk
† attended the
Committee
The following
also attended (Standing Order No.
119(6)):
Cash,
Mr William (Stone)
(Con)
Williams,
Stephen (Bristol West)
(LD)
European
Committee B
Monday 7
February
2011
[Mr
Edward Leigh
in the
Chair]
Financial
Sector
(Taxation)
4.30
pm
The
Chair:
Does a member of the European Scrutiny Committee
wish to make a brief explanatory statement about the decision to refer
the relevant document to this
Committee?
Penny
Mordaunt (Portsmouth North) (Con):
It might be helpful to
the Committee if I take a few minutes to explain the background to the
document and the reason why the European Scrutiny Committee recommended
it for this
debate.
The
June 2010 European Council
concluded:
“The
EU should lead efforts to set a global approach for introducing systems
for levies and taxes on financial institutions with a view to
maintaining a world-wide level playing field and will strongly defend
this position with its G20 partners. The introduction of a global
financial transaction tax should be explored and developed further in
that
context.”
The
October 2010 European Council
added:
“Further
work is necessary on levies and taxes on financial institutions, at
both the international and internal levels… there should be
further coordination between the different levy schemes in place in
order to avoid double-charging. The Council is invited to report back
to the European Council in December 2010. The different options
regarding the taxation of the financial sector should also be examined,
as well as good practices aimed at impeding tax havens and tax
evasion.”
The
Commission communication and accompanying staff working documents
assess two proposed new forms of taxation in the financial sector:
financial transaction taxes, which are designed to tax the value of
single transactions and are applied to a broad range of financial
instruments; and financial activities taxes, which, in their most
extensive form, fall on total profit and remuneration and, in contrast
with financial transaction taxes, tax
corporations.
When
the European Scrutiny Committee considered this document, it
noted:
“Clearly
the possibility of taxation specific to the financial services sector
raises important
issues.”
The
European Scrutiny Committee therefore recommended the document for
debate to allow Members to examine the case for an EU-level proposal
for such taxation and to consider the choice between a financial
transaction tax and a financial activities
tax.
The
Chair:
I call the Minister to make a brief opening
statement.
4.33
pm
The
Financial Secretary to the Treasury (Mr Mark Hoban):
It is
a pleasure to serve under your chairmanship this afternoon, Mr
Leigh.
The
Government are committed to maintaining the position of London and the
UK as a leading international centre for financial and related
services. The UK is leading the debate both in the EU and
internationally
for robust, internationally consistent regulatory standards that will
benefit the economy in the long run. The UK is fully engaged in the EU
process, and it is working toward proportionate and sensible
regulations that will contribute to the increased stability of the
financial
sector.
We
have already introduced a bank levy that is designed to complement
these reforms and to ensure that banks make a fair and substantial
contribution that reflects the risks they pose to the UK’s
financial sector and to the wider economy. It remains an open question
whether the levy alone offers a sufficient answer to the question of
how the financial sector should
contribute.
The
Government believe that a financial transaction tax would need to be
applied globally. Many questions remain unanswered as to whether the
model offers a stable and efficient mechanism to raise
revenue.
The
Government are exploring the costs and benefits of a financial
activities tax with international partners and will continue to monitor
developments in that
area.
The
Commission document notes that further work is needed on both options.
I want to make it clear that any proposal on financial sector taxation
would be carefully examined to assess its implications for the UK. The
Government believe that direct taxation remains primarily a matter for
member states, and we would consider any future legislative proposals
on financial sector taxation from the Commission in that
light.
As
we continue to engage in those discussions, it will remain important
that we look at tax issues in the round and consider the cumulative
effect of taxes on the financial sector, while ensuring the position of
London and the UK as a leading international centre for financial and
related
services.
The
Chair:
Thank you, Minister. Members may ask questions
until 5.30 pm. I ask for them to be brief and to the point, and,
subject to my discretion, Members may ask supplementary
questions.
Chris
Leslie (Nottingham East) (Lab/Co-op):
We have quite a
substantial document in front of us today, and I am grateful to the
European Scrutiny Committee for highlighting the importance of the
papers. It might be easier if I go briefly through my set of questions
as a group, although I am conscious that if they are specific, that
sometimes makes things difficult.
The
Chair:
Order. Is the Minister happy with that
arrangement?
Mr
Hoban
indicated assent.
Chris
Leslie:
We will see how we go, because otherwise we may be
here too
long.
First,
will the Minister update the Committee on the specific conversations he
or the Treasury has had with other Finance Ministers, either at ECOFIN
level across the European Union or internationally, about the financial
transaction tax or the financial activities tax? If those measures are
being debated across the EU or internationally, can he give us a sense
of how far down the road we are in discussing them?
Secondly, in
the bundle the Commission says that in the summer it is due to publish
a detailed assessment of the two arrangements—the financial
activities tax in particular, but I think it says the alternate
financial transactions tax as well. What process does the Minister
envisage will be available for Parliament to scrutinise that
assessment? Will there be another hearing in the European Scrutiny
Committee, or is he likely to make a statement to Parliament?
Obviously, the detailed assessment will be the more critical point in
policy
terms.
We
seem to be doing this in threes, so, thirdly, can the Minister confirm
the yield predicted on page 39 of the bundle? With a financial
activities tax, 21.3% of the EU yield would come to the UK, which could
be roughly €5.5 billion—about £4.5
billion—if we use the addition-method financial activities tax
at the 5% level set out in table 7 on page 38. That seems to be what is
in the document, but I want the Treasury to confirm that that is
broadly the ballpark figure in those scenarios. Those are my first
three questions.
Mr
Hoban:
In response to the hon. Gentleman’s first
question, there have been discussions about the financial activities
and transaction taxes at ECOFIN. For example, in September 2010 there
was a debate in which the Chancellor took part, which demonstrates the
seriousness with which those ideas are taken. I, too, have had
discussions with ECOFIN on financial services taxes more
broadly.
On the next
stage of the process, as the explanatory memorandum published by the
Exchequer Secretary to the Treasury, my hon. Friend the Member for
South West Hertfordshire (Mr Gauke), pointed out, we do not expect the
Commission to come forward with the more work until summer 2011, and we
look forward to seeing what that work is. Traditionally, when the
Commission publishes documents, we refer them to the European Scrutiny
Committee with an explanatory memorandum, as we have in this case, and
that forms the framework for further parliamentary scrutiny and
engagement. My constituency neighbour, my hon. Friend the Member for
Portsmouth North, talked about the role the Committee played, and if it
decided to look at this issue in future and recommend it for debate,
either in Committee or on the Floor of the House, we would welcome that
degree of parliamentary scrutiny.
