Lords Amendment 7: After Clause 4 insert the following new Clause—
“Development orders: development within the curtilage of a dwelling house
(1) Section 61 of the Town and Country Planning Act 1990 (development orders: supplementary provisions) is amended as follows.
(2) After subsection (3) insert—
“(4) Any development order or amendment to an existing development order made after 1 January 2013 that grants planning permission for development within the curtilage of a dwelling house shall not apply within the jurisdiction of a local planning authority if that authority has resolved that it shall not.””
Commons disagreement and reason
The Commons disagree to Lords Amendment No. 7 for the following Reason—
7A: Because it is not appropriate to give local authorities further powers to disapply planning permission granted by a development order.
That this House do not insist on its Amendment 7, to which the Commons have disagreed for their Reason 7A, but do propose the following amendments in lieu—
7B: Page 5, line 29, at end insert—
“(2B) Without prejudice to the generality of subsection (1), a development order may include provision for ensuring—
(a) that, before a person in reliance on planning permission granted by the order carries out development of land in England that is a dwelling house or is within the curtilage of a dwelling house—
(i) a written description, and a plan, of the proposed development are given to the local planning authority,
(ii) notice of the proposed development, and of the period during which representations about it may be made to the local planning authority, is served by the local planning authority on the owner or occupier of any adjoining premises, and
(iii) that period has ended, and
(b) that, where within that period an owner or occupier of any adjoining premises objects to the proposed development, it may be carried out in reliance on the permission only if the local planning authority consider that it would not have an unacceptable impact on the amenity of adjoining premises.
(2C) In subsection (2B) “adjoining premises” includes any land adjoining—
(c) the dwelling house concerned, or
(d) the boundary of its curtilage.””
7C: Page 5, line 31, leave out ““or (2A)”” and insert ““, (2A) or (2B)””
My Lords, at Third Reading this House made an amendment to provide local authorities with further powers to disapply planning permission granted by a development order. As the House will be aware, the Commons noted the commitment made by the Secretary of State when discussing these issues to give further consideration to the concerns of both Houses, and it disagreed with this amendment.
Members of both Houses will have received from the Secretary of State a letter, which I forwarded to them, giving the result of his review of the situation, which has resulted in the amendment that we laid on Friday, and which we will now discuss. It may be helpful if I briefly outline again the thinking behind our proposal on extending the existing permitted development rights for homeowners wishing to extend their property. As I said at an earlier stage of the Bill’s consideration, these changes will make it easier for thousands of families to undertake improvements to their homes. In bringing forward these changes, we have looked across England and recognised that many people want to enlarge their homes. They want to do so not by much but sufficiently to create more living space, perhaps to care for elderly relatives or because of a growing family, and without the cost of having to relocate.
However, we have been clear from the outset that it is important to ensure that any impact on neighbours is acceptable. Concerns on this issue have been set out in this House by noble Lords in previous statements, by Members in the other place and in responses to our consultation. As I have said, the Secretary of State made a commitment in the other place that we would respond to these by bringing forward a revised approach.
I have tabled an amendment that delivers that commitment. This amendment makes it possible for the Government to put in place protections for neighbours where adjoining homeowners seek to use our proposed extension to their permitted development rights. We have reflected on the concerns raised by noble Lords. The noble Lord, Lord True, raised the issue of the rights of neighbours to protect the amenity of their homes eloquently on Report; the noble Lord, Lord Tope, expressed concerns that our proposals would set neighbour against neighbour; and, as the noble Lord, Lord McKenzie, put it, neighbours can impact dramatically on their neighbours’ quality of life. The amendment that we are proposing responds directly to this important issue.
In drafting our amendment, we have drawn on the principles outlined in the 2007 report Blueprint for a Green Economy from the Quality of Life Policy Group, which was chaired by the noble Lord, Lord Deben, in his previous life and Zac Goldsmith MP. Indeed, the noble Lord referred to this very report when arguing against the amendment that was made to the Bill at Third Reading. The Quality of Life report states that:
“Too much planning has become development control”.
It goes on to say that,
“the time and trouble that has been spent on dealing with planning applications for extensions and additions, porches and garages … cannot be seriously said to have been cost-effective”.
We agree with that, and with the report’s message that protecting neighbours’ amenity is important.
We are therefore introducing a light-touch neighbourhood consultation scheme. This recognises concerns that larger extensions could be built without offering neighbours any opportunity to express their views. Adjoining neighbours—not just the ones on either side but those who adjoin the rear of the property as well—will now be consulted where a homeowner wishes to use the new extended permitted development rights to build a good-sized extension. If neighbours think that the proposed extension will have an unacceptable impact on their amenity, they can ask the local planning authority to consider this—for example, if they think that it would totally overshadow their living space or that they would lose their privacy due to overlooking windows. Where neighbours raise concerns with the local authority, it will then consider the impact of the proposals on the amenity of those neighbours. It will make an objective decision on whether the development is acceptable or if the impact on neighbours’ amenity is such that it should not go ahead under permitted development rights.
We recognise that neighbours will have very different views on whether an extension impacts on their amenity, and that similar proposals on the same street may therefore have different outcomes. If a local authority is asked to consider the impacts of a proposal it will look at this on a case-specific basis. The outcome will not necessarily be the same as for other extensions in the street.
As the Secretary of State has made clear, local ward councillors will, in the usual way, have the opportunity to put forward their views on the desirability or otherwise of a proposed extension. The process for dealing with an indication that an extension is proposed will be that a homeowner wishing to build an extension will notify the local planning authority and provide plans and a written description of the proposal. The local authority will notify the adjoining neighbours—that is, the owners or occupiers of properties that share a boundary, including those at the rear. We will set out the details in secondary legislation but the intention is that neighbours will have 21 days in which to make an objection. If no neighbours object, the local authority will notify the home owner that they are able to proceed with the development. If any neighbour raises an objection, the local authority will then consider the case on the single issue of whether the impact of the proposed extension on the amenity of neighbours is acceptable.
It will be up to individual councils to decide how they handle the consideration of these proposals. We would expect it to work in the same way as for planning decisions: that is, for the council to decide whether the decisions are delegated to officers or made by a planning committee. If approval is not given, the home owner will be able to appeal against a refusal or may wish to submit a full planning application. The home owner will be able to appeal against a refusal of consent but, as with normal planning consents, neighbours will not be able to appeal against a grant of permission. This approval process will not be onerous and we do not expect that it will impose significant costs on local authorities, but we will discuss this and other implementation issues with the Local Government Association.
These proposals should remove the need for local authorities to feel that they have to resort to using Article 4 directions to remove the new permitted development rights. I assure noble Lords that we have listened very carefully to the concerns raised about the operation of Article 4, and we will work with the Local Government Association to update our Article 4 guidance as part of the review by the noble Lord, Lord Taylor of Goss Moor. This will make sure that the process is as clear and straightforward as possible.
The noble Lord, Lord True, clearly set out that he was concerned that our proposals took away,
“a neighbour’s right to have a say on a big and potentially overbearing extension shoved up outside their back door”.—[Official Report, 26/3/13; col. 982.]
As the Secretary of State made clear, we have listened to Parliament and responded directly to these concerns. The amendment gives local authorities a role where neighbours ask them to make a judgment while allowing home owners across the country equal opportunity to make use of the new permitted development rights. I look forward to hearing the views of the House. I hope that I have explained as clearly as I can how our amendment addresses the concerns raised about the impact of our proposals on neighbours and why, therefore, the House should agree with the other place that the amendment made here at Third Reading should not become part of the Bill. I beg to move.
My Lords, I should explain that we tabled this Motion, which insists on the position originally taken by your Lordships, as the clock was ticking on Friday without our then having sight of the government amendment. The Secretary of State, in announcing an uncharacteristic conversion to the spirit of consensus, gave neither us nor the Commons a clue as to what this revised approach to permitted development rights for home extensions might be. We have to continue to deliberate on these matters without the benefit of the results of the consultation on extended permitted development rights that concluded some four months ago. It is difficult to believe that they would not have some relevance to the matter in hand, yet still the information is withheld from us. However, I hope that the Minister might at least confirm one point for us this afternoon. The consultation included the proposal that changes to permitted development rights, including those relating to the curtilage of a dwelling house, should be in place only for three years and that developments would have to be completed within that three-year period. Does the consultation support that proposition?
We now have sight of the government amendment, and the benefit of correspondence from Ministers, and have to assess how far it addresses the concerns prompted by the amendment moved so comprehensively by the noble Lord, Lord True, an amendment that found favour around your Lordships’ House and that clearly had considerable support in the House of Commons. I do not propose to restate in depth the points made by the noble Lord, Lord True, and others with which we agreed, other than to say that the amendment reflects a demonstrably localist approach, scepticism that the extension of these particular permitted development rights would make a meaningful contribution to kick-starting growth, concerns that an unamended Article 4 direction process was not inevitably a secure or speedy route for local councils to override inappropriate centrally set permitted development rights, an acknowledgement that individuals can pursue planning permission in the absence of permitted development rights and, in the words of the noble Lord, Lord True, that the Government’s proposal,
“takes away a neighbour's right to have a say on a big and potentially overbearing extension shoved up outside their back door. What is more, it removes that vital process of moderation and conciliation that the local planning system provides in these matters”.—[Official Report, 26/3/13; col. 982.]
We look to the Minister today to convince us that the government amendment addresses these points. The Government have clearly been forced to back away from their original position, and this is to be welcomed. Without quite a lot more detail, however, it is difficult to judge whether they have moved far enough. Giving neighbours an opportunity to object to proposals so that the local planning authority becomes engaged would address one of the concerns, but we need to understand how meaningful this would be.
What is the nature of the information to be provided to the local planning authority, and to what extent might it differ from that to be submitted for formal planning permission? How extensive would the local planning authority’s notice obligation be? Would it be only to properties that actually adjoin? I accept that this would include those at the rear of premises, but what about those that are not immediately adjacent but within line of sight of the extension? Will objections be entertained from those who have not been formally notified? Is there a broader question of the amenity of an area that should be taken into account?
Can we be provided with some examples of what “an unacceptable impact” actually means? How would the process work when the adjoining property is currently empty, empty for a three-week period, or currently owned by the same people as those who are seeking a development next door? What are the appeal rights? In her introduction, the noble Baroness said that there would be appeal rights where the home owner has been refused the opportunity to develop. Will it be 50% of the garden or 50% of the curtilage of the property on which development can occur? What is the process by which local planning authorities will take a view on the impact of the amenity of properties, and how will it encompass what the noble Lord, Lord True, referred to as,
“that vital process of moderation and conciliation”? —[Official Report, 26/3/13; col. 982]
Will it be ward councillors or the planning committee who will take the decision? What will the enforcement arrangements be if someone develops within permitted development rights but outwith the plan notified to the local planning authority? If the local planning authority considers that a proposal would have an unacceptable impact on amenity, this would presumably not preclude an application for planning consent. I think the noble Baroness confirmed that, although it might, of course, invite a negative response.
Will the process be applied to development undertaken by existing permitted development rights or just such future rights contemplated by the consultation documents? Will these rights change the Secretary of State’s approach to Article 4 directions? The proposed process imposes obligations on local planning authorities for which they will receive no fee income. Is it true, as reported, that No. 10 has said that local authorities will have to find the funding for this themselves? What are the estimated costs that are likely to arise across England?
How does the Minister respond to the briefing we received from the RTPI, which states:
“The Government’s proposal relies on a rigorous flow of information. If a house is not occupied for three weeks (perhaps during a long summer holiday), or the house is let and the tenant is not assiduous in forwarding notification, or if the post office makes errors, owners will miss out on an opportunity to object … No system is perfect, and when applications are made through the planning system, it is possible that an owner may miss an opportunity to object. Planning officers offer a second line of defence against what might be a serious loss of amenity to a property owner when then objectively assess applications against neighbour objections”?
The briefing goes on to say:
“There are currently two regimes: development that is permitted and development that needs planning permission. This division is reasonably well understood and has stood the test of time. The Government’s proposal adds a third regime, one reliant on prior notification. The RTPI believes that the Government should be seeking to make planning more effective, not more complicated”.
How does the Minister respond to that?
If we are not to remain committed to the amendment of the noble Lord, Lord True, we will need much reassurance and clarity on these points. I hope that the Minister can help us. I beg to move.
My Lords, I noticed that many of the views expressed by the spokesman for the Opposition agreed with points that I think are important and on which I therefore wish briefly to comment. The most important thing of all—from my own experience I found this very unsatisfactory—is that you cannot rely on getting notification. In cases in the past 12 months where I have been the immediate neighbour, I have twice not received notification. Secondly, clever people always put in their applications on Christmas Eve or at some time when they know that no one is around. It is important in those circumstances that extra time is allowed for the consultation based on the number of working days, not just days. The unprincipled policy is used regularly by clever people, even under normal planning regulations. Those two matters are important.
On other issues, I have been satisfied by discussions with the Minister that the Government really are thinking about these matters. The sunset clause is good but, for notification, the system that has been in use for years should be continued whereby a notice is posted on a lamp post, a hedge or something like that, so that some friend or neighbour passing by would say, “Did you see that they are building something next door to you?”. Even if you are away on holiday, you can ask your friend to let you know. However, if you come back from a three-week holiday, which is not unusually long—particularly if you go to Australia; it is hardly worth going if it is any less than that—it is important to be sure that nothing underhand is going to be slipped through in your absence.
