Supplementary written evidence submitted
by Barclays
On Tuesday 11 January 2011, Bob Diamond and Antony
Jenkins gave evidence to the Treasury Select Committee's inquiry
into Competition and Choice in Banking. At that hearing, the Committee
asked for additional information in the following areas:
- Corporation Tax paid in 2009;
- Barclays fiduciary responsibilities with respect
to maximising tax efficiency;
- Ratios of investment and retail banking employee
variable remuneration; and
- Account number portability.
CORPORATION TAX
In 2009, Barclays paid over £2 billion to HM
Revenue & Customs. Of this, £113 million constituted
Corporation Tax, given Barclays (like other banks) had UK losses
brought forward principally arising from credit write downs.
Fiduciary responsibilities and tax efficiency
Barclays takes its tax obligations very seriously
and has agreed to the HM Revenue & Customs (HMRC) Code of
Practice for Taxation of Banks ("the Code"). Barclays
has confirmed to HMRC that it will have regard to the spirit of
the law and the intent of Parliament in managing its tax affairs.
The Code includes some of the key principles that Barclays applies
to ensure proper compliance with the law. This includes respect
for and transparency in dealing with HMRC in explaining its tax
affairs.
This is a practice Barclays has adopted for many
years, and it has long maintained an open and transparent relationship
with HMRC.
Foreign incorporated entities
As a global bank, Barclays has a significant number
of foreign operations that are incorporated locally. It also uses
foreign incorporated companies for securitisations, fiduciary
services, and wealth fund management purposes. UK and foreign
subsidiaries are reported as part of an Annual Return filed with
UK Companies House, as required by the Companies Act 2006. The
number of foreign incorporated entities disclosed in that Annual
Return filed in October 2010 is in line with the figures referred
to by Mr Umunna at the hearing on 11 January 2011.
All foreign subsidiaries have been included in returns
to HMRC either because they are UK tax resident and file UK tax
returns or because they are listed on returns giving information
on income earned that may be subject to UK tax under what is referred
to as the controlled foreign company (CFC) legislation.
Barclays Wealth, part of Barclays plc, has a number
of subsidiaries incorporated in the Crown Dependencies, offering
banking, investment management, fiduciary and brokerage services.
The principal subsidiaries are long established major local employers.
The total number of companies incorporated in the Crown Dependencies
increased significantly as a result of Barclays 2007 acquisition
of Walbrook, a competitor with fiduciary operations. The division
has made efforts to reduce the number by liquidating a number
of the acquired entities.
The commercial relationship between Barclays UK companies
and the Crown Dependency subsidiaries is governed by arms' length
transfer pricing arrangements.
Barclays Wealth takes into consideration the terms
of the Code and the requirements of the UK disclosure regime in
dealing with its own and its client affairs. The division also
ensures that it complies with all other fiscal disclosure requirements,
including the European Savings Directive, the US Qualified Intermediary
reporting programme and, where required, specific disclosures
of client information to HMRC.
As regards Cayman Islands incorporated companies
used by Barclays, the majority of these are managed and controlled
in the UK and are therefore subject to tax in the UK. Income arising
in a company that is non UK resident is subject to UK taxation
under the UK CFC legislation unless the company fits within a
specific exemption. The UK tax position in respect of the income
earned in CFC's is agreed with HMRC as part of Barclays tax filing
obligations.
There is an annual review process which looks at
the number of legal entities and as part of that programme Barclays
is committed to reducing a significant number of Cayman companies
during 2011.
RATIOS OF
INVESTMENT AND
RETAIL BANKING
REMUNERATION
The Committee requested an approximate split of bonus
pools between investment banking staff and other employees, recognising
that the provision of an exact amount could be commercially sensitive
for Barclays. The distribution varies over time in line with performance
and between jurisdiction according to Barclays presence, business
mix and extent of deferral. However, in the UK, the investment
banking share of the bonus pool ranges from 60-70%.
ACCOUNT NUMBER
PORTABILITY
Committee members were keen to explore whether portable
account numbers would aid the switching process for customers
and thus increase switching levels, in turn facilitating greater
competition in the sector. Barclays is pleased to provide the
Committee with some additional information on this issue as requested.