The document
states that estimates of yield are complex to determine. Part of the
challenge and one of the reasons why people are attracted to such taxes
is that they affect behaviour. It is difficult to come up with a
precise figure on yield because the tax may affect behaviour in a
particular way. It may be reducing profits and remuneration, and
international businesses may decide to relocate their businesses
outside the EU to minimise the impact of the financial activities tax.
A quite heavy caveat is applied to the figures as a consequence of some
of those behavioural and measurement
issues.
Kelvin
Hopkins (Luton North) (Lab):
It is a pleasure to serve
under your chairmanship, Mr Leigh. The papers refer, among other
things, to what they describe as the “irrecoverable VAT
problem”. Some financial services are exempted from VAT, yet we
are governed by the EU’s common value added tax system. Would it
not be more sensible for member states, particularly those with their
own currencies such as us, to decide for themselves
what VAT rates should be and not to be part of an overall system, given
also that there are differences in VAT rates across the
EU?
Mr
Hoban:
Of course, as the hon. Gentleman recognises, there
are differential rates across the EU, but in respect of VAT there is a
common tax base across the EU. That matter is decided at international
rather than UK level, so any attempt to expand the scope of VAT would
need to be dealt with at European level, rather than
domestically.
Kelvin
Hopkins:
To follow on from that, I understand that VAT
recovery rates in the financial sector vary from 0% to 74%, which is a
pretty wide range. To what extent does Britain have a better VAT
system, or collection system, than other member
states? Are we suffering in any way financially
because of those
arrangements?
Mr
Hoban:
It is difficult to say. I will not engage in a
discussion about comparable VAT systems across Europe—that would
test the patience of most people, even those who are experts in this
field. However, there are different VAT arrangements, which will affect
the amounts recovered. The hon. Gentleman may be aware of the ongoing
discussion about financial advice. For example, commission on products
is not, I think, subject to VAT, whereas fees for advice are.
Therefore, the extent to which banks or financial institutions are able
to recover VAT and so on depends on the structure and nature of
financial services
businesses.
Chris
Leslie:
My hon. Friend the Member for Luton North asked a
question on VAT similar to mine, so I will not dwell on that point, but
will the Minister say what his understanding is of the yield from the
stamp duty reserve tax, which is currently levied on shares and
securities? Does he agree that, in broad terms, that is essentially a
form of transaction
tax?
Finally,
will the Minister refresh the Committee’s memory on the
Treasury’s current estimate of the net fiscal cost of Government
intervention in supporting the financial system more broadly? The
motion talks about the “risks” borne by the taxpayer. We
know that the taxpayer did buy out a number of financial institutions
and their shares, and provided guarantees and contingent liabilities
for many of the banks in the system. What is the best figure the
Treasury can put on how much the taxpayer invested in propping up the
banking system for the duration of the credit
crisis?
Mr
Hoban:
The hon. Gentleman makes an interesting point about
stamp duty. It is quite a significant revenue raiser for the
Treasury—in 2009-10, it raised about £3
billion. There is an issue about who actually pays stamp duty. One of
the arguments put forward by a number of people in the City is that
abolishing stamp duty would have significant wider economic benefits.
Of course, another point is that stamp duty, if my memory serves me
right, is not levied on contracts for difference, which are used in a
great deal of the share trading that goes on in the City. People
respond to incentives in the tax system and their behaviour changes as
a consequence. Stamp duty is a good example of that happening. People
have changed the way in which they trade shares, so the yield from
stamp duty is lower than it would be if there were no contracts for
difference.
The hon.
Gentleman might be aware of the Swedish experience of a transactions
tax, which was a significant reduction in transaction volumes. History
is littered with examples of situations in which Governments’
intervention has changed the nature of financial transactions. The
eurobond and eurodollar market in the UK is a consequence of changes
made to the US tax regime back, I think, in the early 60s. That is one
reason why I recognise that a transaction tax will be effective only if
it is levied on a global basis.
Kelvin
Hopkins:
Some call the financial transactions tax the
Robin Hood tax, which has a flavour about it, but it was originally
called the Tobin tax, because it was invented by Professor Tobin.
Although we understand that such a tax must be introduced on a world
basis, it was suggested that the EU should negotiate on our behalf.
Given that Britain has a separate currency area, would it not be more
appropriate for it to negotiate for itself? Should we not be a
negotiating player in the debate instead of
subsuming ourselves in European
representation?
Mr
Hoban:
We will decide the best way in which we can
participate in the debate and we will consider what the appropriate
vehicle will be. However, I point out to the hon. Gentleman that when
the International Monetary Fund looked at financial transactions taxes
carefully, it did not endorse them. It argued that further work was
needed to see if such a tax would act as a stable and efficient
mechanism to raise revenue, so there is a range of issues to
consider.
The hon.
Gentleman might wish to ask a supplementary about, but I should
apologise for forgetting to answer the question put by the hon. Member
for Nottingham East about the commitment to bailing out the banks,
which was engaged in by the previous Government. A £20.5 billion
investment was made in Lloyds Banking Group. Some £20.3 billion
was invested in ordinary shares of the Royal Bank of Scotland, while
another investment of £25.5 billion was made in RBS B shares.
There was an equity holding in Northern Rock of £4.4
billion. Obviously, those were the costs, and one hopes that the
taxpayer will see a return as a consequence of the sale of the stakes
in those
banks.
At
the end of December, our stake in Lloyds bank was valued at
£18.3 billion. That might seem to be a slight loss, but
£2.2 billion is not slight in most people’s books. The
RBS ordinary shares were valued at £16.8 billon and
the B shares were valued at £24.6 billion. There is no valuation
on Northern Rock because it is a wholly owned business but, as hon.
Members are aware, United Kingdom Financial Investments Ltd is
currently advertising for people to advise it on the disposal of our
interest in Northern Rock.
John
Mann (Bassetlaw) (Lab):
Will the Minister elucidate what
he perceives the French position to be in relation to the changes? Is
there any possibility that the French are outmanoeuvring us in
considerations within
Brussels?
Mr
Hoban:
The French have expressed support for a
transactions tax and President Sarkozy is pursuing it. However, the
IMF’s study, which is one of the most authoritative studies of
transactions taxes that has been
carried out, identified several flaws. We will see whether France makes
further progress on a global transactions tax during its G20
presidency.