My Lords, I should declare my interest as a vice-president of the Local Government Association. I have had many concerns in recent months over the proposals on permitted development. However, I am grateful to the Minister for these proposals, albeit that they were revised at the last moment. They go a long way towards improving the proposals on permitted development.
It would have been wrong to deny neighbours the right to object to an extension that might impact on the amenity of their property, particularly given the significant increase proposed in the scope of permitted development. While I am conscious that some 90 % of current planning applications are approved and only 10% are turned down, clearly the increase in the proposed permitted development level will produce a higher proportion of applications that are going to be challenged by neighbours. I agree with quite a number of the points made by the noble Lord, Lord McKenzie, who has asked a set of questions about precisely what detail the Government propose.
The Minister wrote to Members of Parliament explaining what the Government were proposing to do. It would help our understanding of the Government’s amendment if the Minister could clarify some of these details. First, it is stated that home owners wishing to build extensions under the new powers would notify their local council with the details. It is spelt out in some detail in the amendment, but I hope it will be absolutely clear that there should be a covering letter that explains all the detail that a third party might be interested in reading, that there should be a copy of the plan of the architect’s design, and that all details of design and materials should be submitted at that stage. Because of costs, this is not just a matter of planning permissions: it also impacts on building control.
The council is then to inform the adjoining neighbours that a letter and application have been received by a home owner. What does the word “inform” mean? That information should include every single detail that is known about the application so that neighbours who might be affected can make a rational contribution to the application and their views can be properly considered.
The question of who is an adjoining neighbour is defined in this amendment as someone who abuts the curtilage of the property. I suggest that that does not go quite far enough. I think it should be anybody who can see the proposed development site from any point on their property, because it will impact on their amenity if they can see it. But if they are at the diagonal point—in other words, not immediately adjacent to the side or to the bottom of someone’s garden—they may well be able to see the proposed development. Those people should have a right to object as well.
I agree entirely with the suggestion that three weeks is not adequate, partly because there is a tendency for the three weeks to start at the date on which the letter is sent. It seems to me that 28 days would be a better period by which a neighbour should be able to respond.
On the question of objections being received from neighbours, I heard on a news broadcast at the weekend, but perhaps I misinterpreted it, that ward councillors would have a role in making the decision, in arbitrating. I understand that that is not what is being proposed, but I would appreciate the Minister’s confirmation of that fact, because in my view it should go to the council’s planning committee.
Statutory consultees should also have a right to be consulted. I am thinking particularly of parish councils, because they have an existing role and it is important that that role is clearly identified.
On the issue of the fee, I had thought that the planning system was supposed to be financially self-sufficient: that is, that the expenditure on the planning system and planning officers was to be funded from fees received. I am not certain that it is right that someone who has applied for planning permission should not pay a fee. There is a case for saying that if there are no objections to what is a very simple matter, and with the council operating as a post box only, it would be legitimate for there to be no fee. But if it is more complex than that and takes up significantly more of the planning officer’s time, this ought to be looked at again.
On balance, I feel that the Government have gone far enough for the amendment to be supported today. However, I hope the Minister will confirm that, first, it is the development that should have happened within three years, as opposed to a notification having been received; and, secondly, that the period will be reviewed not at three years but prior to that, so that should any future Government seek to renew the extension of permitted development, the decision is made on a rational evidence base.
I welcome my noble friend’s confirmation that, in terms of devising the regulations, there will be significant discussions with councils and the Local Government Association as to how this new system will actually work. I hope very much to hear the assurances from the Minister and, assuming they are forthcoming, I shall be very happy to support the Government in the Lobbies this afternoon.
I rise only because my noble friend, like my right honourable friend, has drawn into consultation the Quality of Life report, which I chaired. I declare an interest as a vice-president of the Royal Town Planning Institute and an honorary fellow of the Royal Institute of British Architects. I think it important to rise simply because I would not like the House to believe that what is here in the amendment was what the Quality of Life report actually recommended. The reason for saying that is not because I wish to undermine what the Government have done but because the Government have been less radical than we suggested they should be. We said that in most of these cases it is not a matter of planning but of neighbours. It is a matter of sorting out what is fair dos, based on the principle that we believe in the rights of property. I ought to be able to do whatever I like with my property but I cannot do that in a world as closely knit as we are without taking into account what my neighbours feel about it. We said that it was ridiculous to tie up the planning system of the local authority to do this.
What should happen is that you would have a duty to tell your neighbours what you intended to do, with a plan and the rest of it. They would then have a month—28 days—to tell the local authority that they did not like it. The local authority would then have the right to do three things. First, it would have the right to say, “Well, this is a load of old rubbish and we’re not going to take any notice of it”. That seems perfectly reasonable, as you have to have a judgment in the first instance as to whether people are merely being difficult. We all know there are some people who can be difficult in any circumstances about anything, and anybody on a local authority knows that better than I do. The second thing that the local authority could do would be to say, “We think that this is a serious planning matter”—in other words, it was not a matter of neighbours, but something very fundamental, and it would therefore call it in, in effect, for a planning decision.
However, it would most likely say that this was a matter of neighbours and that they were going to appoint an arbitrator. Local authorities would have a panel of arbitrators, who would be very ordinary people, whose only job would be to go and see what the fair deal or reasonable thing would be in the case. Having decided that perhaps a slightly smaller extension would be fairer as far as the neighbour was concerned, they would say, “We will agree to this, if this change is made”. Alternatively, they would say, “We agree to it entirely”. They would start from the assumption that they would want to agree to the development; in other words, there would be an assumption in favour of development, because that seems to be reasonable given the nature of property.
The Government have taken this up. It is a huge improvement on the previous suggestion and a generous way of moving forward. I think my noble friend Lord True will probably feel that it is not quite what he wanted but we have gone a long way. However, there are three bits to it which I hope that my noble friend will think again about. In no spirit am I complaining about what she is doing—I am very pleased about this—but there are three things. First, I think that 28 days was probably a better period, simply for the reason that it is helpful for people over holidays and the like. Secondly, I wonder whether she could look again at enabling the local authority, even if it were not in the statute, to decide that this kind of thing was done by an arbitrator, not through the planning committee. I wanted to remove from the planning department questions such as, “Can I have a car port? Can I build a room in the already present roof of my garage? Can I put up a bit of an extension which seems quite sensible as my neighbour has exactly the same?”. All those things are really neighbours’ issues, and, frankly, when you consider the time spent and the shortage of planning officers, it is much more sensibly done by having a sensible man or woman looking and saying, “That seems perfectly reasonable”.
Thirdly, I hope that my noble friend will look at the one series of protections that we specifically put in, which is that this would not apply in an area which had been designated as a conservation area. In that area there should be a wider consultation than merely with one’s neighbours. I say to the Minister that I entirely support that it should be one’s contiguous neighbours because frankly, if we are going to go out to everybody who could possibly see the house, we are in real trouble. The idea that I could say that I ought to be able to complain because if I stood on the top of my house with a telescope I could see this house is just nonsensical.
We are trying to have a proper balance, and I think this amendment achieves that. I hope that the Minister will look at those three things, not least because I believe that our original proposition was an easier, simpler and ultimately more radical concept. However, I am pleased that we have had not merely half but three quarters of the cake and thank her very much for that.
My Lords, I agree entirely with what my noble friend Lord Deben says about conservation areas. I would like to make one point and ask one question of my noble friend the Minister. Like others, I thank her for the movement that has been made. I enthusiastically supported the amendment of the noble Lord, Lord True, either on Report or Third Reading. It seems that the Government have moved between half and three-quarters of the way.
Does the Government’s movement, which we welcome, take into account the time that it takes to build an extension? We have talked about loss of views and all that sort of thing, which are the obvious points, but some extensions seem to take an unconscionable time to build and the disruption of neighbours’ lives during the building can be not just an aggravation, but in some cases a real health hazard. I would like my noble friend’s assurance that permission to extend does not extend indefinitely.
My Lords, I join others in welcoming the Government’s partial, if deathbed, conversion to doing something about these proposals. I certainly endorse many of the comments that have been made about the problems that remain apparently unresolved. I particularly join the noble Lord, Lord Deben, in strongly urging the Government to look again at the issue of conservation areas, unless it is capable of being clarified that the proposals will not apply to conservation areas.
I draw particular attention to the wording of Amendment 7B, where in the preamble it says to insert:
“Without prejudice to the generality of subsection (1), a development order may include provision for ensuring”,
the safeguards to which the Minister referred. Why is that “may”? Why is it not the case that the development order will include these provisions rather than there being an option? It seems to me that it would be all too easy to evade the consequences of the partial progress that the amendment produces if it remains an option simply not to provide that in the subsequent development order.
My Lords, very briefly, in my 26 years as legal eagle on the “Jimmy Young Show” on Radio 2, there was no issue more sensitive and more repeatedly brought up than neighbour disputes relating to the extension of premises. It causes immense angst among our fellow citizens. People have mentioned rights of view and rights of light; there is no right of view, of course, and rights of light are notoriously difficult to judge and adjudicate on. I am entirely in favour of my noble friend the Minister trying to ensure that what comes out in the wash—I am thinking particularly of the subsidiary legislation—leaves minimum room for aggravation and disagreement.
For example, can anything be done about defining,
“the curtilage of a dwelling house”,
and the boundary of this? Those sorts of details may not seem important to us here because, I suspect, most of us live in rather spacious houses with gardens, but in terraced accommodation par excellence these issues are of huge importance. I am delighted to hear that the notice period is going to be 28 days but, to be honest, it needs to be 56 because these things can move very slowly and it takes less sophisticated mortals a long time to find out how to deal with some of these matters.
My Lords, in rising, I feel rather like the ancient prophetess who went to see King Tarquin with the Sibylline Books and saw six of them promptly burned, only to have them accepted at the last minute. Like her, I am grateful for that. I thank my noble friend Lord Tope, the noble Earl, Lord Lytton, and the noble Lord, Lord McKenzie, for their support for this proposal at an earlier stage.
Of course, I thank my noble friend the Minister for her amendment. Unlike some in this debate, she has always understood the practical, human issues that are involved in seeking to end the rights of objection to developments which, as some have pointed out in this debate, may take more than half of a neighbouring back garden. Crucially, these may also create precedents in local planning in relation to character and new lines of building, which may well affect the person next door but one, who, under the proposal before us, still has no right to a say.
Parliament has secured some movement and I think many householders will thank goodness for your Lordships’ House for the role it has played in securing that. My view has always been—and remains—that faced with potentially overbearing developments, neighbours should have the right to defend the value and amenity of a home. For most of our population, that home represents the focus of all their lifelong work and aspiration and the bulk of their family’s wealth. That is the fundamental point. With the help of colleagues in another place and many of your Lordships, people in the Local Government Association and the local government world, and so many other people—ordinary people—this has finally been vindicated. I am very grateful to the Government for laying an amendment to protect these rights.
The question is: what do we do now? The noble Lord, Lord McKenzie of Luton, to whom I pay tribute for his role in not only this but all our local government debates, says that we should insist on the amendment for which I secured your Lordships’ support at an earlier stage. It is true that the Government’s amendment was laid before the House at the last possible moment last Friday. I might agree with him that it would have been better if it had come sooner. I myself suggested a way forward in which both sides would withdraw their amendments so that more timely discussion might take place on an agreed draft regulation specific to this issue, which could be debated later in both Houses after proper consultation. I actually think that would have been a better and more orderly course in Whitehall terms, but that is not where we are.
When I said last Friday that I would like time to reflect, seek clarification, consult others involved and consider the course of action that I might take today, I found that the Labour Party had decided, within no more than five minutes, to take over the amendment and put down a Motion to insist. I found that a little surprising and disappointing after all these months.
The localist approach in my amendment had much to commend it, but ultimately it was a device to bring this issue before Parliament and the nation. Thanks to the intransigence of others, your Lordships have ironically succeeded in doing that in a highly public way. Nothing is perfect, and my amendment certainly was and is not, and crucially it was not agreed to by Members of another place. We have to let it rest.
Like others, I greatly welcome the intervention of my right honourable friend Mr Pickles. His proposal unequivocally protects the rights of immediate neighbours, which is a good thing; I thank my noble friend for that. I must express some puzzlement that it was not left to that department to settle this question. It might have happened much sooner had it been. So I welcome this and hope that it can be considered in another place.
As others have said, if it does go to another place there remain serious issues to resolve. Here, like other noble friends, I will look to my noble friend on the Front Bench for the clearest possible assurances to this House and indeed through it to the other place that there will be full, meaningful and specific consultations on the details behind this proposal before final regulations are laid. After all, despite many requests made by your Lordships, Parliament has yet to see the results of the consultation on the original plan.
Not to add to the list too many things of which others have spoken, I agree with all the points that have been made. But will we be told how local authorities, parish councils or neighbourhood forums will be able to protect the character of local areas if the immediate neighbour or neighbours to a development do not object to a particular, ugly development for whatever reason—perhaps infirmity, absence or even complicity? While I take the point that nobody standing on a seat with a telescope should be involved, are there not others overlooking, whether in town or country or in the wider community, who in some instances also have an interest? Does building quality not matter?