It is worth noting that whilst absolute switching
levels do appear low, at around 6%, these numbers represent only
part of the picture. Many consumers "try before they buy"
and so run current accounts in parallel and manage the switching
of direct debits and other regular payments over time. Since there
is no cost to the customer of holding a current account with a
zero or credit balance, there is no incentive for customers to
close old accounts when they open a new one. Switching numbers
cannot, therefore, be relied upon to paint an accurate level of
current account switching. It is also worth noting that many customers
multi-bank permanently. Research shows, for instance, that customers
in the UK hold more than one bank account (2.4 on average).
Another explanation for apparent low switching levels
is the high level of customer satisfaction with their existing
bank account provider. In October 2010, an independent survey
identified that 91% of Barclays customers were satisfied, with
only 4% dissatisfied.
On the question of whether portable account numbers
would make switching easier, Barclays considers that the financial
and convenience cost of the necessary systems changes would be
prohibitive and far outweigh any incremental benefit which might
or might not result from higher levels of switching.
It is worth noting that the Office of Fair Trading
(OFT) has examined the issue of account number portability and
concluded that the cost of introducing portability would not warrant
the assumed benefits. In addition, in 2002 the then Monopolies
and Mergers Commission (MMC) looked at switching as part of its
inquiry into small and medium sized banking and concluded:
"2.529: We also mentioned...the possibility
of introducing portable account numbers. Having discussed this
with the parties, we believe it likely that this would require
major investment and significant changes to the operation of the
current clearing systems. As the inconvenience of changing account
numbers is only one of many constraints on switching, the costs
of such a development are very likely to exceed the benefits."
Some have drawn comparisons between the concept of
portable account numbers and the mobile phone industry and argued
that since mobile phone numbers can be switched between providers
the technology exists and could be applied to bank accounts. However,
comparisons between bank account portability and switching mobile
phone providers are misleading and irrelevant as the payment systems
infrastructure is much more complex than simple mobile voice or
short message service (SMS) data.
Implementing account number portability would require
an overhaul of every payment system (CHAPS, FPS, BACS, Link, cheques)
together with all banks having to change their accounting systems
and delivery channels. Debit cards would also need to be reissued
to all customers unless a change to the international standards
for BINs (the first six digits of the card number) was possible.
So the implications would reach beyond the UK.
No estimate has been made of the likely costs (and
to make an estimate would in itself be a costly exercise), however,
they are expected to be very significant. One recent calculation
that might serve as a useful comparator is an estimate of the
industry's cost of completely rebuilding the cheque clearing process.
This was in the region of £700 million. The introduction
of account number portability would at least require a re-build
along similar lines and an overhaul of every other payment system
taking costs well into billions of pounds.
Beyond the financial cost, which cannot be accurately
quantified, consumers would be considerably inconvenienced. The
systems changes necessary would mean changing every record of
these numbers to a new portable number. Whilst this might be considered
a one-off cost, the inconvenience to consumers and businesses
(small and large alike) should not be underestimated.
There is a further risk of instability and insecurity
in the payment systems, leading to a loss of confidence and unquantifiable
problems for consumers in carrying out their day to day transactions,
of which there are millions in the UK every day.
Recent improvements to switching
Much has changed over the last few years to make
switching easier. Bacs (Bacs Payments Schemes Ltd) and their members,
including Barclays, introduced a manual switching service in 2004
and this was automated in 2007. Bacs have since introduced further
enhancements and information to assist consumers in switching
their account providers. Indeed, the OFT has recently written
to Bacs commending their improvement to the switching process.
The OFT also commended Bacs and its members, as part of their
investigation into Personal Current Accounts, on improvements
they have made to switching.
Barclays is currently reviewing and simplifying its
current account opening processes to make it quicker, clearer
and more convenient for customers. This work includes activity
to understand what we can do to increase consumer understanding
of and confidence in the switching process, as well as to make
the process as simple as possible for customers.
February 2011
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