§ Amendment proposed: No. 182, in page 109, line 12, leave out '10' and insert '15'.—[Mr. Lawson.]
Mr. Deputy Speaker
With this we shall take the following:
Government amendment No. 183.
Amendment No. 190, in page 109, line 16, after 'above' insert'but shall not be charged, where it will reduce a bank's current cost return on equity below 2.5 per cent. per annum'.Government amendments Nos. 184 and 187.
§ Sir William Clark
The Government have made some progress on the windfall profits tax. Many of us on the Conservative Benches do not like the whole principle of such a tax, but this is not the time to rehearse the reasons.
In Committee my right hon. Friend the Financial Secretary gave an assurance that the windfall profits tax would be a one-off tax and that the Government had no intention of repeating this levy. We welcome the relief given by the increase in the threshold and the reduction in the rate from 2½ to 2 per cent. That has reduced some of our antagonism, but I urge my right hon. Friend to repeat the categorical assurance that he gave in Committee upstairs that the levy will not be repeated and that a special tax will not be put on the banks in future.
§ Mr. John Browne
I declare an interest, although not a financial interest.
I join my hon. Friend the Member for Croydon, South (Sir W. Clark) in requesting a categorical assurance that the tax is a one-off levy. On becoming a Member of the House I expected to have disagreements with the Conservative Party, but I never expected to be thoroughly ashamed of a tax proposal made by a Conservative Government. I am ashamed that a Conservative Government should put forward a discriminatory tax which has been made retrospective without the banks having been given the precise warning to which my right hon. and learned Friend the Chancellor of the Exchequer referred specifically when in Opposition. He said: 1353First, warning must have been given to the taxpayer of the intention to legislate in this way and the warning must have been precise in form."—[Official Report, 12 July 1978; Vol. 953, c. 1641.]I do not agree that the vague warning last year that there might be some tax on the banks was a precise warning.
We in the Conservative Party have made a rod for our backs. What will we do if a future Socialist Government introduce a retrospective wealth tax? I find the Government s proposal outrageous and I am amazed that it got through Committee, though I understand the severe Whipping that takes place in Committee. I cannot support this retrospective tax.
If the Chancellor insists on pursuing the implementation of the discriminatory and retrospective tax, which does not meet his precise criterion about warning, will he allow the banks to retain at least a 2½ per cent. return on equity on a current cost accounting basis? If he will not allow that, what does he consider a reasonable return for a bank?
§ Mr. Eggar
I am deeply concerned about this tax. I was concerned about it when we last discussed it on the Floor of the House and my concern was considerably strengthened when I discovered, to my amazement, that while taking about £350 million from private sector banks, the Government had decided to give £7½ million to the National Giro. That is an odd sense of priorities for a Conservative Government.
It would be churlish not to recognise that the Government have made some concessions, but I should like to comment on them. The justification for the introduction of the levy is the endowment profit on domestic banking business. Whether the bank is small or large, the endowment element is identical and it is extraordinary that the concessions should have been given to smaller banks. There is no logical justification for that.
Not only is the tax more discriminatory because it hits particularly the clearing banks, but it assists 20 foreign banks in London. At a time when foreign banks already have about 30 per cent. of the wholesale banking market in this country giving them an extra competitive edge over the domestic banking system seems to be extraordinary.
§ Mr. Lawson
It may be appropriate if I reply briefly to some of the points made in the debate. Taking them in reverse order, as they say in the Miss World contest, my hon. Friend the Member for Enfield, North (Mr. Eggar) rightly said that the logic is that the endowment profit—or, more accurately, the potential for endowment profit—is the target for the tax and, therefore, there is no reason for any distinction in respect of banks of different size. He has a strong point. That is why the Bill, when first published, contained no such distinction. It is right, however, that the Government should pay heed to the feeling of the House.