I agreed with what Mr Boles said about building quality. Surely a local authority and a community have the right to have a say on that. Does flood risk matter? Is there to be no backstop procedure for local authorities to consider these issues? The wording of the amendment appears to allow for the amenity of neighbouring premises only. Will the Minister and her colleagues consult on how, as others have said, neighbours will be notified and how they will be protected if they do not hear of the development in what the briefing said would be 21 days? There has to be movement from that. For personal reasons I have been away from my house for 21 days in the last few weeks.
In the case of permitted development, as I understand this proposal, building could start immediately on conclusion of the notification period. Someone could come back and find that the builders have already moved in. Under the present system, construction has to await planning approval. We hear that local authorities will not be able to charge fees for these procedures. Does that apply only in cases that have no objection? Even then who, if not the applicant, is to bear the cost of considering drawings, giving notice and ensuring that notice is given with sufficient details as to the nature of construction in a proper way? Who will ensure that these things are done in a proper way if not a local authority?
These detailed matters cannot be resolved in primary legislation, and I and other noble Lords who have spoken are not asking that they should be. I thank my noble friends for the significant and considerable change that has been made, and ask them to engage with the local government associations, local councils and many other bodies that already making strong representations on the details behind these proposals since they were published. There is much work still to be done. Perhaps it is best done away from the glare of publicity, and after 15 minutes of fame I am happy to withdraw to the wings. However, this work must be done. Will my noble friend explain how and on what timescale consultation will take place before regulations are published?
I conclude by saying that I will always think that this episode represents a textbook case of how not to make policy. However, the Government’s agreement to protect neighbour rights is highly welcome and demonstrates the continuing important role of Parliament and of your Lordships’ House in holding the Executive to account, and the willingness of my noble friend on the Front Bench and colleagues in her department to listen to Parliament. In the light of this movement, I say to the noble Lord, Lord McKenzie, that I would not have pressed my amendment today, and I will not support him in the Lobbies if he presses his.
The Government’s amendment, however belatedly tabled, is a significant change that should be welcomed by noble Lords, even if the ecstasy with which they greet it will be measured by the seriousness of the commitments given to consultation on the details. Parliament has an unfettered right to express its view on secondary legislation. Like others in both Houses, I will reserve that right until the final details emerge. How much easier that will be if we talk to each other, consult with each other and listen to each other. I thank my noble friend for this concession and will not trouble your Lordships further.
My Lords, I will not detain the House for long. My interest as a practising chartered surveyor in matters to do with planning is well known. The concern about this area of the Bill is not to prevent development from taking place but to ensure that the community should have some input. There is a serious and objectively important issue here. It is that the density of development is a construct, particularly in urban and suburban areas, that needs constant review and monitoring. Filling up open space with development—perhaps “filling up” is a rather pejorative term, but noble Lords will get my drift—touches on and concerns that issue, and produces long-term, quantifiable effects on value, amenity and the general sense of space. That affects not only the public perception but individual neighbours. It is very easy for someone with a very short-term agenda who simply wishes to have further space for whatever reason to try to construct something that is less than worthy in the context of the locality. I pay tribute, as I have before, to the way in which local planning authorities have protected this construct, this facet, of our built environment. It is important that there should be oversight. Policies to protect amenity space, light and air should none the less still have house-room here.
There are a couple of issues that I hope the Minister will be able to clarify. Another qualitative consideration that risks being lost is to do with materials—things like colour, finish and texture. They risk being lost under the process of prior notification where the principle of development is enshrined in a permitted development context. I appreciate that design guidance in supplementary planning documents may overcome this if it is sufficiently up-to-date and all-encompassing, but it is not always.
It has been mentioned already that the local planning authority will receive no fee, whatever the length and breadth of its administrative role may be in dealing with something under a prior notification regime. I think that that is probably an injustice, other than in circumstances where, as the noble Lord, Lord True, and others have said, it is a straightforward in-and-out issue.
We have heard about the issue of too much planning and overconcentration. I believe that I made a comment earlier in the course of the Bill about the colour of people’s front doors or the design of their windows. We need to try to distinguish between removing the overconcentration on the particular and the wholesale removal of scrutiny, because the two are not the same.
Comment has been made on how the service of notice would work. That must wait for another day, but I would instinctively prefer 28 days rather than 21.
A further area, that has already been pointed out by the noble Lords, Lord McKenzie and Lord Shipley, is the question of definitions—back garden as opposed to side garden, curtilage as opposed to plot area, setting as opposed to something else—and the basis of identifying the proportion of the plot actually built upon if you want to get some sort of absolute measure. I remember a situation where I made an application for a tenant’s garage. It was turned down because, although it was in a rural road, the planning officer decided that it was offensive to the “streetscene”. Anyone walking up the “streetscene”, where they saw one house every half-mile, will realise what I mean when I say that I did not think that “streetscene” was a concept that applied to something that was stuck behind a hedge up above a high bank. This occurred because, needless to say, the building was not built with a frontage onto a highway, as you might normally expect, but was built end-on to the highway, so front and back gardens had a boundary with the highway. It is this sort of muddle that needs to be sorted out, because for every plot that is governed by the standard criteria of an urban street, there are other ones that are not so governed because they are corner plots or otherwise different and individual. We need to somehow disentangle that.
The noble Baroness, Lady Gardner of Parkes, asked what the sanction will be for not complying with a scheme as prior notified. Indeed, that is something that we need to be very careful about.
On the whole, though, I believe that the Minister and her honourable friend have gone some way to try to deal with this business through this halfway house of prior notification. Prior notification is not an unusual construct, despite what the RTPI may wish to say; it is commonplace in agricultural permitted development, so I do not have any particular worries with it as such. If the Minister is prepared to give some sort of undertaking that the detail of this will be subject to consultation, not least consultation via the processes through this House, then I will be inclined to take the side of the noble Lord, Lord True, and be prepared to draw a line under this—to take half a bun or two-thirds of a bun, even if it is not the whole bun that we wanted to start with.
My Lords, I thank the noble Lords who have spoken, particularly my noble friend Lord True, for the tenor of this debate. I accept that there is not everything that everyone would want here, judging by the questions, but the House seems to accept that we have moved a long way since we started on the Bill.
I want to reiterate that the revised approach that we are taking responds in a targeted and direct way to the concerns that have been raised. As noble Lords have said, there are already existing permitted development rights that have operated effectively for a number of years. The change is that those permitted development rights are extended with regard to the size of buildings. This is not new, although I well understand the concerns that noble Lords have raised. Our revised approach will now ensure that under the new rights, in the case of larger extensions, any objection from immediate neighbours will be fully taken into account before permission is granted. I will come back to “immediate neighbours”.
There has been a raft of questions and I will do my best to answer as many of them as I can. If I am deficient, noble Lords whose questions I have missed will let me know. First, I was asked how the decision is to be made by the local authority. Unlike permitted development at the moment, where they can just carry on, the process will be that somebody who wishes to build an extension will have to notify the local authority. Not only that, they will have to produce some plans and details of what that extension is going to do. That picks up the point about materials and design as well. Local authorities will know what they have, even if it is in outline. Where neighbours object, the decision will be made by councillors or by delegated responsibility. Local authorities will decide themselves whether this is appropriate for delegated power or whether they would want to hang onto it.
I was asked about ward councillors. I want to dispel any suggestion that local ward councillors will be taking a decision where an objection has been made—that would be way outside the normal procedures that any of us are accustomed to—but councillors will be notified when the council is notified of a development, so that they are aware that they may need to knock on someone’s door and say. “Are you going to object to this? Do you realise that there is such a proposal?”. The noble Lord, Lord Deben, suggested that this should be done by arbitration. As his report has clearly been closely studied by others and that proposal has not been put forward, I come to the inevitable conclusion that the decision has been that this stays within the planning system.
As I said, the person wishing to develop will have to notify the local authority but the objections can come only from an adjoining property. They must come from people who are on either side of the fence or at the bottom of the garden. There is no room within these proposals to take account of anyone else who is adjacent, diagonal, overlooking or whatever. This is confined to people who are adjoining. With that, it is clearly important that local councillors are involved and know what is going on. With regard to those who can object, it is from the adjoining properties, as I have said, but other people may put their comments in. They will not have the same impact but the local authority might need to take them into account.
On amenity and what should be included, amenity is a pretty well understood concept in planning and local authorities have a great deal of experience in applying it. It covers such things as light and privacy. This is going to be a light-touch process but will include a lot of the things that planning would deal with anyway. It might, for example, take into account the overbearing appearance of the property to the neighbours next door. There might be a significant loss of daylight to the garden or to the principal windows and habitable rooms or kitchens of neighbouring properties, or indeed a significant reduction in privacy for neighbours. These are all the sort of areas that would normally come within a planning process for their effect on the amenity of people nearby.
Why only adjoining neighbours? As I suggested, we need to protect the amenity of neighbours immediately affected and we think that the most significant impact of single-storey extensions—and these can only be single storeys—will be on adjoining properties. Neighbours further away are unlikely to suffer a loss of light or privacy and it is not a question, as noble Lords have suggested, of whether or not they can see it or like the look of it or whether, if they have a pair of binoculars, they could see into the garden. It is absolutely the people next door who are likely to be affected.
On the question of whether this impacts upon conservation areas, I say at once that it does not. These are outside conservation areas. I said at previous stages that none of this excludes the ability of local authorities to do Article 4 directions in advance, or indeed emergency Article 4 directions if they are really concerned about the proposal; that is still there. This is confined, particularly in urban areas, to quite small areas.
On the process of how this will be dealt with, the neighbours will be given a period of 21 days. I was asked by the noble Lord, Lord Deben, whether that could be extended to 28 days and by the noble Baroness, Lady Gardner, whether it could be 21 working days. We want to keep these processes as close to the current planning situation as we can, and noble Lords who have dealt with planning in their lives will know that it is a normal practice for 21 days to be given for any objections to be raised.
Another point that has been raised, which is germane because we have been asked so many detailed questions about this, is the consultation. I reassure noble Lords that all the matters raised here are important; it is our intention to discuss this matter very closely with the Local Government Association before we get to secondary legislation. Many of the points raised by noble Lords will be taken into account and ironed out there. I am looking forward to secondary legislation because I am sure we will have another go at this when we get there. The noble Lord, Lord Shipley, who made a number of pertinent points, asked whether local authorities would be required to put up a notice outside properties. Those of us who are familiar with planning know that this is always done. That point was well made; I accept it, and hope that it will be considered.
The length of this provision is three years; within three years the developments can be approved or take place. It is in effect a sunset clause but, as with all sunset clauses, could be extended if that were considered important.
It is important to try to deal with as many questions as I can. If the application is rejected by either the delegated authority or by a planning committee then the property owner making the application will be able to go to planning appeal, or they will be able to put in a full planning application to have all of the issues taken into consideration. As with other applications, any neighbours whose objection was unsuccessful will not be able to appeal.
The extent of these extensions is 50% of the curtilage of the property. The restriction is that no more than 50% of the property’s curtilage can be developed. For example, in the case of a terraced property in city areas, this would usually be broadly equivalent to 50% of the back garden but in larger houses it would clearly not be to that extent.
The noble Lord, Lord Shipley, asked me about the sort of information that will have to be given. I think that I have dealt with that. The householder will have to submit a plan of the development. The description of it will have to include the materials that are going to be used so that they can be taken into account, and the design.
The noble Lord has jumped in ahead of me: no. Planning permission currently has no timescale of how long it should take people to do a development once they start. Indeed, I am sure that many noble Lords have torn their hair out at something that seems to be going on for a very long time indeed. Of course, the district surveyor or building regulation enforcers might begin to get worried about why progress was not being made, but I do not think that we can expect to put details of that in legislation. That also goes for the question raised by my noble friend Lady Gardner about enforcement. There will be the normal enforcement procedures of local authorities, which they are able to implement when they have concerns that something is being or has been built outside what has been approved. The problems with enforcement are much the same with any planning development as with our new, light-touch proposals.
I hope that I have covered most of the points on which I wanted to pick up. The noble Lord, Lord McKenzie, in particular, gave us a very long list of things that he was concerned about. If I have not addressed something that anyone has a burning question about and they want to ask me quickly now, then I am happy to pick it up, but I think I have covered everything that time allows me to. I am grateful to all those who have spoken. I look forward to hearing, as I think that I have, that this has moved a long way, which has helped with this aspect of the Bill.
My Lords, I start by thanking the Minister for dealing extensively with the queries that were raised and all other noble Lords who have spoken in this debate. There are two strands to it. Most noble Lords believe that sufficient progress has been made by the amendment to be able not to stick with the amendment of the noble Lord, Lord True, if that is where they originally were. The noble Lord, Lord Shipley, said that it had gone far enough to be supported. The noble Lord, Lord Deben, said that it was a huge improvement, even if it was not as radical as he would have wanted, based on the Quality of Life report. The noble Lord, Lord Cormack, was thankful for the movement. The noble Earl, Lord Lytton, believed that it had gone some way. The noble Lord, Lord True, himself, believed that there had been real progress. The other strand is how much still needs to be consulted on, and some of the details still need to be fleshed out, notwithstanding what we have heard today. The noble Lord, Lord Phillips of Sudbury, the “legal eagle”, said that there should be minimum room for discretion, effectively, because this generates a lot of angst among people.
The key issue seemed to be about the period. We heard 21 days but the noble Baroness, Lady Gardner, and several other noble Lords, did not believe that was sufficient. On fees, bearing in mind the state of local government finance, the lack of support from central government, given the imposition, is a real issue. I also believe there should be further discussion and movement on the limitation of these arrangements to the immediately adjoining properties.