John
Mann:
Will the Minister tell us on how many occasions he
and other Ministers have been out to Brussels or other European
capitals to negotiate these important issues? Obviously, we need to be
clear that we are fighting our own corner
properly.
Mr
Hoban:
The hon. Gentleman was missing from the first part
of the sitting, when the hon. Member for Nottingham East raised similar
questions. Discussions are taking place at a European level. The
Chancellor of the Exchequer discussed the proposals in ECOFIN in
September, and I took part in a similar discussion at a different
ECOFIN meeting. No further proposals are on the
table and the Commission is doing more detailed work with a view to
publishing a document later this year. We see this as a matter for
national Governments, not for the
EU.
Kelvin
Hopkins:
The Minister refers to the work of the IMF, but
some of us do not regard every pronouncement from the IMF as holy writ.
It frequently makes major mistakes with regard to the management of the
world economy and the world financial system. The Minister mentioned
its concern about reducing the number of transactions, but surely
reducing volatility in international financial transactions would be a
good thing, because the focus would then be on international
transactions for investment purposes rather than
gambling.
Mr
Hoban:
The hon. Gentleman confuses volatility with volume.
It is possible to have a volatile market with relatively few
transactions, or a stable market with many transactions. He needs to
think carefully about the trade-off between the
two.
The
Chair:
If no more hon. Members want to ask questions, I
call on the Minister to move the motion.
Motion
made, and Question
proposed,
That
the Committee takes note of European Union Document No. 15282/10 and
Addendum, relating to financial sector taxation; recognises that
decisions regarding direct taxes are primarily a matter for sovereign
governments; supports the timely action the Government has already
taken to introduce a permanent levy on bank balance sheets to ensure
that banks make a full and fair contribution in respect of the
potential risks they pose to the wider economy; notes that the
Government continues to explore the costs and benefits of financial
activities taxes and will work with international partners to secure
agreement; and further supports the Government’s position that
an EU-wide financial transaction tax could lead to the relocation of
financial services outside the EU.—(Mr
Hoban.)
4.51
pm
Chris
Leslie:
As time passes and memories of the banking crisis
begin to wane slightly, we are in danger of forgetting that the
international community came together in 2009 at the G20 in Pittsburgh
to identify the role that targeted taxation might play in ameliorating
risk and ensuring that the financial services sector made a fairer
contribution across the globe. One part of that—the financial
stability contribution—was interpreted by the IMF, and
subsequently by Her Majesty’s Treasury under the auspices of the
current Chancellor of the Exchequer, to equate to a bank
levy.
We will
eventually debate that levy during our proceedings on the 2011 Finance
Bill. As the Minister knows, however, I think that it is quite a tepid
and enervated version of the financial stability contribution that they
could have put in place. Some reports have suggested that that ought to
have raised about £4 billion, but the Government’s
version will raise £2.6 billion, which is a relatively paltry
sum in such circumstances. The Government changed their position in
October. According to the original plans for the banking levy, there
would have been a £20 billion threshold for the
liabilities on a bank’s balance sheet that would be subject to
the levy. The Government have changed that threshold to a tax-free
allowance, so banks will be allowed to have £20 billion of
liabilities and will be taxed only on the amount above that at a rate
of 0.04%, which will rise in subsequent financial years to
0.07%.
Although we
will debate that at another time, it is relevant to the motion before
the Committee, in which the Minister states
that
“the
timely action the Government has already taken to introduce a permanent
levy on bank balance
sheets”
ensures
that the
banks
“make
a full and fair contribution in respect of the potential risks they
pose to the wider
economy”.
In
his opening statement, the Minister said that there must be a
substantial contribution. Indeed, he said that it is open to question
whether the levy alone is sufficient. His comments to the Committee
were more circumspect than the rather forward position that he has
taken in the motion. If the Government say that the bank levy is a
“full” contribution in respect of the possible risks,
that is quite interesting. They are essentially saying that the bank
levy at that £2.6 billion yield on a normalised year is
adequate, that they are content with it, and that it represents the
full picture. That is not quite the phrase that the Minister used in
his earlier statement, so if he will address that, I will be
grateful.
The
main issues that we are debating, however, are the financial
transactions tax and the financial activities tax. My hon. Friend the
Member for Luton North mentioned the Robin Hood tax, which is advocated
vociferously by many charities and voluntary organisations. Many of us
will have been lobbied by those wonderful e-mail-based campaigns that
frequently have a habit of filling our inboxes. According to the Robin
Hood tax website, its campaign is supported by hundreds of thousands of
British people. It alleges that its supporters include Lord Turner, the
chairman of the Financial Services Authority, which is intriguing, the
philanthropist George Soros—I am not sure that that is the only
way in which he could be described—Warren Buffet, Joseph
Stiglitz and, of course, the French President, Nicolas Sarkozy, so the
proposition is not to be sniffed
at.
As
you might expect, Mr Leigh, given that I am a Nottingham MP, I could
not refuse an invitation to attend a seminar on the Robin Hood tax.
When I went along to the seminar, I was impressed by the strong case
that was made by the charities advocating the measure, which they
envisaged as a minor transaction levy, albeit one with the potential to
raise significant and useful resources. I therefore urge Ministers to
help rather than to hinder international efforts to design a possible
solution. That does not necessarily mean taking forward one
specific version as advocated, but at least allowing a proposition to be
put on the table so that we can weigh it
up.
The
motion states that
a
“financial
transaction tax could lead to the relocation of financial services
outside the
EU.”
That
is the Minister’s opinion, but it seems that the idea is being
dismissed at this stage, although we have not seen the
Commission’s full assessment or heard various other
propositions. The matter needs further study, so I hope that the
Treasury allow that to
happen.
The
principal issue in the realms of what the Government see as possible is
the financial activities tax which, given that it addresses profits and
remuneration, is obviously a different concept. I asked the Minister
if he would confirm the possible yield as set out
in the particular version proposed—there are several different
designs—and those resources are significant, and indeed
potentially more significant than the banking levy. I am therefore
curious to know what progress the Chancellor has been making in moving
that forward. In the June Budget, the Chancellor said that he was
interested in this particular financial activities tax and that he was
trying to press for consensus on it. As I have said to the Minister on
several occasions, however, there is no sense of leadership or drive
from the Treasury on the issue. There may well have been a discussion
at ECOFIN, but if the Chancellor stated in June that the proposal was
on the table yet we are not going to revisit it until a year
later—even in the form of a basic assessment—there does
not seem to have been a rapid assessment of the measures that might be
necessary to reflect the risks that have been presented by the
financial services
sector.
