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.
Lords insistence and reason
The Lords insist on their Amendment No. 25 for the following Reason—
25B: Because it is inappropriate for employees to be exempted from statutory employment rights in this manner.
Commons insistence and amendments to words so restored to the Bill
The Commons insist on their disagreement to Lords Amendment No. 25 but propose the following amendments to the words restored to the Bill by that disagreement—
25C: Page 34, line 13, after “£2,000,” insert—
“(ca) the company gives the individual a written statement of the particulars of the status of employee shareholder and of the rights which attach to the shares referred to in paragraph (b) (“the employee shares”) (see subsection (4A)),”
25D: Page 34, line 38, at end insert—
“(4A) The statement referred to in subsection (1)(ca) must—
(a) state that, as an employee shareholder, the individual would not have the rights specified in subsection (2),
(b) specify the notice periods that would apply in the individual’s case as a result of subsections (3) and (4),
(c) state whether any voting rights attach to the employee shares,
(d) state whether the employee shares carry any rights to dividends,
(e) state whether the employee shares would, if the company were wound up, confer any rights to participate in the distribution of any surplus assets,
(f) if the company has more than one class of shares and any of the rights referred to in paragraphs (c) to (e) attach to the employee shares, explain how those rights differ from the equivalent rights that attach to the shares in the largest class (or next largest class if the class which includes the employee shares is the largest),
(g) state whether the employee shares are redeemable and, if they are, at whose option,
(h) state whether there are any restrictions on the transferability of the employee shares and, if there are, what those restrictions are,
(i) state whether any of the requirements of sections 561 and 562 of the Companies Act 2006 are excluded in the case of the employee shares (existing shareholders’ right of pre-emption), and
(j) state whether the employee shares are subject to drag-along rights or tag-along rights and, if they are, explain the effect of the shares being so subject.”
25E: Page 34, line 38, at end insert—
“( ) Where a company makes an offer to an individual for the individual to become an employee shareholder, an acceptance by the individual of the offer is of no effect unless seven days have passed since the day on which the offer was made.”
25F: Page 35, line 23, at end insert—
““drag-along rights”, in relation to shares in a company, means the right of the holders of a majority of the shares, where they are selling their shares, to require the holders of the minority to sell theirs;””
25G Page 35, line 25, at end insert—
““tag-along rights”, in relation to shares in a company, means the right of the holders of a minority of the shares to sell their shares, where the holders of the majority are selling theirs, on the same terms as those on which the holders of the majority are doing so”
That this House do not insist on its Amendment 25, to which the Commons have disagreed for their Reason 25A, do agree with the Commons in their Amendments 25C, 25D, 25F and 25G to the words restored to the Bill by that disagreement, and do disagree with the Commons in their Amendment 25E to the words so restored but do propose the following Amendments in lieu—
25H: Page 34, line 38, at end insert—
“( ) Agreement between a company and an individual that the individual is to become an employee shareholder is of no effect unless, before the agreement is made—
(a) the individual, having been given the statement referred to in subsection (1)(ca), receives advice from a relevant independent adviser as to the terms and effect of the proposed agreement, and
(b) seven days have passed since the day on which the individual receives the advice.
( ) Any reasonable costs incurred by the individual in obtaining the advice (whether or not the individual becomes an employee shareholder) which would, but for this subsection, have to be met by the individual are instead to be met by the company.”
25J: Page 35, line 25, at end insert—
““relevant independent adviser” has the meaning that it has for the purposes of section 203(3)(c);”
My Lords, after a touch of verbal Houdini in reading out the Motion, I hope that I can offer some clarity to the contents of the clause. Before I discuss the clause in further detail, I am grateful to those noble Lords who met me earlier today. I draw the House’s attention to a further amendment that we tabled this afternoon, which I hope will provide reassurance to the House.
We believe that it should be up to employers to recruit as they see fit, and if a company wants to recruit an employee shareholder, in the same way as an employer may wish to recruit an employee or a worker, it should be able to do so. As has been made clear, no one will be compelled to apply for or accept an employee shareholder job.
