Mr.
Hoban: The hon. Gentleman makes an important point; it is
one that we wrestled with during consideration of the Banking Bill.
Where do we draw the line between, on the one hand, transparency and
accountability to this House on tax matters, especially when Government
support is being used to bail out business and, on the other hand, what
we allow to be shielded from that accountability by virtue of market
confidentiality? The Chancellor’s statement on 25 February,
which might be all that we have to go on, was too much in favour of
market confidentiality and paid insufficient regard to
taxpayers’ interests. We could have a little more information
without breaching market confidentiality. We could be much clearer about
whether the provision applies only to the asset protection scheme or to
other losses as well. The taxpayer is giving significant support to
RBS. That is in the public domain, so why is the other side of the
bargain not also in the public
domain?
Stewart
Hosie: I can see the point that the hon. Gentleman is
trying to make about transparency, but let us return to the initial
discussions with RBS on the APS. I suspect that the use of unrelieved
tax assets versus cash, bonds or preference shares was the most
market-sensitive piece of information available in the entire banking
sector at that time. Had that entered the public domain, would there
not have been a very real risk of a further collapse in banks’
share
prices?
Mr.
Hoban: I am not sure that I agree; this takes us back to
what is covered by the deal. The losses that RBS will forgo might
simply relate to assets covered by the asset protection scheme, but
that information is in the public domain. One can see where the
contract would be between RBS receiving public support from the
taxpayer and the losses that it forgoes as a consequence. If the deal
is otherwise, and if the losses forgone go beyond those in the asset
protection scheme, there might be an argument about market
confidentiality.
I would have
thought, however, that any deferred losses no longer available because
RBS has given them up—if that is material—would be
disclosed in the company accounts anyway. I am therefore sceptical
about the market confidentiality argument. It is a very easy argument
for the Government to hide behind. That is why we need a bit more
transparency now about the nature of the losses covered. If the
Minister says that only losses arising in relation to assets within the
asset protection scheme are covered, that will be fine and I can leave
the matter there. However, a proper debate is required, and my
amendments 38 and 39 give us the opportunity to have that debate on
future agreements. I tabled the amendments to enable proper
parliamentary scrutiny of future agreements.
We need to
think very carefully about the sorts of arrangement covered by clause
25. In subsection (2), the Government have set out a series of
arrangements that could give rise to an agreement between the
Government and P to forgo tax losses. Those arrangements include where
the Government
“guarantees or
assumes a loss or other liability of P or another person...insures
or indemnifies P or another person against a loss or other
liability...agrees to make a payment to P or another person in
respect of a loss or other liability...whether or not the person
to whom the payment is to be made...or...gives other
financial support of assistance to P or another
person”. That
is a wide range of circumstances.
In response
to the economic crisis, the Government have introduced a number of
schemes to help businesses by giving some form of support. For example,
under the enterprise finance guarantee scheme, there is a Government
guarantee in place for loans made to small and medium-sized
enterprises, so that the Government guarantee a proportion of the
losses. I do not believe that there is any indication from the
Government that
the banks taking part in the enterprise finance guarantee scheme have to
forgo any losses as a consequence of taking part in the scheme.
However, it is another scheme whereby a guarantee has been issued and
it could fall within the scope of clause 25. The
Government have issued guarantees for money borrowed via the European
Investment Bank. Again, that type of transaction would fall within the
scope of the clause. The Secretary of State for Business, Enterprise
and Regulatory Reform has said that there may be some financial support
available to the purchaser of General Motors in Europe. That financial
support could fall within subsection (4). Would that be part of the
deal?
The Committee
needs some clarity about the use of the clause and about how the use of
the powers outlined in the clause will be scrutinised. The Minister
might argue that we should be very grateful if a business decides to
give up some of its losses in return for one of these deals and that
that arrangement reduces the cost to the taxpayer of those deals.
However, it would be helpful if we knew that the losses that are to be
forgone bear a reasonable relationship to the amount of support that we
give and that a proper deal is being done.