I
am always interested to hear Ministers say that such tax issues are for
nation states to deal with independently—I agree—but
whenever the issues are debated at a national level, it is always said
that we cannot act at that level because all our institutions will flee
abroad and there will be regulatory arbitrage. However, when we have
the opportunity to debate such issues at an international level,
whether in the EU or more widely, we hear, “Those environments
are too difficult for us to pursue; we have to sit back and
wait.” The Minister is spinning a rather canny political
Catch-22. However, it is important that we press ahead with the
propositions so that we can at least see the detail that they contain
and then make decisions on the basis of the
facts.
A
number of other points are raised in the bundle about bank resolution
funds and the EU framework for crisis management. I wonder whether the
Minister has any comments on those, because although they are not cited
in the motion, they are aspects of the paperwork before us. I assumed
that a statutory instrument on investment banking special
administration reserve funds that we have discussed was similar to the
bank resolution fund that is considered in some of the EU paperwork
before the
Committee.
The
papers suggest that the role of the European-wide supervisory
authorities—the European Banking Authority and others—in
EU-wide crisis management has not yet been fully determined. Does the
Minister agree that as we move into the rather lengthy debate we will
have about financial services regulatory overhaul in the UK, we will
need clarity about the role that the EBA and others will play in
relation to bail-in proposals, debt write-down tools and so
on?
5.1
pm
John
Hemming (Birmingham, Yardley) (LD):
I start by registering
a declaration of interest. I chair JHC—standing for John Hemming
& Co.—that I founded many years ago. It operates computer
systems for financial services transactions—a very direct link
there. I also buy and sell shares, some of which are in financial
institutions.
I have
historically been quite supportive of the idea of extending financial
transaction tax. It was initially called the Tobin tax and then the
Robin Hood tax. There are complications with it. At the moment we have
stamp duty, which has logic to it: the state provides a legal
environment in which contracts can be enforced. People pay a stamp duty
because they require a judicial process whereby the contracts are
enforced. That obviously applies to property transactions, because to
have a Land Registry and the like there must be something to fund it.
It applies to equity transactions. However, there are lots of other
transactions it does not apply to. There is a substantial argument for
broadening the range of transactions it applies to, and something also
needs to be done about tax havens.
It is good
that in the first paragraph referring to the decision of the European
Council it looks towards a “global financial transaction
tax”. That is the way that works. The obvious thing is this. It
is very simple to take a computer—the computers that can operate
all the settlement systems now are much smaller—and plonk it on
an island in the middle of the Atlantic and say, “That is in a
tax haven.” When dealing with large transactions, a small
percentage tax can make it worth while going through the hassle of
setting up that computer system in the middle of the Atlantic to avoid
the transaction tax. Hence, something has to be done on a global basis.
The logic to it is quite straightforward. We need a rule of law
globally as well as in each individual country. For somebody to
piggy-back off that and not contribute payment is
wrong.
The
key is to look globally and deal with tax havens. It is a mistake to
assume that there will be the same number of transactions if even a
very small levy is introduced. Obviously, the number of transactions
will go down. The effect of introducing any financial transaction tax
affects the number of transactions, because people’s decisions
on whether to act or not change. We should welcome what is being done
at the international
level.
Chris
Leslie:
I am listening very carefully to the hon.
Gentleman, who obviously speaks with some knowledge of the issues. Is
he not slightly disappointed at the wording of the motion, which
implies dismissing all variants of a financial transaction tax as
unworthy of even detailed
consideration?
John
Hemming:
The motion says
it
“supports
the Government’s position that an EU-wide financial transaction
tax could lead to the relocation of financial services outside the
EU.”
That
is obviously true. We have a complicated situation regarding the legal
environment of places such as Jersey or Guernsey. It is a strange
situation because they are subject to the European convention on human
rights, but not to the European Court of Justice. The difficulty is
that if it is not done globally, the effect will be
relocation, whether those financial services go off to Japan, Hong Kong
or to New York. Obviously, I would prefer something that said,
“But we do support a global financial transaction tax”.
However, I do not have a problem with the words on the
motion.
5.5
pm
Kelvin
Hopkins:
I agree with much of what the hon. Member for
Birmingham, Yardley has just said. I would go rather further. I am a
strong supporter of a financial transaction tax; I think a Europe-wide
tax would be beneficial and fears about a massive shift of financial
activity overseas would be unfounded. The level of tax proposed here is
0.005%, which is one 200th of 1%. So it would hardly be noticed on an
individual transaction. It would start to build up only when there were
many transactions after a short space of time, so it reduces the
volatility. If investment has been made overseas or money has been
transferred overseas for investment purposes, the returns would be 5%,
10% or whatever. This would be an infinitesimal part of that return so
it would not affect
investment.
I
do not believe that people will shift en bloc overseas for a tax of
that kind. For one thing, people have their own loyalties to their own
state. They will not necessarily want to move abroad. A fear is put
about that if we tax bankers more effectively, they will all rush
abroad. Tens of thousands of highly skilled people work in the City
now. Apparently it is sucking the best brains out of Oxbridge and
wherever these days, especially those who can do mathematics. But for
every one who goes abroad, I am sure there are a hundred who are
prepared to do their jobs at half the price and even less. Certainly
the kind of money that is talked about in the City is staggering. The
figures are beyond the imaginings of most ordinary people. Even in the
City there are people who would give their eye teeth for some of these
salaries or a fraction of them. But the idea that individuals would
move overseas in large numbers because of taxation and their bonuses is
overstated.
So
a financial activities tax would be fine. Personally, I am happy with
much more substantial personal taxation of bonuses. I remember the
levels of taxation we had in the 1970s before the dramatic reductions
in high rates of tax under Mrs Thatcher and Nigel Lawson. I do not
suggest that we should go back to those levels of tax. For those who
are young and do not remember them, the top marginal rate of tax was
83p in the pound and there was a 15% surcharge on top of that for
unearned income. People whose income was all unearned could in theory
pay 98% on the top part of their income. We are not suggesting going
back to anything like that, obviously. At the moment we are down at a
top rate of 50% and until recently it was 40%. If a handful of
played-out pop singers and greedy bankers go abroad and leave the rest
of us to run the country, well I am not worried. I think it would be a
splendid thing.
I am strongly
in favour of a financial transactions tax and a much more effective tax
of very high incomes as well. Imposing a financial transactions tax
just on euro and pound transactions would apparently raise
€12 billion a year. That is a useful amount of
income. I am sure that in these times we could all do with that extra
income from a source that will not affect poor people. It will not
affect my constituents directly at all but will make a marginal
difference to some of those on very high
incomes.