I turn to the clause itself. I remind the House of my remarks on 22 April. In that debate, I stated that I had listened to and heard the strength of feeling in the House towards this clause. I also stated that if the House insisted on its amendment to remove the clause, as indeed was the case, I would ensure that the strength of feeling would be conveyed to my ministerial colleagues. I have conveyed the strength of feeling expressed by this House, and I now turn to the amendments laid today and how we believe they improve the clause and address key concerns expressed by the House.
The package of amendments ensures that individuals entering into employee shareholder status are given the opportunity to fully understand the employee shareholder contract, the benefits and the risks involved. The package ensures that the individual will have the space, the time and the means to receive and weigh up the information in order to make an informed decision that is right for them.
First, we propose that the company must give the individual a written statement of particulars setting out the employment rights that are not associated with this status, and detailing the rights, restrictions and other conditions attached to the shares. This will include whether the shares being provided as part of the employee shareholder status have any voting or dividend rights; whether there are rights to have the shares bought back or redeemed; whether an individual may freely sell the shares; and if there are certain other rights and restrictions attached.
This written statement of employee shareholder particulars is separate to that already required by the Employment Rights Act 1996, which sets out the terms and conditions of the job, and which employee shareholders are entitled to receive within two months of starting work with their employer.
Most importantly, once the statement of particulars has been given to the individual, he must then receive legal advice. This advice can be given by a solicitor, a barrister, a fellow of the Institute of Legal Executives employed by a solicitor’s practice, a certified trade union official or a certified adviser in an advice centre. A person employed by the company, such as in-house counsel, cannot give this advice. It must be independent.
Some advice may be free, such as from a trade union official or an advice centre. Where payment must be made for the legal advice, the company must meet the reasonable costs of that advice. This is the case even if the individual does not take up the job offer. Once the legal advice has been received, the individual has seven clear calendar days to consider that advice. Any acceptance by the individual of an employee shareholder contract is of no legal effect until those seven days have elapsed.
This is about giving the individual the space to consider their position. It gives them time.
Will my noble friend assure the House that no advice should be given to an employee by the law firm or firms acting for the company itself or any other law firm connected with the company?
My noble friend makes an excellent point. That is absolutely true. I can confirm that if any legal firms are connected at all with the employer seeking to employ the employee shareholder, they will not be permitted to give legal advice.
Returning to the individuals, as I was saying, it gives them time not to be pressurised into accepting a contract and an opportunity to think about what the contract will mean to them. An individual cannot become an employee shareholder unless this and all the other criteria set out in the clause are met. This package of amendments means that an individual who has chosen to apply for and been offered an employee shareholder job has the information, advice and time that they need to consider whether the job is right for them.
I now turn to the amendment tabled today by the noble Lord, Lord Lea of Crondall. We do not believe that such provision within the clause is necessary. We believe that it should be up to employers to recruit as they see fit, and if companies want to recruit an employee shareholder, as they already do for employees or workers, they should be able to do so.
I take a moment to clarify points that have been raised repeatedly in both Houses. In the debates about this clause, it has been stated that the shares issued to the individual could be worthless. I should like to make it absolutely clear that shares issued as part of the employee shareholder status must be worth at least £2,000. The shares must be fully paid up by the employer and the clause also prevents the individual paying for them.
I understand the concerns raised by my noble friend Lord Forsyth in relation to valuing shares. As I have made clear previously, established practices are in place that cover this. Let me repeat, we recognise that for private companies there is no traded market which enables easy valuation of shares. Private company shares are valued for many different reasons—for example, when someone leaves the company and wants to sell shares, or following the death of a shareholder or if the company is to be sold. Practitioners such as actuaries and accountants undertake this work using standard methods to reach a valuation. They will consider such things as examining the company’s performance and financial status as shown in its accounts for a period up to the date of valuation. They may also consider future plans of the company, by looking at order books and analysing future commitments.