As I hope I said at the start, we tabled our amendment because we had not seen what the Government were then proposing and wanted something against which to benchmark what did come forward. However, on the basis of what we have heard and this debate, I beg leave to withdraw the amendment.
Motion A1 withdrawn.
Motion A agreed.
Lords Amendment 25: leave out Clause 27
Commons disagreement and reason
The Commons disagree to Lords Amendment No. 25 for the following Reason—
25A: Because the new status of employee shareholder should be made available.
My Lords, I am grateful for the full and wide-ranging debate that has taken place during our consideration of the Growth and Infrastructure Bill. Last week the other place disagreed with the amendment to remove the employee shareholder clause from this Bill. In today’s debate I will explain why the Government support the position of the other place to retain it in the Bill.
I intend to focus my initial remarks on the announcement made by my right honourable friend the Minister for Business and Enterprise who gave an important assurance about jobseeker’s allowance claims. I will also explain to the House why I believe it is important to support greater choice for companies and individuals with the creation of a new employment status.
Last week, my right honourable friend the Minister for Business and Enterprise announced in the other place that jobseeker’s allowance claimants will not be mandated to apply for employee shareholder jobs. This means that individuals receiving jobseeker’s allowance do not need to worry about their benefits being affected if they do not wish to apply for, or accept, an employee shareholder job. This is an important point. The Government will not compel jobseekers to apply for these jobs even if the job fits within their job search specification and we will leave it up to jobseekers themselves to choose whether to apply or not.
During the Third Reading debate on the Bill we discussed the guidance that will be made available for jobcentre staff to help them understand the new employment status. We have now updated the draft guidance for DWP jobcentre advisers. It now states explicitly that a jobseeker cannot be mandated to apply for an employee shareholder job. A copy of the draft guidance was placed in the Libraries of both Houses on 16 April.
We are debating a wholly voluntary new employment status. As I have said throughout the debates, we do not want people to be coerced into accepting these new contracts and it is worth us considering other protections that this clause provides. On Report in the other place the Government amended the clause to give strong protections for existing employees, enabling them to turn down an offer of an employee shareholder contract by their employer. First, we created a new unfair dismissal right that applies from day one of an employee’s contract. This means that if an employee turns down an offer to change their contract to an employee shareholder one and they are dismissed because they said no, this would be considered an unfair dismissal. Secondly, we created a new right not to be subjected to a detriment from day one of an employee’s contract. This means that if an employee turns down an offer to move to an employee shareholder contract and they then suffer a detriment, such as being passed over for promotion or for a pay rise for no good reason, they may be able to make a successful claim at an employment tribunal. These two protections allow employees to turn down an offer of an employee shareholder contract if it does not suit them and they can do this with the knowledge that the law protects their decision.
The clause has further protections. The shares, which must be worth at least £2,000 when given to the employee shareholder, must be fully paid up by the employer. This is an important point because if the company became insolvent and the shares were not fully paid up, the employee shareholder would otherwise be liable to pay any outstanding amount against the value of the share. It is important that we consider the context in which the new employment status fits. Employment law offers a choice of different employment contracts.
I am most grateful to the Minister for giving way at this stage. However, he has rattled through the circumstances in which someone could apply for a job: he says there is no compulsion and that there are options. I want to put a question absolutely clearly and directly. It arises from the guidance, which post-dates where we were last time in this House; in fact, it post-dates where the Commons were a week ago. The guidance refers to the circumstances where the vacancy is an “employee shareholder job vacancy”. Where, therefore, is the option for the jobseeker who does not want to be an employee shareholder? There is none. Is it not disingenuous to suggest that there is an option?
I am sorry; it is very unusual to intervene twice. However, where is the option? The Minister has said that there is no coercion. Of course there is none in the sense of having a whip, but where is the option to get a job if it is solely an “employee shareholder job vacancy”?
I am not sure I entirely understand where the noble Lord is coming from. If a jobseeker is seeking a job there are various options for him or her to look at in terms of roles, and the employee shareholder role will be treated equally alongside any other option. The only difference is that there will be absolutely no detriment to that individual if they apply for an employee shareholder role, and if they decide to turn it down. On the matter of guidance, I clarify that it remains in draft form. If this is an issue concerning the way that the guidance is written up, I am more than happy to listen to the noble Lord if he has any comments to make.
The answer is that if an employer wants to recruit an employee shareholder, he or she will decide how to advertise for that. They may decide not to advertise. They have a range of options which include advertising nationally. They may choose to send the advertisement into a jobcentre locally or to spread it nationally. That remains open just as it is if they want to recruit for any other position.
It remains the case that an employee looking for a position can decide for himself or herself whether to accept an employee shareholder role. It is a separate status compared to other statuses. There is no difference in terms of them deciding themselves whether they want to accept or turn down that particular role.
Employers and individuals are free to agree to the type of contract that is suitable for the job. We are not moving away from this principle; rather, we are enhancing it by offering a further option which will be right for some, but as I have made clear in previous debates, not right for all. There are already three established employment statuses in the labour market, all of which have different rights associated with them. The employee status has wide-ranging rights, including unfair dismissal, statutory redundancy pay, TUPE, maternity leave and pay, and adoption leave and pay, to name a few. The worker status has none of these rights. However, both employees and workers have a right to the national minimum wage, paid annual leave, a right not to be discriminated against, and rest breaks.
There is a further option for people seeking work. They may wish to become self-employed. If someone chooses to be self-employed, they must accept that they have very limited employment rights, such as the right not to be discriminated against. This clause offers both employers and individuals a further option: employee shareholder. This is likely to be a long-term relationship. I would not expect anyone to enter into an employee shareholder contract without carefully considering the implications. This new employment status, with share ownership and favourable tax treatment, will provide small growing companies with a new option to attract high-calibre candidates.
The Minister says that he does not expect employees to enter into such contracts without careful consideration, and he thinks that this will be a long-term commitment. However, the articles of association of most companies place restrictions on the sale of shares. Will the Government require that there be no restriction on the employee’s ability to sell their shares for the highest price they can achieve, as opposed to having to sell the shares back to the employer at whatever price the employer might justify as being fair in those circumstances? Otherwise I do not see how the employee can form a view on the value of the consideration that they are being offered in exchange for giving up valuable employment rights. Will the Minister give us a clear answer on that question? I feel that he did not offer an entirely clear answer to the previous question from my noble friend.
The noble Lord makes a good point. The matter of what types of shares and what shares are offered is very much left to the employee and the employer. That is a negotiation between the employer and the employee. The Government will not prescribe how that will come about because there are different types of shares, as the noble Lord will know only too well from his experience. It will very much depend on the type of company, the wishes of the individual who may be looking at an employee shareholder role, and the employer.
I am most grateful to my noble friend. When he says that the valuation and the convertibility of the shares will be a matter of negotiation between the employer and the employee, it is hard to see what the employee’s negotiating position would be. At the very least, should not the employee be given independent legal advice as to the valuation and the nature of the transaction he is entering into, which, after all, applies under existing employment law for compromise agreements and things of that kind? If it is to be a negotiation, surely the employee has to be informed, and not all employees will be particularly financially literate or employment experts.
The matter of advice is very much applicable to settlement or compromise agreements, as my noble friend has pointed out. This concerns entering into an employment agreement, and therefore we do not see this as being appropriate. On the issue my noble friend has raised concerning share valuation, as he well knows, there are established means through actuaries whereby shares are valued. That is done all the time and it is a straightforward process. Again, that is very much a matter between the employer and the employee.
I think the Minister has confirmed—but perhaps he could avoid any doubt about this—that it would be possible for the employer simply to say, “You can sell these shares only to me and only at the valuation that I judge appropriate, and without any reference to arbitration or a third party”. If that truthfully is the case, this policy is shambolic.
I disagree entirely with the noble Lord because the employee shareholder will decide for himself. If he does not like the terms of the shares being offered, he does not have to enter into this particular agreement. It is wholly voluntary. He may be well advised to get some advice. He may decide himself to get some advice. That is not an issue.
My Lords, could the noble Viscount explain to us how jobseekers, who may have no resources whatever, will be able to get the advice that he has just told the House they would be well advised to get because of the very complex nature of the agreements and shareholding options into which they will be obliged to enter?
Yes, I can answer that. However, the issues may not be that complex. It depends entirely on the agreement between the employer and the employee shareholder who is considering the new job. As the noble Lord well knows, a variety of sources such as lawyers and accountants can give this sort of advice to a prospective employee shareholder.
To clarify what I said to my noble friend Lord Forsyth a minute ago, legal advice is clearly available for settlement agreements and compromise agreements. However, we have made it clear that it is not available at this time for those entering into a new employment contract.
I wonder whether I can help my noble friend. When my companies give shares to our employees, not in return for anything but because they have worked for us for some time and we want them to be involved in the companies, we still find it difficult to explain the terms of those things, even though the terms, whatever they are, are a plus rather than a minus. I wonder whether it is right to suggest that this would not be a difficult thing for people to understand. That worries me considerably. I am very pleased that the Government have moved on the big thing for me, which concerned making it impossible to continue to have jobseeker’s allowance. That for me is a crucial matter. However, I wonder whether my noble friend does not underestimate the difficulty of explaining to somebody even the simplest of share options and share sales.
I very much note my noble friend’s point. He has experience in this field. I say again that some negotiations may become complicated, but the employer and the employee shareholder will go into this with their eyes open. On the other hand, it may be a very straightforward and simple process. Indeed, the employee shareholder who is looking at this new role may decide that he is entirely comfortable with what he has seen, heard and, indeed, read. I clarify again that this is very much a matter between the employer and the employee shareholder.
The Minister has just said that legal advice is available for settlement and compromise agreements but that it will not be available to an employee considering one of these contracts. Will he explain why legal advice would not be available? Will he then answer the question from my noble friend on the Front Bench on how a jobseeker seeking employment on the national minimum wage will be able to cope with the complexity of law and the articles of association and afford to take separate legal advice, which at a minimum would probably cost in the case of most lawyers the equivalent of close to a month’s wages on the national minimum wage?
I can only reiterate that it entirely depends on the role on offer, the type of company and the type of employer as to how the discussions will go. An individual taking on a normal role, if I may put it that way—an employee role or a worker role—may find that sort of contract complicated, in which case they may have obtained their own advice and are still free to do so. This is a wholly different—
I am most grateful to my noble friend for giving way and I shall try not to interrupt him again. However, can he explain to me why employment law as it stands requires employers entering into a compromise agreement to provide legal advice in order to make that agreement stand? They usually provide a reasonable amount of the cost of independent legal advice. If that is appropriate for a compromise agreement where people are surrendering certain of their rights, why should it not be appropriate where people are giving up their employment rights and entering into what may be a complicated and major financial decision, given the proposed levels of tax relief with capital gains relief of up to £50,000? What is the Government’s logic in saying that advice should be paid for by the employer in one case but not in this case?
I know of many employee contracts—not those for an employee shareholder—where serious advice is required. However, the status of being an employee shareholder is wholly new. The individual concerned may well require advice but noble Lords are talking about the circumstances of entering the employment phase and the proposal we are discussing would set a new precedent. As we know, often very difficult discussions take place towards the end of the employment contract. That is where it has become the custom and practice for companies to pay fees. That is the difference. I hope that I may be allowed to move on.
The recruitment of skilled personnel is normally taken very seriously. It takes time and commitment and involves searching for suitable candidates, sifting applications and interviewing. This will be no different with the new employment status. In fact, companies will need to take time to consider whether this type of contract is right for them. The owner of a company offering the status should think about the impact of giving up equity in the company. This is a decision that is not easily reversed, as once you have given away your shares it may not be easy to get them back. We must remember that the owner is giving away a stake in the company. Companies will need to be sure that the person to whom they offer the contract is right for the company. An employee shareholder may be able to influence the decision-making of the company and take a share of the profits. This is not something a company would do without being sure that it was the right move for them.
The new status will not be applicable or suitable for all companies or all individuals but it might be right for some. This new employment status represents more choice for individuals and companies. I have been clear throughout our debates that the status is voluntary. Indeed, it may well be used only by a minority of companies, but what is important is that we allow them to choose what is right for their own personal and commercial circumstances.
I hope that I may be allowed to finish. I urge the House to keep this innovative proposal as part of the Bill. We should not deprive individuals or companies of choice that may lead to more jobs and better company performance. Above all, it is good for growth in the UK. I beg to move.
My Lords, on 20 March, your Lordships’ House voted by a majority of 54 to exclude Clause 27 from the Bill. The reasons of principle and practicality as to why your Lordships’ House so voted remain valid. They were not altered by the vote of the House of Commons last week. Indeed, the debate in the House of Commons, which was limited by a timetable Motion to 45 minutes, barely addressed, let alone answered, the concerns which were expressed on all sides of this House on Report.
I remind your Lordships why your Lordships’ House voted to exclude Clause 27. I want to do so because the noble Viscount’s speech conspicuously avoided, if I may respectfully say so, all the concerns which the House expressed on Report. I commiserate with him because he has been asked to defend the indefensible.