John
Hemming:
The hon. Gentleman argues that it would not
affect his constituents to have a financial transactions tax. Would he
not accept that there would be a small effect on those people who go
abroad and pay for things
abroad?
Kelvin
Hopkins:
Yes, possibly. But with the depreciation of the
pound, the cost of everything abroad has gone up. For those of us who
like the occasional bottle of wine imported from France, which I
confess I do myself, paying a bit more is justified if it will help the
wider economy, and help the Exchequer to raise a few more pounds and
our industries to export more. That is fine; I am happy about that. I
am only on a MP’s salary plus a couple of little bits of
pension. I am not a wealthy banker, although I cannot speak for
Conservative Members who might know more about large incomes than I do.
However, I would not object to paying a little more tax to ensure a
fairer and more successful society.
I may be
regarded as somewhat sad, but I have spoken in and attended more than
100 of these Committee meetings over the last 14 years. They are
useful, and I want to see the system of scrutiny continue and be
strengthened. That is my view, and I hope that the Government will be
persuaded by my socialistic views on redistributive taxation, and help
bring down the international gambling with finance that has led to such
difficult circumstances. I also hope that we do not inhibit
international transactions for investment purposes rather than
short-term speculative gains. I hope that the Government will be
persuaded by such thoughts in due course.
The
Chair:
Congratulations on your
centenary.
5.11
pm
John
Mann (Bassetlaw) (Lab):
It is a pleasure to serve under
your chairmanship, Mr Leigh. This is my first such Committee and I do
not know what I have done to receive the accolade of that appointment.
I do not know whether any of the Whips are around, but I am happy for
this Committee to be one of my last because there are far wiser
counsels than I on such matters, and I defer to my hon. Friend the
Member for Luton North as one such expert.
Having been
appointed to this important Committee, I feel it is important to say a
few words on the matter at hand, and particularly on the duplicity of
this coalition Government when it comes to taxation, finances and
banking. We have an option, and I do not have an interest to declare,
although I would have done in the past as I ran lorries across Europe.
I am aware of how the Government’s choice of
taxation—VAT—impacts on businesses such as the one I part
owned. It is interesting to see that in the history of this country,
it is always one party that chooses to persecute hauliers and
other similar business people. We have the opportunity to shift from
VAT to FAT—a financial activities tax. That would be a good way
of raising revenue in this country as well as across Europe. I disagree
with my hon. Friend the Member for Luton North. I am not in favour of
more taxes; I am in favour of fairer taxes, rather than the unfair,
anti-business, anti-people taxes that this unholy coalition is bringing
upon us. As ever, that opportunity has been
squandered.
Kelvin
Hopkins:
I remind my hon. Friend that I was one of a small
number of people who voted against the abolition of the 10% tax rate
under the previous Government. In my speech, I emphasized that taxes on
individual incomes—on all incomes—are
important.
The
Chair:
Order. That is very interesting, but this is a
fairly narrow debate. We are supposed to talk about financial
transaction taxes, or financial activities taxes. I
know that Mr Mann is an experienced MP and he will not stray too
widely.
John
Mann:
Mr Leigh,
I will not stray at all. The issue is why this
hopeless coalition is failing to bat for the FAT in Europe and ensure
that a financial activities tax is introduced in collaboration with our
friends in France, Germany and elsewhere. That is the question. The
motion as framed is wholly inadequate. Even with the Eurofanatical
Liberals present today, the coalition has an incredible blind spot when
it comes to Europe. As with all other things Europe, some would say
about the financial activities taxes that the Government consider
Europe merely to be a flight path to cross before meeting their friends
in the Communist party of China, with whom they spend far more time
than doing what they should be doing—batting for Britain in the
institutions of Europe to ensure that the British national interest is
put first.
It is the
British national interest that demands that we have such a taxation
introduced on the financial institutions. Those are the same financial
institutions that paid total disregard—indeed,
contempt—for the Government’s softly, softly approach,
even in relation to revealing how much they get in pay and bonuses.
Those are the same investment bankers in relation to whom, as we saw
with Cadbury’s and Kraft, there is no competition. These are not
people who would relocate to Hong Kong, because, as we saw with Kraft
and the takeover of Cadbury’s, they were all in on it. All of
them had a share of the action and they were all charging fees and
making profit out of the disgraceful destruction of a brilliant and
traditional British company. That is what the Government are
doing.
Mr
William Cash (Stone) (Con):
I very much endorse the hon.
Gentleman’s remarks about the decimation of Cadbury’s. I
have been following the matter for a long time. In fact, I ought to
declare an interest because they are cousins of mine. The way in which
that company’s work force have been
treated—
The
Chair:
Order. That is enough about chocolate. Let us press
on with the
debate.
John
Mann:
My comments on such leveraged buy-outs and takeovers
are relevant because a financial activities tax will do nothing but
claw back money taken by those same bankers into the Treasury’s
coffers, to allow the Government the choice to invest more, to cut VAT,
or to do whatever else any Government now or in the future should do. I
hope that Ministers are drawing up precise and detailed policies to
ensure that, when the coalition collapses in the near future on the
back of its inaction on these taxes in Europe, we have the opportunity
to take forward the cudgels on behalf of the British national interest
and the British people.
Finally, there
is something wholly missing from the Government’s agenda in
Europe when it comes to taxation on the bankers: there is nothing
whatsoever on dealing with the tax havens, many of which are in British
dependencies. We have the opportunity to take a lead in Europe on that
matter, but it was wholly missing from our pitiful contribution to the
subject. I exhort the Government to get out there. They should get into
Paris, Bonn and particularly Brussels and lead on these things, rather
than being the laggards as usual—shame on the Minister and his
ministerial colleagues for their ineptitude on this. The motion is
wholly inadequate, and I trust some strong politic will come forward
from the Opposition, because our shadow Ministers might be in power
soon.
5.19
pm
Mr
Cash:
I rise—I hope the Minister will accept this
in the right spirit—to congratulate the Government on taking the
line set out in the motion, which is incredibly important. The Minister
need not be surprised, because he knows perfectly well that it is very
much in line with the views of those of us who do not want EU-wide
invasions of our sovereignty—certainly in matters of
tax—to go an inch further. I am slightly worried about the
phrase:
“the
Government continues to explore the costs and benefits of financial
activities taxes and will work with international partners to secure
agreement”.
I
sincerely trust that that is not some sort of back-door way to the
greater global apparatus set up under the arrangements discussed in the
explanatory memorandum of 16 November.