Clause 25 is
wide ranging. Most of my remarks have been made in the context of the
agreement reached between the Government and RBS, but the clause has
wider application. There is not sufficient parliamentary scrutiny built
in to the arrangements as set out in the clause, so we should be very
careful about how we enact this measure.
Of course,
one of the drives behind the clause is that a company automatically
qualifies for loss relief; it does not elect to qualify for it. The
Government therefore need to have the measure in place to tidy up the
arrangements; I understand that part of it. However, the Government
could go a little further than they have in terms of ensuring that
there is parliamentary scrutiny of the
arrangements.
The
Exchequer Secretary to the Treasury (Angela Eagle): I hope
that I can reassure the hon. Gentleman about the nature of the clause
and about the inappropriate effect that his amendment would have on
it.
Clause 25
ensures that any agreement reached between a company and the Treasury
or other arm of Government under which the company gives up the right
to tax losses or reliefs in order to access Government financial
assistance will be effective for tax purposes. The clause will
initially apply to the asset protection scheme, but it could apply to
other circumstances where Government assistance is required to maintain
financial stability and restore confidence.
It is
therefore essential that the parties to the agreement, in particular
the Government, know that when an agreement is reached, it will have
the effect that is intended, so that the agreement will not need to be
revisited if it transpires that any agreement reached on relinquishing
tax losses is not actually effective in tax law. The hon. Member for
Hoban is
right—
Angela
Eagle: Sorry, the hon. Member for Fareham.
[Laughter.] I knew what I meant. The two go
together.
Mr.
Hoban: The right hon. Member for Normanton (Ed Balls) made
the same mistake in a Committee several years ago. I suggested that I
might refer to him by his surname rather than by his constituency. He
soon learned not to make that mistake
again.
Angela
Eagle: I do not have quite that embarrassment with my
surname.
The
provisions will apply automatically to any agreement designated by the
Treasury. They simply enable companies to enter into tax undertakings
with the Treasury in order to access Government assistance in a way
that the existing legislation precludes. Accountability to Parliament
for such contractual undertakings will take effect in the normal
way.
However, the
amendment seeks to make each operation of the clause subject to a
statutory instrument, with the result that the terms of such Government
assistance would remain uncertain until a statutory instrument was
enacted. That could have the perverse effect of reducing rather than
boosting market confidence. That was the point made by the hon. Member
for Dundee, East in his intervention on the hon. Member for
Fareham. 5.45
pm If
the agreement to give up losses were contingent on subsequent
parliamentary approval of a statutory instrument, there would need to
be provision in the agreement to revisit terms if such approval was not
given or amended. Such a term in the agreement would mean that it could
not achieve its aim of restoring confidence and stability in the
market. In summary, the clause will apply only when a company has
agreed to relinquish its losses and only when that agreement is
pursuant to the company accessing financial assistance from the
Government. We are not legislating to force tax undertakings on anyone,
so a further layer of scrutiny is unnecessary and potentially
destabilising, because such deals may need to be struck with absolute
certainty and in a very short time scale.
Mr.
Hoban: But a host of deals have been subject to the
affirmative procedure that have flowed from the Banking (Special
Provisions) Act 2008 and the Banking Act 2009. The Exchequer
Secretary’s argument about uncertainty does not really hold,
given that experience has shown that when an agreement has been
reached, it has passed on to the statute without causing
uncertainty.
Angela
Eagle: In the case of the asset protection scheme, the
agreement on losses will be part of a wider agreement covering
accession to, and the operation of, the scheme, the terms of which will
be set out before Parliament after the agreement has been made. A
similar process would apply for any other such designated
agreement. The
hon. Gentleman asked about Lloyds. Clearly, RBS has at least entered
into an agreement in principle to forgo the offsets in tax losses, but
Lloyds has not. Those are the only two banks that have accessed the
asset protection scheme as it is currently set out. As to whether
Lloyds is involved as well as RBS, the answer is that the former is
not; it decided that it wishes to pay for its access to the scheme in a
different way. RBS has made an agreement concerning its UK tax losses
at
2008 and for a certain number of years thereafter. The agreement will be
finalised in the ongoing negotiations with the bank. There has been
agreement in principle, but the detail and the due diligence is in the
middle of being done. Although the agreement in principle involves
surrendering the losses, the details have not yet been finalised and
the work is still
ongoing. Mr.