If a private company is considering issuing new shares as part of an employee shareholder scheme, it will probably be taking advice from its accountant, who will be able to advise on how best to value the shares to be issued. In this case, the company will be able to demonstrate how the valuation has been made to the individual. In addition, I reassure the House that we will not allow individuals to use this employment status for tax avoidance.
My first point is that some of the mischiefs that may be causing concern are already prevented by existing tax rules. There are rules that prevent, for example, the manipulation of share value so that it is inflated. They help safeguard against abuse by those who are seeking to obtain disproportionate capital gains.
My second point that I would like to reiterate is that the Finance Bill, published on 28 March and currently progressing through the House, includes a number of stringent anti-avoidance rules. These will prevent those who have a substantial interest in a company from benefiting from any tax advantages, as they may otherwise use the status to secure tax advantages for themselves or family members. There are also rules to safeguard against a person exploiting the tax advantages available through multiple use of the arrangement involving connected companies.
There have been concerns that highly paid employees in companies that are already well established may look to take on the maximum share ownership available in order to reduce their capital gains tax liabilities. However, a highly paid employee would face income tax and national insurance contributions on any share value above the first £2,000. The employer would also face employer national insurance contributions when providing employee shareholders with substantial share value.
I also point out that employee shareholder legislation prevents an employee sacrificing taxable remuneration or employment benefits to take up this status for the purposes of obtaining a tax advantage. That is because an employee shareholder is not permitted to give any consideration—which means forgoing anything—for the shares that they receive. That will prevent the type of salary sacrifice behaviours that my noble friend Lord Forsyth and others have rightly described. If necessary, further provisions to that effect could be considered as part of the Finance Bill.
I reassure the House that the Treasury, HMRC and my department, BIS, are already monitoring and will continue to monitor potential scope for abuses of the employee shareholder status for excessive and unacceptable tax purposes.
When we debated the new employee shareholder status on Monday, I recognised the strength of feeling in the House. I hope that the House recognises that we have now brought forward a package of amendments to the clause that will provide significant further protections to individuals. I therefore hope the House will now feel able to support the inclusion of an amended Clause 27 in the Bill and the greater choice for companies and individuals that it will provide. I beg to move.
I should inform the House that if Amendment A1 is agreed to, I shall not be able to call Amendment A2 by reason of pre-emption.
As an amendment to Motion A, leave out from “House” to end and insert “do insist on their Amendment 25 to which the Commons have disagreed and do disagree with the Commons in their Amendments 25C to 25G in lieu thereof”.
My Lords, I am very pleased that the Government have proposed the amendment in lieu in order to impose a requirement for independent advice. I thank the Minister warmly for his efforts in securing this substantial amendment.
For many noble Lords, the absence of a requirement for independent advice was a fundamental defect in Clause 27. Indeed, the absence of such a provision until the 11th hour—in fact, way past the 11th hour—was quite incomprehensible to many noble Lords. As was painfully clear from our debate on Monday night, the Government had no answer, and never have had an answer, to the question of why they are refusing to require independent advice before an employee signs away employment rights when Parliament has required independent advice before a compromise agreement is reached in tribunal proceedings in an individual case concerning the exercise of employment rights. Because this amendment is designed to protect the individual who is being invited to sign away basic employment rights, it is appropriate that the provision should be comprehensive in the protection it confers. For my part, I am satisfied that this amendment is comprehensive.
I should like to draw attention to four aspects of the amendment. First, I note that a Clause 27 agreement will be of no effect unless the employee or prospective employee has received independent advice before the agreement is made. It will not be sufficient that independent advice is available or is offered; it must be received. Unless independent advice is received, the Clause 27 agreement has no effect in removing employment rights.
Secondly, the individual must receive advice as to,
“the terms and effect of the proposed agreement”.