The coalition
Government were represented at the June 2010 meeting, and the
memorandum states that the
“European
Council concluded
that”
—that
includes our Ministers, who were present, as was the Prime Minister, no
doubt, so let us be under no illusion about
this—
“the
EU should lead efforts to set a global approach for introducing systems
for levies and taxes on financial institutions with a view to
maintaining a world-wide level playing field and will strongly defend
this position with its G-20
partners.”
It
then goes on to explore the partnership
arrangements.
I
have served on Committees such as this and have discussed this European
issue for long enough to know that, when a European Council meeting
refers to exploring means of achieving things that are not necessarily
consistent with our sovereignty or our own right to determine our own
rates of taxation, which is fundamental to the House, there is a
potential inconsistency between, on the one hand, the European Council
agreeing to do it on a global scale and to explore it further and, on
the other hand, saying that we are going to defend our
sovereignty.
The motion
uses the word “primarily”, which also arose in relation
to the financial stability mechanism, where the word
“solely” would have been far better. My first point
therefore is that decisions regarding direct taxes should be described
as “solely” a matter for sovereign Governments.
My second
point is that I do not believe that there are any unexplained benefits.
Thirdly, I very much support the proposition that an EU-wide financial
transaction tax could lead to the relocation of financial services
outside the EU. In that context, we have the Vickers commission and the
Financial Services Authority, but the bigger, overarching question is
that of the supervisory authorities, which are being created under the
jurisdiction of the EU itself as we speak and by which the final
decisions on all the drafting of all the regulations will be determined
in line with the principles prescribed by the European Court of
Justice. That is where the power is being shifted. I have written to
the Financial Times and have written other letters to, and
articles in, papers and so on about the subsidiary authorities
that have been created. The fact is that I have been warning about the
issue for two and a half
years.
The
Minister and I attended an extremely important conference before the
general election. It was convened by my hon. Friend the Member for
Ludlow (Mr Dunne), who is now a Whip, and all the main players were
present. I remonstrated very strongly indeed about the de
Larosière report, as it then was. The hon. Member for Bassetlaw
has a point, although he approaches the issue from a different angle. I
do not for a moment object to his standing up for the workers in this
context, but the plain fact is that, if we have such overarching
jurisdictions and if the law is no longer to be made in Parliament and
the House of Commons on behalf of the electors, we are in danger of
saying that we will defend sovereignty, while actually conceding it
through a whole range of other so-called superior jurisdictions. The
shadow Minister and I have had a word about this—we need not go
into details—and I know that the Opposition are beginning to get
slightly concerned about the issue as
well.
John
Hemming:
The hon. Gentleman seems to be arguing that we
should never pool sovereignty or sign up to a treaty under any
circumstances. I agree that Parliament is always sovereign, but his
argument seems to be that we should never pool
sovereignty.
Mr
Cash:
My argument is the argument of myself, as the Member
of Parliament for Stone. The Chair’s argument is probably quite
similar, but I shall not go down that route. He does not have an
opinion on this matter. I am saying that the business of pooling
sovereignty simply does not apply in relation to the raising of taxes.
It is as simple as that. We can go back to Pym, Hampden or whoever we
like. Let us not go down the history road, but I say with respect to
the hon. Member for Birmingham, Yardley that the pooling of sovereignty
in relation to taxation is out: dead parrot—no way. I am glad
that that is what the Minister states is his intention. I just want to
see it working in
practice.
John
Hemming:
The hon. Gentleman would oppose under any
circumstances a global agreement on a financial transaction
tax.
Mr
Cash:
I would not have agreements that in any way
interfere in any shape or form with the right of Members of Parliament,
elected by the voters of this country, to decide both taxation and
expenditure.
Kelvin
Hopkins:
I agree entirely with the hon. Gentleman about
sovereignty on taxation matters, but the problem is that there has been
an elision of that with whether or not a financial transaction tax is a
good thing. If that were separated out, we might have a sensible
debate, but I hope that my Whip will guide me to vote no to the
motion.
Mr
Cash:
Any concession with respect to jurisdiction over the
City of London is a retrograde step, as I have said many times. We will
deeply regret having allowed it to happen, and I think that some of
that thinking is embedded in the policies that are being devised at a
global
level.
5.27
pm
Mr
Hoban:
I am grateful for what has been a thought-provoking
debate. The hon. Member for Luton North said that his appearances in
Committees rank in the hundreds. I thought that the hon. Member for
Bassetlaw was auditioning to be his successor as a regular attendee of
the Committee. I am sure that his enthusiasm will have been noted by
the Opposition Whip on this
occasion.
These
documents present the European Commission’s analysis of possible
EU-level approaches to taxation in the financial sector and, as we said
earlier, this country’s contribution to an already
well-developed national and international debate. I wish to set out
some of the background to the documents. We in the United Kingdom are
strongly of the view that it is right that banks should make a
contribution to lessen the risks that they pose to the UK financial
system and the wider economy. That is why the Government announced in
the June 2010 Budget that we would introduce a permanent levy on the
balance sheet of banks in 2011 and, in line with the Budget
announcement, the new bank levy came into force on 1
January.
I
was rather bemused by the comments of the hon. Member for Nottingham
East. I cannot recollect a commitment in the Labour party manifesto to
introduce bank levy unilaterally. Indeed, a previous Chancellor of the
Exchequer was against that and ruled it out. He and his colleagues
stood on that manifesto. It is therefore a bit rich for us to be
lectured by Opposition Members. They said that they would wait for
international co-ordination to introduce a levy. We made it clear that
we would proceed unilaterally, if necessary. That is exactly what we
have done, but our leadership has led to agreement on the levy being
secured with France and Germany, and we introduced a joint
announcement. Subsequently, Hungary, Austria and Portugal either
introduced or announced the introduction of bank
levies.
As
well as ensuring that banks contribute to the public purse, the levies
also encourage banks to move away from risky funding levels that
threaten the stability of the financial sector and the wider economy.
It is estimated that, once fully implemented, the levy will raise
£2.5 billion in revenue each year. That is an appropriate
contribution, which balances fairness with the competitiveness of the
UK banking
system.
Chris
Leslie:
To confirm the point about the wording of the
motion, is the banking levy yield a full contribution in respect of the
potential risks posed to the economy?
Mr
Hoban:
It reflects the balance: we want to ensure that the
banks make a fair contribution, but we recognise the importance of
international competitiveness of the UK financial services sector,
which I will touch on later. We are operating in a global and mobile
financial services sector, and banks can make decisions about where
they locate their activities. I will expand on that later. The balance
is about
right.