Hoban: I am grateful for that explanation, but will the
Exchequer Secretary say when the agreement will be
finalised?
Angela
Eagle: We hope that the two banks will have signed up to
the asset protection scheme in detail by the end of the summer. There
is a great deal of work going on, not least on due diligence on the
assets in the scheme and on getting state aid clearance. As I said,
Lloyds has not entered into an arrangement to forgo tax losses. It is
paying for access to the scheme by paying £15.6 billion for
participation, which will be satisfied through the issuance of B
shares. That does not prejudice agreements with other banks, which
might prefer to settle their fees differently.
Any bank that
wishes to access the asset protection scheme, by definition I suspect,
will have a different agreement—the agreement is not a template
for every bank. Every agreement for every bank that wishes to enter the
scheme will be bespoke and relevant to that bank’s
circumstances. Of the two banks that are in the scheme at the moment,
one—RBS—has agreed to forgo tax losses and reliefs.
Lloyds has not; it is paying for access in a different way. Therefore,
I hope the hon. Gentleman will agree that his amendments would
destabilise the negotiations because of the uncertainty that they would
create. I hope he will not press them to a
vote.
Mr.
Hoban: Will the Exchequer Secretary give
way?
Angela
Eagle: In a minute.
I wanted to
spend some time talking about clause 25, because the debate has rolled
into that, but before I do so, I would be happy to give
way—
Angela
Eagle: Clause 25 is part of a package of measures designed
to stabilise high street banks and boost the amount of money available
for lending. The asset protection scheme has been offered, and the aim
of that scheme was to restore confidence in the banks and get credit
flowing again by dealing with the losses associated with impaired
assets. Under the scheme, the details of which were published on 26
February, the Government will provide protection against future credit
losses on certain assets in exchange for a fee. Each bank that wishes
to receive support under the asset protection scheme will enter into a
contractual agreement with HM
Treasury. In
addition to the fee, banks may separately enter into several other
undertakings in return for Government protection, including, but not
limited to, undertakings to forgo tax reliefs for losses and
allowances, which is where clause 25 comes in. Those undertakings would
be under bilateral agreements between the two parties and would
therefore not override tax law. We are bringing
forward clause 25, therefore, to ensure that any such agreements or
undertakings entered into by a company to forgo tax reliefs or losses
are actually effective in tax
law. Mr.
Robert Syms (Poole) (Con): Would that agreement relate
only to UK tax losses and reliefs? The Royal Bank of Scotland, for
example, straddles several continents. Would the clause have a perverse
affect on the bank if it ever got back to profitability, as one hopes
it will, so that it will shelter those profits outside the UK simply
because part of the agreement is that it will have to pay tax at an
earlier stage under the arrangements the hon. Lady
described?
Angela
Eagle: No bank can avoid paying tax liabilities legally by
sheltering profits in a way that is against UK tax law. The agreement
is really a recognition that, in order to pay for access to the asset
protection scheme, a bank, such as RBS in this case, has agreed to
forgo any tax arrangements that might allow it to offset profits. It
will begin to pay tax much sooner in the process when it comes back
into profitability, which is a good deal for the taxpayer, a point to
which the hon. Member for Fareham was kind enough to refer in his
contribution.
Therefore,
the answer effectively is that the bank could do nothing that would be
illegal under normal tax law to avoid paying what was due, and nor
could it use some of its reliefs on losses, which it would normally
have access to, because it has agreed to forgo those reliefs as part of
payment for access to the protection available for some of its impaired
assets. Clause 25 merely ensures that that agreement, voluntarily
entered into bilaterally between the company and the Treasury, is
effective in tax law and that it cannot be overridden by more general
provisions in tax law. Although the immediate focus of the clause is to
deal with the tax consequences of the asset protection scheme, it is
prudent to ensure that those provisions could, if needed, be applied
more generally in future. The clause could therefore be applied to a
Treasury-designated arrangement whereby Government financial support is
granted to a
company.
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