The amendment plainly requires advice on the nature and effect of the employment rights that are lost. It also plainly requires advice on the content of the employment rights that are retained, such as discrimination law rights. However, advice will also be required on the terms and the effect of the shareholding aspect of the agreement. Indeed, the amendment is expressly linked to the statement that the employee must receive by reason of subsection (1)(ca), as set out in Amendments 25C and 25D. That means that the statement must—that is the word used in the subsection—address matters that include,
“whether any voting rights attach to the employee shares … whether the employee shares carry any rights to dividends … whether the employee shares would, if the company were wound up, confer any rights to participate in the distribution of any surplus assets … whether the employee shares are redeemable and, if they are, at whose option … whether there are any restrictions on the transferability of the employee shares and, if there are, what those restrictions are … whether any of the requirements … of the Companies Act 2006 are excluded in the case of employee shares”—
that is, the right of pre-emption—and,
“whether the employee shares are subject”—
the Minister may know what this means; I certainly do not—
“to drag-along rights or tag-along rights and, if they are, explain the effect of the shares being so subject”.
All these matters must be included in the statement and the advice is linked to the statement. It therefore appears very clear indeed that any employee entering into one of these agreements must receive legal advice on each and every one of these technical matters, otherwise the agreement is simply not going to have legal effect. The employer will need to ensure that advice is given on these matters, otherwise the agreement will not be valid.
I am most grateful to the noble Lord, Lord Pannick, particularly for all his efforts in relation to this matter. Regarding the matters that he listed, I wonder whether he has considered one further condition that should be added. The valuation of close company or private company shares is an art, not a science, and the valuer acting for the shareholder—the outgoing shareholder perhaps—and the valuer acting for the company may not reach an agreement on price. Presumably, underlying all this must be a provision for arbitration in case of disagreement on price, through either an independent expert or an arbitrator.
I would anticipate that when the employee is given advice, one of the terms and effects of the agreement in relation to which he will need to be given advice is as to what happens if and when the shares are to be sold or the company goes into liquidation. No doubt some advice will have to be given—I doubt in very great detail—as to what the mechanisms are. In any event, this is, as I say, a very extensive requirement for legal advice. These are very complex matters.
The third point I want to emphasise is that the amendment also specifies the identity and characteristics of the person giving the advice. It does so by incorporating the requirements in Section 203(3A) and (3B) of the Employment Rights Act 1996, which states who is an “independent adviser” for the purposes of Section 203(3). The categories are: “a qualified lawyer”; a person certified by,
“an independent trade union … as competent to give advice”,
in this context; an advice centre worker,
“certified … by the centre as competent to give advice”,
in this context; and a category of,
“a person of a description specified in an order made by the Secretary of State”.
The statutory requirements also state that the adviser must be independent of the employer. Again, I am grateful to the Minister for the assurance that he gave earlier in this debate in relation to the criterion of independence.
I am very doubtful indeed that any trade union or advice centre would wish to certify someone as competent to give advice on all the aspects of the terms and effects of the agreement which I have mentioned. My understanding—I should be grateful if the Minister could confirm this in due course—is that it is entirely a matter for the employee as regards from whom he or she seeks the legal advice. Given the complexity of the matters on which advice must be given, I cannot imagine that any sensible employee would choose to see other than a lawyer and I would be astonished if any trade union or advice centre gave advice to any employee not to go and see a lawyer on these matters.
The fourth point I want to emphasise in relation to this extensive amendment, which I welcome, is that the reasonable costs of the advice otherwise incurred by the individual must be met by the company. What costs are reasonable must of course be determined in the context of the breadth and complexity of the advice which needs to be given. The employer must pay the costs, so the amendment says, even if the employee or prospective employee decides not to take up the job offer on Clause 27 terms. I should also be grateful if the Minister would confirm my understanding that if necessary—it may not be necessary—the Treasury will bring forward legislation to ensure that the benefit of the legal advice is not treated as a taxable benefit in the hands of the employee.