There
is a question about whether the levy alone offers a sufficient answer
to the question of how much the financial sector should contribute.
There has been a lively international debate about further measures to
raise revenue from the sector. The Commission’s papers consider
the case for two leading options: the financial activities tax and the
financial transactions tax. The IMF has undertaken a separate analysis
of the different options for the financial sector to make a fair and
substantial contribution. It published its final report in June 2010.
That report considered the activities tax,
transaction tax and bank
levies.
Mr
Cash:
Does the Minister concede that there is a serious
problem if global decisions are taken? Even if they are not done
specifically within the EU legislative framework, they effectively
arrive at the same position, because parallel arrangements are entered
into by different countries and, within the EU, they all end up by
achieving the same policy, though not specifically under the rubric of
a particular European legal base.
Mr
Hoban:
My hon. Friend makes an argument against voluntary
co-operation in almost all circumstances. I am not sure where we are
at. Decisions can be made by countries that achieve the same goal. I do
not think that that is a particular problem. There are a lot of areas
where countries exercise their sovereign rights and reach the same
conclusion or the same process. I do not think that we should be as
exercised about that as my hon. Friend appears to be.
The IMF
report recommended a levy based on a broad balance sheet
charge, with the possible accompaniment of a financial activities tax.
The IMF has stated that the bank levy in the UK is broadly in line with
its proposed design, and such a design meets the objectives of reducing
risk, enhancing fairness and raising revenues
efficiently.
The
financial activities tax—or FAT—is levied on the sum of
profits and remuneration of financial institutions and can be designed
to serve a range of purposes. The Commission staff working document
assesses three particular forms of FAT. First, the addition method FAT
is a broad version of FAT that would be applied to the total profit,
minus capital formation, plus total remuneration. The IMF suggests that
this would be a proxy for value added, noting that—this goes to
the point raised by the hon. Member for Luton North on VAT—the
financial sector may be under-taxed through being VAT exempt. The
Commission staff working document notes that most financial services
supplied within the EU are VAT exempt, so VAT incurred by financial
institutions on related costs cannot be deducted—thus VAT exempt
does not mean VAT free in such
situations.
The
second FAT option—the rent-taxing FAT—would be designed
to tax rents only. Such a tax would be designed by taxing high
remuneration and cash flow profit above a defined level of profit. The
third design
option—risk-taxing FAT—is intended to change behaviour,
discouraging risk-taking by taxing high returns more heavily than low
returns. That is similar in nature to the rent-taxing FAT.
The financial
transactions tax has been the topic of most debate. They have often
been put forward as a tool that might enhance the efficiency and
stability of financial markets and reduce their volatility. They have
also been suggested as a potential source of revenue in various
international
forums.
Mr
Cash:
On the question of “potential risks”
that banks have posed to the wider economy, does the Minister agree
that there is perhaps a growing necessity to hive off the banking
system to ensure that retail banks provide small and medium-sized
businesses with what is required on the one hand, and get a lot of this
apparently extraneous activity of investment banking and the
accumulated derivative activities away from the banks, so that we end
up with banking for ordinary people?
Mr
Hoban:
My hon. Friend raises questions that are within the
remit of the Independent Commission on Banking. Sir John Vickers is
considering a range of issues on the structure of banking and I would
not wish to prejudge the outcome of his work.
The hon.
Member for Luton North has suggested that a financial transaction tax
would not be distorting. It is worth focusing on that: he argues that
it would cause little distortion because it would be levied at a low
rate on a broad base. Such an argument is not persuasive, however,
according to the IMF. If the central principle—the sole policy
objective—is to raise revenue, taxing transactions between
businesses, which is what many financial transactions are, is unwise.
Distorting business decisions reduces total output, so more could be
raised by taxing output directly. A tax levied on transactions at one
stage cascades into price at all further stages of
production.
The hon.
Gentleman has said that a financial transaction tax would affect fat
cats, and he implied that it would be a proxy for a tax on income. Such
a tax does not necessarily create limited distortion. We see that
financial transactions can be particularly vulnerable to avoidance by
engineering. I have quoted an example of contracts for differences,
which is a route that people use to avoid paying stamp duty on share
sales.
Kelvin
Hopkins:
Transactions between
companies—payments—will surely not be affected by a tax
at one two-hundredth of 1%, which is utterly negligible. Such a tax
would only affect rapid transactions across currencies and exchanges
where they multiply up. It would make no difference between companies
paying simple transactions for a service or goods, but it would raise
useful revenue. It would shift activities towards investment and proper
payment, rather than speculative gambling on the foreign
exchanges.
Mr
Hoban:
The hon. Gentleman should reflect on what he has
said. The financial transaction tax is based on the volume in a
transaction, not necessarily on the number of transactions. It is not a
fixed amount per transaction; it is a percentage based on the volume of
transaction. One high-value transaction could attract the same tax cost
as a series of smaller transactions of the same aggregate value. Such a
tax does not therefore have the purpose the hon. Gentleman believes it
has.
Kelvin
Hopkins:
Will the Minister give
way?
Mr
Hoban:
Let me finish. The hon. Gentleman has said that the
tax would not affect people on low incomes—it would attack only
the fat cats. I am not sure of the basis of his rationale.
In the UK
financial services sector, processing centres are a source of
employment. Such centres employ people who process the transactions
that are booked here—such as JP Morgan Chase in Bournemouth,
Deutsche Bank in Birmingham, Citibank in Belfast, and others. They
process transactions on a global basis and their employees are drawn
from the local work force. Such people are not necessarily earning high
incomes—they are not fat cats. A direct employment benefit comes
from processing those transactions here, but the hon. Gentleman argues
for a tax that would drive those jobs and transactions offshore. I am
not sure that he has thought through the impact of introducing such a
tax on a unilateral basis, which involves a significant
cost.
John
Hemming:
Does the Minister agree that the hon. Member for
Luton North contradicts himself? He argues, on the one hand, that the
number of transactions will remain the same, and on the other, that
speculative transactions would
disappear.
Mr
Hoban:
Indeed; of course, if his behavioural point were
true, it would lead to fewer transactions and a collapse in tax
revenues, which is why the IMF has been critical of a transactions tax.
Much of the detail has to be thought through to produce a tax that will
raise a reasonable amount of revenue and not create
distortions.
John
Hemming:
Of course, that is not necessarily an argument
for not having a global financial transactions tax. The point is that
we should not take the number of transactions at the moment, assume
that we can magic out of that number £12 billion—or
whatever it may be—and expect that not to have any
effect.