The first point is that Clause 27 frustrates the very purpose of employment rights. We can, and do, disagree around this House and in the other place as to what the content of employment rights should be. That is entirely proper. They are debated and amended from time to time as we see the balance between employer and employee and as we perceive the public interest. However, over the past 50 years all Conservative and Labour Governments have recognised that an employer and an employee cannot be allowed to contract out of those employment rights which Parliament has seen fit to guarantee. That is because it would defeat the very purpose of conferring those employment rights. They are conferred precisely because freedom of contract—a voluntary agreement, as the Minister describes it—does not protect the worker or the job applicant who lacks basic bargaining power. To allow basic employment rights to become a commodity to be traded in the way that Clause 27 proposes would frustrate their very purpose. We would not envisage for a moment allowing a manufacturer of goods to contract out of his, her or its obligation to the consumer simply because the latter chooses, voluntarily, to pay a lower purchase price.
The need for protection in the employment context is most obvious in the case of the person who is seeking employment. The Minister in the House of Commons, Mr Michael Fallon, emphasised last week that a Clause 27 agreement is voluntary. The Minister repeated that statement today but, as he accepts, the employer may under Clause 27 advertise the vacancy on the basis that it will be filled only on Clause 27 terms. In the real world, outside the House of Commons, a person who is offered employment on Clause 27 conditions only is not voluntarily accepting such conditions. In the current economic climate, he or she will have no practical choice. I welcome the fact that the Government have removed one aspect of the unfairness of Clause 27—that is that a person refusing work on Clause 27 terms would have lost jobseeker’s allowance; a quite extraordinary position—but the fact that the Government have removed the most outrageous aspect of this proposal does not mean that what remains is acceptable.
The first objection is that the clause proceeds on a theory of voluntary agreement that frustrates the very purpose of conferring employment rights and is wholly unrealistic. The second objection is the damage that this clause will cause. A number of noble Lords from the government Benches—I repeat, from the government Benches—made this point on Report and in Committee far more powerfully than I could hope to do. The noble Lords, Lord Forsyth of Drumlean and Lord King of Bridgwater, both of whom served as employment Ministers, the noble Baroness, Lady Wheatcroft, the noble Lord, Lord Deben—all of whom I am very pleased to see in their places—and other noble Lords on the government Benches explained, from their extensive business and political experience, just how damaging it would be to industrial harmony to allow employers to buy off basic employment rights, how no sensible employer would consider this to be beneficial and how Clause 27 would do enormous damage to the cause of promoting employee share ownership. I am very sorry indeed that the Government have chosen not only not to listen to this House but not to listen to the wisdom and experience on their own Benches. The Minister must know that there is not just a lack of enthusiasm for this measure on his own Benches, there is a positive hostility to it that makes the Government’s insistence on pursuing this cause and this clause, in the word used by the noble Lord, Lord Deben, in Committee, “mystifying”.
The third objection to Clause 27 is that even the case which was advanced by the Government in the House of Commons last week does not begin to justify the broad scope of the clause. The Government’s case, as expressed last week by Mr Fallon, is that Clause 27 will encourage new and small high-tech companies which will be more willing to employ people with special skills. Even if noble Lords were to accept that assumption—and it begs a large number of questions —it would justify only a specific and narrowly drawn statutory provision tailored to the specific circumstances which are said to justify its enactment. The generality of Clause 27 inevitably means that it will be used and it will inevitably be abused by the Gradgrinds of this world. This concern was expressed on Report by the noble Lord, Lord Forsyth of Drumlean, in his powerful speech against Clause 27.
My fourth and final objection to Clause 27 has already been raised this afternoon and is that the clause contains no provision for independent advice. The Government have refused to accept that statutory rights should be lost only if the employee has received advice from an independent adviser on the legal and financial consequences of the agreement. These consequences are inevitably complex and the suggestion that jobseekers can simply go off to lawyers or accountants and get advice on these matters, as the Minister suggested this afternoon, is quite unrealistic. As the noble Lord, Lord Forsyth, has already mentioned, Parliament has, in Section 288 of the Trade Union and Labour Relations (Amendment) Act 1992, required independent advice in the context of compromise agreements to settle employment disputes in individual cases in employment tribunals.
The Minister simply has no answer as to why independent advice is a statutory requirement before a compromise agreement is reached in a tribunal but no independent advice will be required before the employee signs away these employment rights altogether. This is a major decision for any employee, especially when there is, of course, no guarantee that the shares will increase, or even hold, their value. Indeed, if the company is making employees redundant, which is the context of this clause, it is highly likely that the shares will be worth less than £2,000 or nothing at all when the individual is made redundant. This concern was expressed by the noble Lord, Lord Myners, earlier in this debate.
For all these reasons, Clause 27 frustrates the purpose of employment rights and is damaging to industry. The Government’s own case does not explain why we need so broad a provision and there is no requirement for independent legal or financial advice. I invite your Lordships’ House to stand by its principled objection to Clause 27. The Government and the House of Commons have simply failed to address the concerns about this clause on all sides of the House. They should be asked to think again about this important matter. I beg to move.
My Lords, I hesitate to follow the noble Lord, Lord Pannick, who has set out very clearly and persuasively the points that we discussed before and which are causing concern to the House. I share his concern about the Commons debate, which, as he indicated, was guillotined. All the serious points that were raised in this House have not really been addressed by my noble friend. I exonerate him from any blame in that respect but they are important points. Many of them may be slightly peripheral to the substance that we are discussing here, which is about employment rights, but, for example, I remain concerned as to whether the estimate made that this could result in more than £1 billion disappearing in tax-avoidance schemes is correct. It is not clear to me whether the Treasury has found ways of ring-fencing this scheme, which provides for up to £50,000 of capital gains tax to be relieved, and whether this could not be used as a great tax-avoidance scheme.
I got a call this afternoon from a Mr Mark Florman of the British Venture Capital Association, who wanted me to know that all his members were absolutely behind this scheme and very much supported it. I said to him, “Why are they concerned about a scheme that enables people to give up, in effect, only their rights against unfair dismissal if they have been employed for more than two years and can have £2,000 worth of shares, tax-free? What conceivable interest can that be to the membership of the British Venture Capital Association?”. He said that it was keen to encourage share ownership and for employees to be involved in share ownership. I am sure that people on all sides of this House are keen on that concept. That is why I would strongly support any schemes that encouraged share ownership. However, this proposal mixes up two things—one is employment rights and the other is share ownership. It is not at all clear to me how it would be beneficial to either employers or employees to embark on this scheme.
Being a reasonable, moderate sort of fellow, I looked at where we had got to in this debate, and I looked at the vote in the House of Commons, where the majority was actually somewhat less than the Government’s majority. I looked at the short-term nature of this matter and thought, “Is it possible to find a way of making this look not more sensible but more practical?”. It seemed to me that the Government could have done two things. One was, as the noble Lord, Lord Pannick, pointed out, to ensure that people who were embarking on an employee shareholder contract were given independent legal advice that the shares were worth what the employer was telling them, on what the arrangements in respect of the valuation of the shares would be at the end of the period, and on what employment rights they were giving up and the consequences of that. That seems to be an entirely reasonable suggestion. Regarding the idea that people on low incomes can go and get legal advice on these matters or that issuing and putting values on shares in private companies is straightforward, I have to say to my noble friend that the entire investment banking industry is based on the premise that the valuation of shares is not straightforward.
There is also the idea that by giving people shares in return for employment rights the employee is in a negotiating position. However, they want a job and are not in a position to say no. Even if the provision was that the employer may provide legal advice at the request of the employee, that would not be enough because the thought would be, “It’s going to cost the employer £1,000 and if I say I don’t need the advice, I might have a better chance of getting the job”. The fundamental point was made by the noble Lord, Lord Pannick: the reason that we have employment rights—while I think they go too far in some respects—is that they even up the position between the employer and the employee. I am not particularly persuaded on this.
However, I thank the Government for at least taking up one point, which is to alter the guidance in respect of the jobseeker’s allowance. I was grateful to my noble friend for the letter that he sent us, but I have to say that amending the guidance to say that people who refuse to take up this voluntary agreement would not be found to be intentionally refusing employment is not a concession; that was just a mistake by the Government that they have now corrected. It is not right to present this as a concession. The concession that is needed is to protect the position of the employee against the unscrupulous employer, and independent advice is part of that.
My other thought was that the Government say that this proposal will be of interest to small firms. Some people suggested to me that there could be an exemption stating that the measure would apply only to small firms. However, on reflection, I do not think that that is the issue at all. This is a general provision for employees, and whether it is a big firm or a small one is not the key issue here.
I am also worried that my noble friend said in his opening remarks that it will not be easy for employers to get the shares back, but in his own guidance he makes it clear that these schemes can include a provision that requires the employees to give the shares back. What is the deal here? It is: “You give up your right to be protected against unfair dismissal. We will give you some shares that we tell you are worth a certain value, but you have no idea whether or not we are right, and when you get those shares you have to pay tax and national insurance on them if their value is more than £2,000. Then at the end, I, as your employer, if I decide to sack you, can take them back at a valuation that may be less”. That does not seem to be a scheme that will set the nation alight with people wishing to participate in it.
I have to say to my noble friend that this thing is not thought through. Not only that, but to those of us who have tried to be constructive—I was prepared to go along with this today if the Government showed some sensitivity to the concerns that have been so elegantly expressed by the noble Lord, Lord Pannick, and others—the Government seem determined just to railroad this through and not deal with the arguments. I, as a Conservative, perhaps a Thatcherite Conservative, am not identified particularly with employment rights, but I am proud that it was a Conservative Government that first introduced them because we recognise that there has to be a fair balance in the labour market.
I therefore say to my noble friend, can he not think again and at least offer us a concession in respect of the right to have independent legal advice paid for by the employer whose initiative this is, so that the employee is in a position to know exactly what they are being asked to sign up to?
My Lords, I cannot match the advocacy of either the noble Lord, Lord Forsyth, or the noble Lord, Lord Pannick, but I feel that there is a saddening negativity towards these proposals. I am glad that everyone agrees.
A lot of the issues raised in this House have been addressed—in particular, the concern, which I completely supported, that it would be a nonsense if people were forced to give up the ability to claim their jobseeker’s allowances if they turned down the offer of an employee shareholder job. That is the most important issue of the lot. But there are other important issues where the proposals have been improved. I see the situation in the context of a half-way house between self-employment and standard, typical, large-corporation employment.
An interesting survey has been published by the RSA which finds that more than 30% of people in their 20s now want to be entrepreneurs, self-employed individuals who will have no protection rights whatever. In terms of giving up rights, there are three important areas, including unfair dismissal rights—which are not given up as regards improper grounds such as discrimination—rights to statutory redundancy pay, and certain rights to request flexible working hours and time to train. People retain a whole lot of other employment rights and the issue is not, by a long chalk, about giving up all your employment rights.
Of the concessions that have come from the Commons, the most important is that the Secretary of State will have power to regulate the buy back of shares. That does not amount to legal advice, which would be nice, but it does afford a protection there. I suggest that, in practice, what will happen if any businesses embrace these schemes is that there will be the usual sort of standard formula. If there is a buy back by the company, then there will be a prescribed price earnings multiple, or such like, on which to value them. That will unfold as time passes.
A new right has also been introduced for employees not to suffer detriment if they refuse to agree to an employee shareholder contract. This means that if an employee has been overlooked for promotion or disadvantaged in any other way because of that refusal, they can present a claim to an employment tribunal. If this happens to a self-employed individual they have absolutely no protection. A new unfair dismissal right was created to ensure that if an employee was sacked because they had refused to accept an employee shareholder contract, this would be regarded as automatically unfair and they could present a claim for unfair dismissal to an employment tribunal.
Other practical issues came up in this House concerning whether shares would be fully paid. It is quite important that shares awarded to employee shareholders now must be fully paid, so that a situation could not arise where, if the shares were not fully paid, an employee shareholder would be liable for a balance relating to the value of the shares.
Employee shareholders cannot be asked to provide any other form of consideration apart from agreeing to become an employee shareholder for the shares issued to them under the scheme. The upper limit has been effectively increased, although I repeat the point I made twice before, which is that I think the limit of only £2,000 at which the shares granted become a taxable benefit is too low. To return to my reference to the RSA survey, this scheme typically is for people who are high risk-takers working for smaller companies and who do not feel the need for the protection.
I am most grateful to my noble friend. I agree with his point about the tax allowance. If someone is awarded shares in the way that he has described and the value of the shares is, say, £20,000, will they then be liable to pay the tax and national insurance on that? Where will they find the money from?
That is the very point that I made when we last debated the issue in this House. That is why I think the £2,000 limit is too low. The response to that is that it obviously depends on their tax rate. If people are accepting £10,000 worth of shares they may be able to find the tax which might be of the order of £2,000 to £2,500 on that award. It entirely depends. I also make the point that in more traditional entrepreneurial circumstances, which was my own experience, I had to put up the money myself and I had to remortgage my house to raise the money to start a business. I would like to see the limit raised, and I think for the scheme to work it will need to be raised, but we should not overstate the tax burden.
First of all, it depends on what is on offer. It is broadly for the company to decide the amount of employee shares that it is going to offer under this scheme. To repeat the point, the employment rights which are being surrendered, particularly as viewed by ambitious entrepreneurial types, are not perceived as of particular value. The grant of free shares is of value and, to the extent there is a tax bill, I wish it were lower, but the tax bill is not entirely outrageous. I suspect that the tax limit will be raised in due course.