I had to attend a meeting in Brussels at the time when this matter was debated at great length in Committee but I have read every word of the discussion that took place. There was a clear feeling on both sides of the Committee that something needed to be done for the smaller banks. The trustee savings banks were among those mentioned. I proposed, therefore, to meet those representations in a way that was not discriminatory. The concessions now before the House apply across the board to all banks. The concessions on the exempt slice and on the lower, reduced 1354 rate for the first £200 million worth of deposits meet the point in a manner that I hope commends itself to the House.
I was not seeking to be discriminatory. It is true that certain foreign banks will benefit. I am surprised that my hon. Friend the Member for Enfield, North, who is a sophisticated member of the financial community, should be opposed to foreign banks in London. The foreign banks in London have been an asset to the financial community of London and a healthy new element in the financial scene. I believe that we have benefited.
My hon. Friend the Member for Winchester (Mr. Browne) seeks a profits limit to the tax. The Government considered very carefully whether the tax should be geared to profits as such. It would have made the tax much more complicated. It would not have been precisely addressed to what we consider the justification for levying the tax, namely, the specific profit, or profit potential from the endowment element from non-interest-bearing deposits—in other words, current accounts. That is why we framed our proposal in the way it has appeared. My hon. Friend suggests a different kind of tax. I do not think that the two can be married. We decided that it was not possible. The argument about simplicity applies particularly to a once-for-all tax. It is not some complicated edifice that we intend to continue year in and year out, as I have made clear.
The retrospective element has been mentioned. I cannot accept that argument, certainly not in the sense in which a quotation from my right hon. and learned Friend the Chancellor of the Exchequer has been used. The retrospective element comes only in the sense that the amount of non-interest bearing deposits on which the tax is levied has clearly to be an amount at a particular date. That date, it is true, is a date in the past.
Had the Government taken today's date, the yield from the tax, if one takes the non-interest-bearing deposits that the banks now have, would have been no less and, if anything, slightly more. The essential reason for taking a date that had already occurred was that it would have been a relatively easy matter, since it was geared to non-interest-bearing deposits, for the banks to have paid a nominal amount of interest on their deposits and there would have been no yield at all. It is not the principle of retrospection that my hon. Friend is getting at. He is suggesting that the tax in its entirety should be dropped.
I accept my hon. Friend's stand on this matter. I know where he stands, and he has been consistent about it. But we wished to raise money from the endowment profits of the banks, and he must see that it had to be done in this way.
§ Mr. John Browne
My point about retrospectivity is that, if it were clearly and precisely given as a warning beforehand, it would, according to the criteria of my right hon. and learned Friend the Chancellor, and his quotation of Mr. Heathcoat Amory, have allowed people to adjust their circumstances to meet the forthcoming tax.
§ Mr. Lawson
That is not the intention. The context in which my right hon. and learned Friend the Chancellor was speaking was anti-avoidance measures. It is a different context. We are not talking about anti-avoidance measures now.
I am most grateful to my hon. Friend the Member for Croydon, South (Sir W. Clark) for his welcome to the 1355 Government amendments, not merely the amendments to which I have already referred but also amendments Nos. 185 and 186, which meet the unease which was voiced in Committee about the information which the Board of Inland Revenue was able to ask for in a return from the banks. If my hon. Friend looks at amendments Nos. 185 and 186, he will see that now the information which the board can ask for is very much restricted, and in particular information about individual bank accounts, the most sensitive area, is totally excluded.
I think that these are advances. I gladly repeat the categorical assurance that this is a once-for-all tax. As such, it follows that it will not be repeated, not merely in this form but in some slightly altered form. It is genuinely a once-for-all tax.
Amendment agreed to.
Amendments made: No. 183, in page 109, line 15, leave out '2½' and insert '2'.
No. 184, in page 109, line 16, at end insert'or, if the excess is more than £200 million, the aggregate of 2 per cent. of the first £200 million and 2½ per cent. of the remainder. '.—[Mr. Lawson.]