Mr
Hoban:
No, indeed. The Commission staff’s working
document
states:
“While
there is large interest in achieving the goals outlined…by a
financial transaction tax, the debate has not yet focused on more
detailed issues, including the definition of the tax base, the tax
rate, the taxable event and the degree of coordination needed for a
successful implementation of an
FTT.”
A
whole range of issues has therefore not been
resolved.
Kelvin
Hopkins:
On the Minister’s first point, is he
saying simply that a small tax on a very large sum is larger than a
small tax on a very small sum? Obviously, taxing at two-hundredths of
1% on £1 billion will raise more than on £1 million, but
the percentage is what counts. When people invest and transactions take
place, taxes of perhaps 1%, 2% or 3%—or even 0.5%—are
being talked about, which would still be vastly more than that tiny
amount.
Mr
Hoban:
The point that I made to the hon. Gentleman was on
the confusion of the number of transactions with the value of
transactions, and on the suggestion that the number of transactions
would be reduced, but there is a complex of relations that has yet to
be worked through in
detail.
Kelvin
Hopkins:
Those who designed the Robin Hood tax took into
account the fact that there will be a reduction in the number of
transactions, particularly where rapid transactions obviously build up
within a short space, but they nevertheless still think that a
significant amount of revenue would be raised, which would be
useful.
Mr
Hoban:
There are a series of complex issues regarding the
design of a financial transactions tax that have yet to be resolved.
The hon. Gentleman has alluded to high-frequency trading, but when the
Tobin tax was suggested, that did not exist. There is much debate on
this topic, and some of the concerns inherent in the design of a
transaction tax have led the European Commission to
express a preference in its working document for a financial activities
tax over a transaction tax. However, it notes that further work is
needed, and it has launched a comprehensive impact assessment of both
options.
The
Commission is not the only contributor to the debate; the IMF, in
response to a request from the G20 following the Pittsburgh
declaration, has also looked at those models. Like the Commission, the
IMF came out in favour of a financial activities tax, and it expressed
concern that, under a transaction tax, the real burden may fall largely
on final consumers rather than, as often seems to be supposed, earnings
in the financial sector. The IMF’s preference was for a
financial activities tax working in tandem with a bank levy, and its
principal recommendation, which we have followed, was for a broad-based
balance sheet
charge.
The
hon. Member for Nottingham East made a couple of comments. In passing,
when he listed the supporters of a Robin Hood tax, I was not sure
whether I heard his name or the Leader of the Opposition’s name
mentioned. [
Interruption.
]
The hon.
Gentleman says that it is too early to say—there is a surprise.
The hon. Member for Bassetlaw expects the Opposition suddenly to sweep
to power. I hope they are ready if that happens, as it did not sound to
me as though they had got very far with their thinking. The Leader of
the Opposition apologised on Friday for the system of financial
regulation designed by the shadow Chancellor, and we note that
apology.
The
hon. Member for Nottingham East asked a question on the links to EU
crisis management, which is important. There is a continuing debate
about crisis management tools, and the Commission has published a
consultation document. We are working through that. Within that it has
called for EU-level resolution funds. The hon. Gentleman may be aware
of the bank levy in Germany, the proceeds of which are going to go into
a resolution fund; in the UK we have a different approach and think it
should go into general taxation. We have made it clear that we do not
support resolution funds. We think there is a clear moral hazard that
flows from them because they would effectively support a bail-out and
that would send, I think, the wrong signal to the banking sector at
this time.
The hon.
Gentleman raised the issue of a threshold rather than an allowance. We
concluded from our consultation on the bank levy that a threshold
created an artificial point and would distort behaviour in the market.
That is why we moved to an allowance. However, because our aim is to
raise £2.5 billion from the levy in a full year, we increased
the rate of levies to enable us to achieve that rate and return, taking
a different approach to the debate about an allowance or a
threshold.
Let
me be clear that the Government are committed to maintaining
London’s and the UK’s position as a leading international
centre for financial and related services. Any tax measures must be
seen in the broader context of the UK’s competitiveness and the
regulatory reform. The cumulative impact of such measures should be
borne in mind. It will be important to look at all the issues in the
round, and to consider the overall effect on the financial sector
before taking any action. It is within that context that we will
measure the options currently on the table.
Our
analysis to date suggests that a transaction tax applied in Europe
alone could lead to significant relocation of financial services. It
happened when Sweden introduced financial transaction taxes, and there
is no evidence to suggest it would not happen to Europe if a similar
measure were introduced in isolation. The Government therefore believe
that a transaction tax would have to be applied globally.
As
we announced in the June 2010 Budget, working with international
partners, the Government are examining the costs and benefits of a
financial activities tax. We do not think that any of the three options
should be ruled out at this stage, but it will be important to consider
the issues in the round and to consider the cumulative effect on the
financial services sector. EU negotiations on modernising the VAT
treatment of financial services are continuing, and the impact of
changes should be borne in
mind.
The
Commission documents make a genuine and useful contribution to the
debate.
John
Mann:
Will the Minister give
way?
Mr
Hoban:
I am about to wrap up.
I
welcome the congratulations of my hon. Friend the Member for Stone, who
has left the debate, and who took a robust position on the matter. We
need to examine the taxes carefully and make our own decisions. Direct
taxation remains primarily a matter for member states, and we would
consider future legislative proposals on financial sector taxation from
the Commission only in that
light.
Question
put:—
The
Committee divided: Ayes 7, Noes
5.
Division
No.
1
]
AYES
Duddridge,
James
Garnier,
Mark
Hemming,
John
Hinds,
Damian
Hoban,
Mr
Mark
Mordaunt,
Penny
Sharma,
Alok
NOES
Hopkins,
Kelvin
Leslie,
Chris
Mann,
John
Michael,
rh
Alun
Tami,
Mark
Question
accordingly agreed to.
Resolved,
That
the Committee has considered Union Document No. 15282/10 and
Addendum, relating to financial sector taxation; recognises that
decisions regarding direct taxes are primarily a matter for sovereign
governments; supports the timely action the Government
has already taken to introduce a permanent levy on bank balance sheets
to ensure that banks make a full and fair contribution in respect of
the potential risks they pose to the wider economy; notes that the
Government continues to explore the costs and benefits of financial
activities taxes and will work with international partners to secure
agreement; and further supports the Government’s position that
an EU-wide financial transaction tax could lead to the relocation of
financial services outside the
EU.
5.49
pm
Committee
rose.