It is easy to be negative and to pick holes in what has not yet been fully addressed. I would like to see some of the improvements that noble Lords have suggested. But I think to take a rather superior view of, “Oh, no, we really don’t want this”, is wrong. I think it should be given a try and the issues that need sorting out will be sorted out. There are substantial numbers of ambitious young people for whom the objective is not to work for the Civil Service or to work for Shell or Unilever and to have a secure job with a generous pension, but to have equity in the businesses they work for, to make that business work and to make their equity worth a considerable amount of money.
My Lords, unfortunately, I was unable to be present at Report stage, but I was struck when I read in Hansard that the House of Lords was doing its job like it perhaps does not do enough in an admirable and exemplary non-partisan way, looking at the practicalities of this proposal, not looking for negativity but simply giving it some forensic examination, which has clearly not been done by many in the Government and many who supported it in the other place.
This proposal about shares for rights is implausible. It is difficult to see too many people showing any significant interest in it. If we want to abolish red tape, well, just look at this proposal. It is full of red tape. I believe it is also objectionable—the idea that somehow you can sell your rights or trade in your rights. It is very clear which rights you will lose. It is a lot less clear, for all the reasons that have been stated, what employees will get and how those shares will be valued.
The proposal is also perverse. In the Report stage debate the noble Baroness, Lady Wheatcroft, set out one example. If matters do come to redundancy, will the employer decide to get rid of those with shares who have given up their redundancy pay or those to whom the employer will have to pay redundancy pay? It could well be the employee shareholder who is first out of the door.
The advice that the House of Lords gave to the Government has been treated with contempt. It has just been brushed aside. That includes the advice given by distinguished former Conservative Employment Ministers who are loyal on nearly all occasions, but not on this one. That is not being negative. That is not looking for negativity. It was good advice that was given, it is good advice that is being given now and I hope that this time, if the vote goes the right way from the point of view of those of us who are critics, it will be listened to with a little more concern and consideration than it got last time.
The noble Lords, Lord Pannick and Lord Forsyth, have ably pointed out the fallacies and flaws in the proposal and I will not repeat those. However, I do not think that many employers will give it much of a second look unless there is some tax advantage which will no doubt come to light in due course. Some unscrupulous employers will do so and that is where the individual worker would need some source of independent advice about what they agree to and what they do not.
I find the position of the Business Secretary in this matter intriguing. He fought a battle against the Beecroft proposals, but let us remember—I am no fan of the Beecroft proposals—that he did not propose taking away rights to compensation for redundancy. He was talking about a single payment. It seems to me very strange and disappointing that the Liberal Democrats and the Business Secretary have let this clause slither through the processes of government in the interests no doubt of a deal with the Chancellor of the Exchequer. I hope for the Liberal Democrats’ sake that it is a good deal which compensates for their disgraceful agreement on this matter. I hope they will think again in the time that we have available and put this clause where it really belongs, which I believe is in the nearest recycling bin.
My Lords, noble Lords may be somewhat surprised that I speak on this issue, but it so happens that I have spent a great deal of the past few months looking into employee shareholding and employee ownership and have had long discussions with Charlie Mayfield, who, as noble Lords know, is chairman of the John Lewis Partnership. He was consulted about this proposal and simply regarded it as laughable.
What kind of firms did the Government really have in mind when they invented this farrago—it seems to me—of nonsense? I believe that they had in mind the smallish high-tech firms that set up outside Cambridge, Oxford, Bristol and so on. They thought that all the people employed by this kind of firm were going to be high-tech experts and graduates of their local universities and that the company would be inventive and innovative and, when it got bigger, would probably sell itself off, having made a profit. I do not think, when this was invented, that the Government had in mind that large companies would really have any interest. In fact, I remember that on Report the Minister was reduced to saying, “Well, the good thing about this is that not very many people will take it up”. That seemed to be an extraordinary argument in favour of it. Does the Minister really think that this will be an option open universally to businesses, including retail and manufacturing ones, or is he still thinking, as I am sure the Government were at first, of these very small businesses where everyone starts off more or less equal—equally well educated, intelligent and able to get legal advice—and is anyway probably in it for the interest of the thing and its short-term life? Can the Minister answer that question?
My Lords, the noble Lord, Lord Pannick, very kindly reminded the House of my words at an earlier stage, in which I used the expression “mystification”. My concern is that I start from rather a different position. I think that a kind of package could be put together that would represent that midway point between someone who was self-employed and someone who was fully employed, particularly in dealing with the kind of company that the noble Baroness, Lady Warnock, has just pointed to; indeed, I thought that was the intention. I am dismayed because I do not want to remove the possibility of a sensible experiment that would enable small firms, in return for shares, to recognise that, to use a phrase, “We are all in it together”. That seems perfectly respectable.
I could not go along with what was being proposed, as a matter of principle, until the change that has now taken place. I thought it unacceptable that someone should lose their jobseeker’s allowance because they had not entered into what ought, right from the beginning, to be a different kind of arrangement, which would have to be voluntary. I do not agree with the noble Lord, Lord Pannick, that, because the job would be advertised in this way, somehow or other it was not voluntary. There are lots of jobs that people decide they are not going to take because of the terms under which they are presented. I do not find that objectionable.
What I find so difficult with the Government’s proposition is that it seems that it will not work. Frankly, it does not matter much what we decide on this because I do not think anyone is going to take it up and I do not think it is going to happen. That makes me sad—not for the reasons of the noble Lord, Lord Monks, but because I actually think that there is a place for a system that would enable a partial involvement in the beginning of a small company, which would of course mean that you took some cognisance of the fact that it was a pretty rocky position and in return you got some sort of special advance. However, at every turn, we find that it does not quite work like that. All along the line, the sort of things that we might have liked do not seem to work out—not least, as my noble friend Lord Flight described, when it comes to the problem of how you pay for things and how you organise that. You begin to realise that this does not have the enlivening, enlightening and opening effect that the creators of this idea obviously thought it would have. I am not driven to the extremes of feeling that this is ghastly and awful thing, because I just do not think it is going to be taken up.
I am very saddened by the fact that this is not the package that I think the Government intended to produce, which puts me in a very difficult position. If I vote in favour of the amendment, then we do not have anything at all. If I vote in favour of the Government, we have something that I do not think will be taken up. I find myself in an awful position, which is rather close to being a Liberal Democrat. I have spent my whole life avoiding that position so it is an extremely difficult one for me to take, and I have not yet decided precisely how I am going to emerge from this. I say to my noble friend, first, that he has worked valiantly with the material that he has—talking about bricks and straw would demean the triumph that he has established. We have the removal of the thing that made this absolutely unacceptable and some improvements on the margins that my noble friend Lord Flight has put forward.
I make a last-minute plea to the Minister. As long as you get rid of the extremists on both sides—those who would have nothing and those who do not really like employment rights at all, who I think cancel each other out fairly satisfactorily—a position could be created here which would be about share ownership in the circumstances of a joint contribution to the sort of risky endeavour that every new company is and every new high-tech company certainly is. That is the position that I think the Government were seeking to place, but I do not think that they have done it. I do not want to say to the Government that we do not want any of it, but I would have hoped that the Government could have gone a lot further in listening to the advice of people who did not wish them ill but wanted to find a better way through this. Although they have removed a thing that made it, in my view, impossible to support, I am not sure we have gone far enough along the lines that we ought to have in order to make this—
I apologise for interrupting and thank the noble Lord for giving way. However, does not everything he has just said, which I have listened to with great care, indicate that this is one of those situations where legal or financial advice from somebody competent is critical?
The noble and learned Lord, Lord Woolf, puts me in the most difficult of positions. I have spent my whole life congratulating myself on being the only politician from Cambridge of my time who was not a lawyer, and therefore complimenting lawyers, or suggesting the need for legal advice, goes against the grain in a big way—but I have to say that he is right. However, that is not the only thing. The issue is how we make this a creative contribution to the development of small businesses rather than something that has become an argument not about that at all but about giving up employment rights, the need for legal advice and all those things. We did not start from the basis that we ought to have, which is what puts me into this huge position. I apologise therefore for not being enormously supportive. I still have to listen very carefully to decide quite how unsupportive I am going to be, but I say to my noble friend that I wish we could have turned this good idea into a good idea instead of turning this good idea into what seems to me to be largely not an idea at all.
My Lords, there are already in existence what I suppose you could call partnership schemes, where people can of course have shares and a partnership with a company without the necessity for the abandonment of employment rights. As this legislation stands at the moment, one cannot help feeling that this is a way in which the Government want to get rid of employment rights without appearing to do so by introducing a scheme under which the employee can be persuaded to voluntarily give up an employment right where they normally would not consider doing so because that would not be required.
I do not think that we can judge this on the basis that “We ought to have a scheme where people do participate”. Schemes like that are available. What is difficult about this is that the basis seems to be the abandonment of employment rights before the employee can get involved in any sort of share or partnership scheme. I think that that is what we object to very strongly; I, at least, have done so from the very beginning. It has always seemed to me that the Government themselves are not keen on employment rights. This is a way of getting rid of those rights without appearing to do so, simply by offering an employee something that really does not compensate for the loss of the very important employment rights that we have been discussing today. It is that sort of basis which is why I oppose this clause and why I fully support what the noble Lord, Lord Pannick, has said with great clarity. This is the situation that I take now, and I hope that the Government will be disposed to accept what we have said on this side of the House—indeed, on every side of the House—which is: do not proceed with this scheme. Not only will it not work, but it is not right and it does no good at all to employment and employment rights.
My Lords, I want to start by thanking the Government for the concession on jobseeker’s allowance candidates and the fact that they will be not penalised, but I have to also agree with other colleagues on both sides of the House who have admitted that this is really the rectification of a mistake rather than a major concession. However, it is essential. It is critical because before it, any of the guidance to the DWP and Jobcentre Plus offices would have been unusable and unworkable for this system, and would have put candidates for such jobs at complete peril.
I am also pleased—I will not go into detail about this, but want to refer to it—that throughout the passage of this Bill we have consistently talked about the necessity of independent legal advice. That is not just for those who are currently unemployed and are being sent to interviews by Jobcentre Plus; it actually applies to anyone. I think of a young 23 year-old that I know who has just joined a high-tech company in Cambridge where I think hardly any of the employees do not have at least one degree and most have at least two. However, if you asked that 23 year-old about the way shares work, he would not understand them at all and would clearly need advice as well. Helpfully, the firm that he has joined has made sure that any new employee who gets access to the share scheme gets that advice, so there are some good examples around.
However, if this scheme does not offer that advice where there is an element of two tiers of employment, that means that such advice must be made available. Frankly, I agree with the noble Lord, Lord Pannick, and others who say that it is on a par with the formal legal advice required for compromise agreements.
Following the debate in the Commons last week, I shall focus on the Minister’s referral yet again to this being suitable for small high-tech companies, particularly in university areas and high-tech areas. Confession time: in the 1980s I was a venture capitalist, spinning ideas mainly out of universities, although not only Cambridge University, and that is one of the reasons why I have quite a lot of experience and knowledge of what is happening in those companies now.
It is quite clear that good, small high-tech companies already use employment share schemes, or share schemes for all their employees who come in right at the start. The reason why they do this is that they know it is going to be a very hard road to make the product successful, particularly if it has not even been developed yet. They know that as time goes on further rounds of money will be coming into the company, and that they will be diluted not just once or twice but to a very minimal amount. Therefore, £2,000-worth of shares on day one, which for argument’s sake might represent 10% of a brand new company, might actually end up being a tiny percentage once you have had three, four, or five rounds of venture capital and hedge fund money going in. As a result, an employee will have to wait a very long time before they see any benefit.
Again, having to pay for those shares up front is not just an issue for those who come from unemployment; it is an issue for those coming in at a very low starting salary who, in addition, have to give up their employment rights and are being told, quite frankly—in Cambridge, which I know quite well, everyone freely admits this—that it is extremely unlikely that you will see any return on any investment in the first 10 years of a high-tech company. If you do, then it is a real star and is to be applauded. However, the vast majority, 95% of firms, do not do that, and 90-plus% of the firms do not actually provide a return to shareholders because they are often sold at the point at which the shares are virtually worthless. So please can we stop deluding ourselves that small high-tech companies are perfectly suited to this? The good ones do it already, but why on earth would they then want to give up employment rights in return for an extra part of this very risky journey? It just does not add up.
I was slightly concerned when the Minister referred to self-employment for these sorts of firms. I understood from the chart that we have received with the Minister’s letter, for which I thank him, that they are outside employment law, and I think that the House would accept that. The references being made implied that self-employment might be an option for those working for the firm, and I think that would definitely be against HMRC guidance; if somebody is working principally for a firm then they should not be self-employed. I am concerned that we are perhaps beginning to develop a dialogue of a third tier of employment, and I hope that the Minister will be able to make it absolutely clear that self-employment is only for those who actually have a range of clients and customers and do not work for just one firm.
The noble Lord, Lord Deben, talked about how this might be a point for experimentation, but I think the experiment is already happening and has been happening through the examples that I have been giving, without the need to give up employment rights. In summary, I believe that this legislation is unloved, unnecessary, unwanted and, frankly, likely to be unused. I am concerned that this is not the best use of Parliament’s time. I am in the same position as the noble Lord, Lord Deben; I do not like voting against my own Government, but I just feel that there are too many flaws in this. It is not a hopeful scheme for the future; they are there working at the moment. Please, let us not compromise employment rights in return for shares that are very unlikely, for the vast majority of employees, to be worth anything at all.