I welcome this amendment, which is undoubtedly broad in its scope and which will confer very substantial protection to individuals. I should add that the addition of this amendment does not alter my opinion of Clause 27 or, I suspect, the opinion of the majority of your Lordships. It remains a deeply unsatisfactory provision, for all the reasons identified by noble Lords across the House at every stage of the Bill. The best that can be said for it—the best—is that it is so half-baked that it will have little, if any, practical effect. I hope that the noble Lords who have expressed that view are correct.
Finally, I suspect that Clause 27 will be remembered by future historians of this coalition Government for one striking feature of it. Many policies which have been pursued by this Government have troubled one or other of the coalition partners but, as the debate on Monday demonstrated and as the Division lists confirmed, the Government have achieved by Clause 27 the quite remarkable feat of persisting with a proposal which is widely opposed in both coalition parties, as well as on all other sides of the House. I therefore regret that the Government wish to persist with Clause 27 but I very much welcome the positive move of this amendment. I will listen with particular care to the debate but, for the moment, I beg to move.
My Lords, I pay tribute to my noble friend Lord Younger and to the Chancellor of the Exchequer. We have had some pretty robust debates around this. We started with the proposition that it was wrong that someone who was sent from a jobcentre to take a job but who declined to accept an employee shareholder contract could be found to be intentionally not taking work and therefore be subject to sanctions on their benefits. That was dealt with. On the fundamental point, I do not wish to repeat the arguments which the noble Lord, Lord Pannick, has made, although I will observe that it is a relief to me to discover that there is something that he does not know about and which I do: the drag-along rights. It strikes me that drag-along rights are quite a good way of describing the process of this Bill in respect of the Government.
However, we have eventually got there, and the most important thing, as the speech of the noble Lord, Lord Pannick, indicated, is that this can be an extremely complex and difficult area and that we are making a fundamental change of principle here in that people can negotiate away certain employment rights. The need for independent advice is therefore crucial, and I am delighted by the amendment which my noble friend has brought before us. I pay tribute to the long-suffering officials in the Treasury and BIS for the way in which they have produced an amendment that covers the ground completely. My first instinct when I heard that the Chancellor had decided to accept our arguments was to rush to the Public Bill Office to get the draft of it, thinking that it would be full of holes or weasel words. Actually, it is comprehensive and the Government have been as good as their word. They deserve credit for that.
The last remaining area of concern was that this would be used by my friends in the British Venture Capital Association and others as a way of limiting their capital gains tax on shares which they would otherwise have got, and on which they would have to pay capital gains tax, by changing their employment status to that of shareholder employee. The loss of statutory redundancy pay would not be a major factor in their minds. I very much welcome what my noble friend said about the determination to look at this.
The noble Lord, Lord Pannick, made the key point that the advice provided to someone who is considering an employee shareholder contract should be paid for by the employer but that the tax liability that would normally arise from that would not apply. I guess that the Finance Bill currently before the other place will need to be amended. It already makes provision for the £2,000 of shares not to be subject to tax and national insurance. I assume that it will be amended to provide for the money that is paid for advice by the employer for the employee not to be a taxable benefit. I hope in the time that remains that in considering the various wheezes that might be used to avoid tax the Finance Bill will be amended to close off any possible loopholes.
I entirely support what my right honourable friend the Chancellor of the Exchequer was trying to do with this clause. He was trying to encourage more people to take stakes in their business and therefore to have an interest in the success of the business and an understanding of the risks being taken by it. He was also trying to encourage new emerging businesses, which may or may not have a future and may or may not have very much cash, to take on employees who share in the risks of that business. That is a noble and good intention. Equally, on the other side, there is a desire to limit the costs that fall on employers because of employment protection legislation, and there is a fair balance to be had there.
The combination of the two in this particular recipe produced a dish that was hard to digest, which is why we have sent the legislation back to the Commons on two occasions. On that latter point, although we may have reservations about the applicability of the clause and whether it is the best way forward, we should recognise that this House has done its job in asking the Commons, the Government, to reconsider. At the end of the day it is for the elected House, the other place, to decide on the general drift of policy that is being pursued by the Government.