Before the noble Baroness sits down, I wonder if she could help us with the question that the noble Lord, Lord Monks asked: what exactly is the nature of the deal that has meant that the Liberals have taken a position that is well beyond Beecroft and which they were previously opposed to?
My Lords, when I first heard about this scheme, my initial reaction was to give the Government the benefit of the doubt because it encourages share ownership and enterprise—all good intentions. However, I have listened to the arguments of the noble Lords, Lord Pannick and Lord Forsyth of Drumlean, and to the noble Lord, Lord Deben, who has great relations with his coalition partners, summing it up by saying, “It won’t work”. The noble Baroness, Lady Brinton, has said the same.
I cannot understand this. I have started businesses and run businesses at different levels and I have given shares to my employees, so all this about £2,000-worth of shares—even the figure itself is baffling. Who on earth is going to go through all this for something as incentivising as £2,000-worth of a share incentive, although I know that that is a minimum figure, and then to have to get legal advice? Do people understand the practicalities of offering legal advice if every time someone applies for a job they have to get legal advice to go for the share scheme? Then the question was asked: what if these jobs are offered and the Government say that they are voluntary only? If a job is offered as an employee share job only, though, that is not voluntary. As an employee you either take that job on those terms or you do not. I think that the Government have the best of intentions, and they say that there will be no compulsion, but I cannot see this being taken up.
What research did the Government do before they came up with this scheme? We have heard from the noble Lord, Lord Forsyth, that Mark Florman says his members think that this is a great scheme. Did the Government check with Mark Florman before they proposed this scheme? Now the noble Baroness, Lady Warnock, tells us that Charlie Mayfield, who I respect greatly as one of the most successful chief executives in this country, running the John Lewis Partnership, says that this is laughable. That is the reaction of serious business to this.
Have the Government thought through the practicalities of valuing private companies’ shares? Have they thought about the liquidity of shares and how difficult it is to sell them? In a private company you have no option. I have been a director of an AIM company. In AIM companies we have very little liquidity of shares and it is difficult to sell them—let alone for a FTSE 350, FTSE 250 or FTSE 100 company. The Government have not thought through the liquidity aspect.
What about the many wonderful share option schemes that are already in existence, which we all have used and are using today? I would not dream of giving share options to any of my employees and asking them to give up any of their employment rights. That is wrong. Asking them to give up rights is not a good way of giving an incentive to an employee. You ask them to take it on because they believe in you, in your business and in the future and that is why they want those shares, and they will benefit from them if they contribute to the success of that company—not by giving up some rights, which is fundamentally wrong in principle.
The Minister said that this is good for growth. The noble Lord, Lord Pannick, referred to the real world. I thought that there was a ban on ivory in this country. Whoever came up with this idea is living in a giant ivory tower, and has never run a business or had any interaction with a business in the real world. Can the Minister reveal the genius in Government who has come up with this amazing dog’s breakfast of a scheme?
My Lords, I think I am not the only Member on this side of the House who feels some embarrassment at finding ourselves in this situation. As has been said, particularly by the noble Lords, Lord Pannick and Lord Monks, this House passed a pretty categorical vote to suggest the omission of Clause 27. It included, among others, a previous Chancellor of the Exchequer—his name has not been mentioned here but he voted against it—and a former Cabinet Secretary. It was not the usual suspects causing trouble in the back reaches of the parliamentary process.
I thought that there was not much new to be said but I credit the noble Lord, Lord Bilimoria, for bringing a few additional points into this debate that I think are very relevant. I join in the recognition of what has been described, rightly, as a correction of a previous mistake; none the less, the Government have corrected the position over the jobseeker’s allowance. However, some of us were waiting to see the Government’s serious response to the very major criticisms that were made a month ago on Report. This House’s duty of revising, amending and inviting the other place to think again was carried out, and the Government were given time to consider how best to respond.
My good friend Mr Michael Fallon, who had the responsibility of introducing this determination to disagree with the Lords in their amendment, said that it really was entrepreneurs on one side and employment lawyers on the other—not just the noble Lord, Lord Bilimoria, but a few others of us have had some small involvement in industry, employment and entrepreneurial activity over the years. I was interested that the noble Lord, Lord Forsyth, referred to the director of the British Venture Capital Association. I was the director of a leading venture capital investment trust for a number of years and I do not think that a single person I knew in that industry would support it or think that it might be a good idea.
I understand entirely why the noble Lord, Lord Flight, made the comments that he did because they bore out and illustrated the point made by the noble Baroness, Lady Warnock: who is this really intended for? The noble Lord, Lord Flight, will recognise that he has a background in and vast experience of a world where people do not think first when they go into employment, “What are my rights?”. They are thinking, “What are the opportunities for me here to really earn a substantial reward?”—as we know, a number of them earn very substantial rewards indeed. I have to say to him that it is quite difficult to stand up, in the ping of a ping-pong, when we are meant to have finished our revision and amendments, and say there are a number of things that now need to be sorted out. That is not acceptable.
I disagree with one point made by the noble Lord, Lord Pannick, that this will do great damage to industrial relations. I do not think it will at all, on the grounds that the noble Lord, Lord Deben, mentioned. I do not think that a single major company will touch it and it seems absolutely inconceivable that you could try to introduce this status into any major company. If some of your employees are entitled to redundancy pay and some are not, and then you get a downturn in trade and you are determining who should be kept, and if one of those people who does not get redundancy pay then gets dismissed and is told that he does not have a claim for unfair dismissal—as I understand it; like my noble friend, I am not a lawyer—he would immediately have a claim under discrimination. The idea that you ease the employer’s burden and prevent it being drawn into the courts is of course not so.
I certainly support the Government’s ambition to see what we can do to reduce unnecessary and undue burdens on employers, which certainly on occasions prevent the growth of employment. There is no higher objective at the present time, in our very difficult economic situation in the world when jobs everywhere are in very short supply, than doing everything we possibly can to encourage employment. However, that does not mean that we must lose our good sense and go for a scheme that someone has dreamt up if we see that at the end of the day problems will arise.
I had hoped that we would see some new approach to the issue. If the Government are absolutely committed to this idea and trying out this new approach to employment and the creation of jobs, it seems without question that people will be asked to address questions that would test quite sophisticated advisers in this field—the noble Baroness, Lady Brinton, was absolutely right about small start-up companies full of incredibly clever young men and women who have particular technical or other skills but no financial experience. Has my noble friend got nothing to say about whether independent advice, which would be paid for by the employer, should be available to people who find themselves in that situation? If the Government are not prepared to move in that direction, I will find it impossible to support their position.
My Lords, my noble friend Lord King mentioned a degree of embarrassment at finding himself in this situation, which I certainly share. At least those of us who are opposed to this legislation are not alone. The Financial Times, that great bastion of employee rights, ran a leader the day after the last debate in this House in which it said that this legislation contained,
“little to like and a lot to fear”,
and it advised strongly against progressing with it, saying that if this clause went ahead,
“employee share ownership may begin to be perceived as a shortcut to strip workers of their rights”.
That is not what any of us in this House want to see. We know that employee share ownership is a good thing. We want to support the Government in everything they can do to spread it, but this clause is not the way. The number of ways in which this clause could backfire has been enumerated this afternoon. Not much attention has been paid to the potential tax avoidance involved. It has been mentioned, but the Office for Budget Responsibility itself put a label of around £1 billion on the costs that might be in there. Is that really what the Government want to see happen? How is that compatible with the current agenda of trying to cut back, quite rightly, on tax avoidance?
It is the way in which this clause could detrimentally affect the idea of share ownership that causes me the biggest problem. It might not be big companies that will use it, and it is a very strange defence of a piece of legislation to say that hardly anybody is going to use it. I have heard that rather often and it seems an odd way to go about government business. There will be unscrupulous companies below the FTSE 250 that see this as a way of getting the labour force that they want on the least good terms. That is not going to encourage good employee relations. We want to do what my noble friend Lord Deben referred to and encourage the feeling that we are all in this together. If we are to go for growth, getting that sort of motivation will be important. Depriving people of basic rights is not the way to do that.
There is a potential exception for start-ups, where everybody starts off in the same boat and you do not risk this idea of a two-tier scheme of employees. Small companies probably need a bit more flexibility. They already have two years in which they do not need to worry about tribunals or redundancy, but they might need a little longer than that. In that case, perhaps we might ask my noble friend the Minister once more to see whether he can persuade the other place and the Government that this clause should be very narrowly restricted in its implications and application. As a clause that creates something open to any business it is potentially very dangerous.
We have also heard about the problems of valuing the shares. In his valiant attempt to defend this proposal, my noble friend Lord Flight said that we might well reach a stage where the Government have to stipulate the price-earnings ratio on which these shares would be sold. This is not the role that I wish to see my Government undertake. It is fraught with problems. This entire clause needs another rethink, even at this late stage.
My Lords, the noble Viscount has been a Minister for a short time only, but I think I speak for the whole House in recommending that he be promoted to an earldom for services to masochism. We have now debated this proposal for twice as long as the House of Commons saw fit to devote to it last week. In the hours of debate in this House, there has been one Member only, besides the Minister, who has wholeheartedly supported this proposal, and we pay great tribute to him: the noble Lord, Lord Flight. Even he sounded a note of equivocation today, saying that he hoped that the many problems that there were still with the scheme could be “ironed out” while it was being implemented. This is not good advice to legislators on how we should conduct our business.
However, I am grateful to, or perhaps sorry for, the noble Lord, Lord Flight—because it weakened his case—that he did not repeat the argument that he used last time, which was that we did not need worry about the £1 billion of potentially lost tax revenue, to which the noble Baroness referred. He said:
“The Treasury will therefore not lose tax revenue as a result of the tax arrangements; it will merely not get as much as it might otherwise get”.—[Official Report, 20/3/13; col. 622.]
I am sure that is hugely reassuring to HMRC and to those of us who are loyal taxpayers and who do not need to worry about the fact that there is no money to pay for anything, because it is simply revenue that the Treasury might otherwise not have got.
When we debated this proposal on Report, the noble Lord, Lord Forsyth, said:
“I am surprised that this clause has survived so long. The scheme is ill thought through, confused and muddled”.—[Official Report, 20/3/13; col. 597.]
If the House of Lords exists for any purpose, it is surely to see that legislative schemes that are ill thought through, confused and muddled are improved and preferably removed. We have done neither in respect of this proposal so far. There is the issue with which we all grapple when legislation returns from the House of Commons as to what our position is in respect of it.
I need to make clear, particularly to noble Lords who have not been following the labyrinthine course of this legislation over recent months, that this proposal was not in any party’s manifesto. It was not in the Tory or Lib Dem manifestos. It was not in the coalition agreement. It was not in any report on wider share ownership or employment rights in any recent period. The Nutall report, which was exhaustive on the extension of employment rights and was published six months before this proposal saw the light of day, did not even so much as discuss it, so frivolous would it have been regarded by the eminent advisers to the Nutall review.
Where does this report come from? We all know: it is on the rebound from the Beecroft proposal to do away with certain employment rights in respect of unfair dismissal and instead to substitute a single payment that would have resulted from it. The Business Secretary was not prepared to go along with that. Then, as we have heard from various parts of the House, some kind of deal was apparently done between the Chancellor and the Business Secretary to resurrect a version of the Beecroft proposal in return for shares.
There should be an independent, judge-led inquiry into the terms of the deal between the Chancellor and the Business Secretary. The House needs to know and evidence should be taken in public as to precisely what was said and why our good friends on the Lib Dem Benches are so loyally supporting a proposal that appears to stand against everything that all of them came into politics to achieve. I look at them from here. I do not think that any of them came into politics to remove basic, fundamental employment rights in return for a mess of potage, which is what this proposal before the House is. When we last debated this, to my great surprise the Lib Dems almost entirely went into the Lobby with Government, apart from the noble Baroness who spoke earlier and who came into the Lobby with us. I hope that this time they may have the courage of their convictions and come into the Lobby with us.
The Minister for Employment in the House of Commons used three arguments to support this plan that have all disintegrated in the course of the debate this afternoon. First, he said that the new employment status would be “absolutely voluntary”. There is no “absolute voluntarism” when the power relationship is so unequal and there is no right to independent advice either on the nature of the contract on the table or on the rights that are being forgone. I hear overwhelming support for the idea that there should be independent, legal and financial advice available to anybody who might be faced with signing a contract of this kind, before they are obliged to enter into it. I hope that the noble Viscount will take this support back to his colleagues in the Cabinet. In all parts of the House, there has been no movement on that issue in the course of our deliberations.
When we last debated this, the noble Lord, Lord King, said:
“The power is with the employer at a time when many young people are finding it hard to get jobs. In no way is it a fair balance to say, ‘You have an impartial opportunity to decide’. I just wonder what will happen to the poor job applicant who, when he is told what the terms are, says, ‘I will now go and consult my adviser’ … I know exactly what the employer will say—‘Well, do you want the job or don’t you?’”—[Official Report, 20/3/13; col. 611.]
That is precisely the situation.
Secondly, we have been told that this is mainly an incentive for small start-up companies, particularly in the high-tech sector. In the House of Commons last week, Michael Fallon said that it would apply in particular to younger companies at the beginning of their lives that,
“will be able to use this status at a time when they might not be able to pay their staff more than competitor companies, or those already established in the marketplace”.—[Official Report, Commons, 16/4/13; col. 176.]
The Bill does not say anything about that. It does not have any such restriction. It is of general application. If the intention is that it should apply only to a very limited extent, surely it is our duty to see that the legislation states that. It does not state that, and part of the reason—I latch on to the remark of the noble Lord, Lord Forsyth—is that it would be quite difficult in law to specify how it could apply to only a certain category of companies to which the Government intended that it should apply, and not to others. They need to take that back and consider it further.
The third argument is that the business community wants to see this change. Having read the Office for Budget Responsibility’s report, I have no doubt that quite a number of company employees might find the tax status of these shares attractive. We should remember that shares up to a valuation of £50,000 will be free of capital gains tax. If the legislation is passed, I can well understand that this will prove highly attractive to tax planners. Many people may quickly transfer their employment status in order to take advantage of it. However, the idea that there are large numbers of companies or putative companies that want to take advantage of this status in order to engage in more entrepreneurial activity, which is the justification for the scheme, is not borne out by any of the consultation. There were 184 responses to the original consultation. Three supported the scheme: only two more than the number of supporters in your Lordships’ House. One supporter was apparently the Institute of Directors. When we last debated this, the noble Baroness, Lady Wheatcroft, said that when she asked whether it had consulted its members, the answer was no. So there is not much support there.
Justin King, the chief executive of Sainsbury’s, who is on the Prime Minister’s business advisory group, said that trading basic employment rights for shares was not what we should be doing. He said:
“What do you think the population at large will think of businesses that want to trade employment rights for money? … Our agenda … should be making employing people easier and less costly”.
Lastly, I come to the point that is so important and that was raised by the noble Baroness at the end of her remarks: the issue of efficient tax planning. The Office for Budget Responsibility estimates that this proposal could cost up to £1 billion a year in lost income to the Treasury. It states:
“It is hard to predict how quickly the increased scope for tax planning will be exploited; again this could be quantitatively significant as a quarter of the costing already arises from tax planning”.
In this time of austerity, is this an appropriate, let alone a moral, thing for your Lordships to be doing: to hand out potentially £1 billion a year in pursuit of a policy that the Minister, and Ministers in another House, have not declared as being in support of more efficient tax planning but which they have stated is in order to achieve entrepreneurial gains? One of the biggest impacts of the policy could be one that is completely opposite to the intentions of its founders.
I will leave the last word to the chief executive of the Employee Ownership Association. We all want to see wider employee ownership and engagement in our companies. In a statement put out this afternoon to inform the debate, Iain Hasdell said:
“There is absolutely no need to dilute the rights of workers in order to grow employee ownership and no data to suggest that doing so would significantly boost employee ownership … all of the evidence is that employee ownership in the UK is growing and the businesses concerned thriving, because they enhance not dilute the working conditions and entitlements of the workforce”.
Our duty this afternoon is not to dilute the entitlements of the workforce, without which there will be no growth and no recovery in this country.
I thank noble Lords for their contributions to this debate. I reiterate that the Government would like to give individuals and companies more choice in how they discuss and agree employment contracts. The employee shareholder status provides this additional choice. I will start by addressing the issue raised by the noble Baroness, Lady Warnock, about who the policy is aimed at. She asked, in effect, whether anybody would want this employment status, and who would want to employ an employee shareholder. These themes were raised also by my noble friends Lord Forsyth and Lady Brinton.
I clarify again that we understand that the new employment status will not be appropriate for all companies and will not be taken up across the board. It will simply add to the options and flexibility available to companies and individuals in determining their employment relationships in the same way that workers or employees, part-time or permanent staff, are not suitable for all companies. We expect that the new status will probably appeal mainly to fast-growing, small, start-up companies and individuals, as this is the level where employment rights are seen to impact the most. We have never said that the take-up will be widespread. We have always said that it would apply to a small number of companies, should they wish to take it up.
My noble friend Lady Brinton again raised the issue of who this might apply to. She cited the Cambridge example. She is quite right that companies that are likely to take this up are those that are new. They are likely to be making products that they want to be successful in the long term. She is right to say that this can be an extremely long road. However, she is taking a particularly negative view of the opportunity for employee shareholders. If I heard her correctly, she said that employee shareholders would have to pay for the shares up front. That is not the case. They will be given the shares, which will be free, even though, clearly, they will have to pay tax on them.
My noble friend Lord Forsyth raised the issue of tax, and the cost of the new status. The Office for Budget Responsibility has stated that in the long term the policy may cost up to £1 billion, but that relates to periods beyond the 2020s. It is simply not possible to be certain about costs so far in the future. The noble Lord, Lord Adonis, also raised this issue. Moreover, the tax rules will contain protections to prevent abuse—again, this issue was raised by several noble Lords—such as serial use of the scheme, and rules to ensure that those who have a material interest in the company and who thereafter can influence decision-making will not be eligible for the tax advantages. The Government will keep the rules on tax under review. I hope that provides a measure of reassurance.
The noble Lord, Lord Monks, who is in his place, raised the issue of Beecroft. This familiar story was raised in Committee and on Report. A number of noble Lords suggested that this was Beecroft by the back door. It is not. The new employee shareholder status is different from the no-fault dismissal proposal. Individuals will become shareholders of the company at the start of the employment relationship. This is an important benefit conferred by employee shareholder status. Unlike in the case of no-fault dismissal, the employee shareholder status will be agreed between employers and individuals in contractual negotiations. Employers will also be free to offer improved contractual terms such as contractual redundancy payments in an employee shareholder contract.
The noble Lord, Lord Myners, raised the issue of share buyback. He asked whether in effect a company could force an employee shareholder to sell back their shares. A company may require an individual to sell back their shares as a condition of the shares. However, this type of restriction will affect the value of the shares, which the company must assess when granting the shares and attaching restrictions. This comes back to what I said earlier about negotiations needing to take place in advance of the contract being signed by both the employee shareholder and the employer.
The noble Lord, Lord Pannick, raised the issue of independent advice, as did a number of other noble Lords, including my noble friend Lady Brinton. We do not require a person who is moving from employee status to worker status to be given legal advice before becoming a worker. Therefore, it is not clear why we should require legal advice to be given when an individual moves from employee to employee shareholder status—a status that carries far more employment rights than that of the worker. Companies are not required to provide independent financial advice to people who are thinking of becoming employees or workers, and employee shareholder jobs are just like worker and employee jobs.
The Government will provide guidance on gov.uk about the new status in the same way that they provide guidance about employee and worker employment statuses. Using this information will help individuals to determine whether the employee shareholder status is right for them. I say again to my noble friend Lord Forsyth that the situation of individuals taking up employment with employee shareholder status is distinctly different from the often challenging and difficult discussions that can take place, and sometimes need to take place, to determine settlement agreements at the end of an employment.
The noble Lord, Lord Myners, raised the issue of general advice on complex articles of association. Our guidance will make clear to both employers and employees the sorts of issues to consider before making a decision. The guidance, as I mentioned earlier, is in draft form and we continue to welcome views to improve it.
My noble friend Lord Forsyth raised the issue of share valuation at the beginning and again in his comments later on. He will know that there is already a market for the valuation of private company shares that is normally carried out by accountants or actuaries, to which I alluded earlier. This clause is all about flexibility, and it is not for the Government to be prescriptive in terms of who should value the shares. As I mentioned, practitioners have established ways for valuing shares, including examining the company’s performance and financial status as shown in its accounts for a period up to the date of the valuation, considering the plans of the company by looking at order books and analysing future commitments, and comparing with similar companies or sectors the value of companies, in particular the appropriate yields and price-earnings ratios, and accounting for the commercial and economic background at the date of valuation. I was grateful for the supportive comments made by my noble friend Lord Flight in this respect. Although I said at the beginning that this is straightforward and I stand by that, it may be the case that, given certain negotiations, it becomes more complicated. However that depends, again, on the discussions that are undertaken between the employer and the potential employee shareholder.
On this point of the valuation of shares, could my noble friend deal with the point that was made by the noble Lord, Lord Bilimoria, about liquidity? It is all very well to reach a theoretical value of shares, but the value is actually in what people are prepared to pay for them. In small private companies where there is no liquidity, how will you deal with that?
It remains the case that these are discussions that must take place between the employer and the employee. Again, it is not for the Government to prescribe or give advice in this respect. That is a consistent theme that I have taken.
On the same theme of shares, as raised by my noble friend Lord Forsyth, we recognise that there may not be a market for private company shares and therefore it is important that, where appropriate, a buyback clause will be useful to both the employee and the employer. This is an issue that the noble Lord, Lord Myners, raised as well. We introduced in the other place a power to bring forward the regulations that would govern these buyback clauses in the event that employers were behaving unscrupulously. This would prevent employee shareholders being forced to sell back their shares at an unnaturally low price.
The noble Baroness, Lady Turner of Camden, made an assertion, or perhaps it was an accusation, that the Government want to remove employment status. I reiterate what I mentioned both in Committee and on Report, that this is not about removing rights, it is about creating a new employment status that offers a different set of rights and a mandatory share ownership. The status, I say again, is not compulsory for companies to use, and it will only be suitable for those companies that want to share ownership with their workforce. We must remember that employee shareholders will retain the majority of employment rights, including, for example, automatic unfair dismissal rights and the right to be paid the national minimum wage. We have consistently said that the new status will not suit all people or all companies. This is very much a common theme. However, for those who choose to use it, the employee shareholder status offers more flexibility and allows greater risk- and reward-sharing between people and companies.
My noble friend Lady Wheatcroft and others raised the issue of whether the employee shareholder scheme is open to tax avoidance, an issue that I touched on slightly earlier. It is a key aspect of the policy to allow employee shareholders to share in the success of their employers without paying capital gains tax on at least some of their gains. However, to guard against abuse of the tax exemption, there are several rules that limit the number of shares that can be exempt. For example, the rules will prevent repeated consecutive use or multiple simultaneous use of employee shareholder status to get around the limit. In addition, anybody who controls, alone or with other connected persons, 25% or more of the voting power in the company, will not be able to receive exempt shares. We will not allow people such as spouses or children who are connected to individuals who control 25% or more of the company to benefit from the exemption.
We have listened to the concerns and, as was mentioned earlier, we have acted to ensure that jobseeker’s allowance claimants will not be penalised if they decide not to apply for or accept an employee shareholder job. Together with protections for employees, our announcement about jobseeker’s allowance policy means that no claimant or employee can be forced to accept this status. I thank many noble Lords for their support in this particular respect.
The new employment status gives ambitious, talented individuals with entrepreneurial spirit an opportunity to share in the risks and rewards of being part of their employing company. I want to say something important in these closing stages. I have clearly listened this afternoon and I have heard the strength of feeling in the House towards this particular clause. I ask the House to support the Motion to agree with the Commons’ position that Clause 27 be retained. If the House does not support that Motion, I will ensure that the strength of feeling in the House today is conveyed to my ministerial colleagues.
That is correct. I did not make any movement in that direction. I reiterate again to my noble friend that I am not immune to the strength of feeling in the House this afternoon. I have clearly listened and I will be conveying all comments back to the other place and to my ministerial colleagues.
My Lords, I am grateful to the noble Lord for the skill and courtesy with which he has presented the Government’s case. I am also very grateful to him for his frank acknowledgment of the strength of feeling on all sides of the House in relation to Clause 27. Of course he will appreciate that only if this House stands by its previous decision and asks the Commons to think again will the Government and the Commons do so.
Your Lordships can rarely have heard a debate in which so many noble Lords with business experience and political experience on all sides of the House have carefully and eloquently explained why a Government proposal is either wrong in principle, or damaging in practice, or unworkable, or misses its target, or unbalanced, or all of the above. Noble Lords clearly have a variety of reasons for criticising Clause 27. It is striking indeed that no speaker this afternoon apart from the Minister was supportive of Clause 27 in its current form. Even the noble Lord, Lord Flight, who complained of what he described as “negativity”, said that the clause could not work if the shares were worth only £2,000 at the date of issue and accepted that other problems needed to be addressed.
The noble Lord, Lord Deben, asked rhetorically for advice on what the noble Lord should do, given his belief that a positive proposal in this context could be brought forward. It is not for me to advise the noble Lord, Lord Deben, but if I were doing so I would suggest to him and to other noble Lords who may be in the same position that the answer is clearly to reject the half-baked scheme currently before the House in the hope that the Government take this idea back to the drawing board—or perhaps, to use the expression of the noble Lord, Lord Forsyth, on Report, back to the bath in which he suggested that this idea was dreamt up—so that they can reconsider whether in this Bill, or in some future Bill, a more thoughtful and workable scheme could be brought forward.
The concern about Clause 27 is not politically partisan. The noble Lord, Lord King of Bridgwater, and the noble Baroness, Lady Wheatcroft, referred to a measure of embarrassment in their position. They should not be embarrassed. It is to the great credit of their Benches that so many noble Lords have spoken out and voted in favour of deleting Clause 27 or abstained on Report. I of course appreciate that it is not easy to do so, but it is in no one’s interest for this proposal to be enacted in its current form.
The Government and the House of Commons have so far given the most cursory consideration to the concerns expressed on all sides of this House. They should be asked to think again. I wish to test the opinion of the House.