I thank my noble friend and will have no difficulty whatever in supporting the passage of this Bill with the clause as amended. I look forward to seeing the measures that will be brought forward to avoid a measure that has good intentions being used for another purpose that might very well damage the credibility not just of this clause but of the Government, who deserve credit for what they have been trying to do even if this House had some difficulties with the practical execution of the proposed policy.
My Lords, I also agree that substantial concessions have been made, which have been spelt out by the noble Lord. On the other hand, the basic problem still exists in my mind. There are already co-partnership schemes through which employees can have shares and can participate in their companies. However, they can do so in many instances without surrendering important employment rights. That is the important thing. Why do you have to surrender employment rights, which have been in existence for many years and have been struggled for by previous generations, to participate in a shareholding scheme? I do not understand that unless this really is, as I originally believed, one of the moves that the Government are making, as they do not like employment rights all that much, to ensure that employment rights are surrendered without appearing to remove them. Employees can be persuaded, under these arrangements, to give up employment rights voluntarily in return for a shareholding scheme.
I still feel very unhappy about this. Unions will not be happy about it either. The basic point here is the surrender of rights in return for shareholding. I still do not think it is appropriate. Shareholding schemes can exist without that and do exist in many places. For those reasons, I express great concern, although I understand that quite substantial concessions have been made. The core problem, as far as I can see, is the surrender of employment rights for something that may be quite worthless when it really comes to it.
I appreciate that the Government have made several concessions in trying their best, as has been explained, to make sure that this is not compulsory and has not been forced on people. It is another option to add to the several share option schemes that already exist. The huge issue, as the noble Baroness has just said, is why it has to be linked to giving up any employment rights. That is the part that is fundamentally unnecessary.
The last time we debated this, before it went to the other place, I asked the Minister two questions, which he did not answer. The first was whether the Government consulted business properly before going ahead with this. The noble Lord, Lord Adonis, said in his closing speech last time, if I remember correctly, that 160 responses were received when the Government consulted and only three of them were in favour of this scheme. I am sorry, but unless I have got something fundamentally wrong, if you get three out of 160 you do not go ahead with something. You either consult further or you bin the idea because it is no good.
We have heard unanimously all round the House that, from a businessman’s point of view, this does not sense. It is absolutely unnecessary to do this, and it is fundamentally wrong for me to ask any of my employees to give up any rights at all. I would want to give them share options because they believe in my business and its future and they will earn the increase in value of their share options.
The next question I asked the Minister was whose idea it was. Why are the Government pursuing this? This House is greatly respected. We defeated this. It went to the other place. It came back, and the last time we voted on it it was defeated by an even bigger majority. To go back and come back again is disrespectful to this House and to what we have done. I appreciate that concessions have been made, but I think that the Government defending it so much is linked to whose idea it is. The press say that it is the Chancellor’s idea. If it is, I really question his priorities in trying to push forward something like this when tomorrow it is quite possible that we will hear that we may be in a triple-dip recession, and if not we might certainly bump along the bottom for ever.
We have huge problems and we are trying to push something like this on to business. I can guarantee that it will not work, that it will not be taken up by business, that it has wasted a lot of parliamentary time and that it will waste a lot of legislation. The Government say that they will reduce red tape. This is going to create huge amounts of red tape. Lawyers will have to be consulted; employers will have to compensate for lawyers being consulted. This is not just a dog’s breakfast; it is a mad dog’s breakfast.
My Lords, I disagree with one of the comments made by the noble Lord, Lord Bilimoria. I think this will be a very popular scheme for employees and employers, but in only one small sector of the economy. This is not about creating employment, business and economic growth. SMEs and new innovative companies are not going to offer these schemes, and employers are not going to be attracted by them. When we last discussed this issue, the noble Lord, Lord Forsyth of Drumlean, said that he was not sure whether this was being looked at by people who plan tax avoidance. I assure him that it is being looked at by those people with alacrity.
When we pass legislation, we should always be alert to the possibilities of unintended consequences, and I nominate this proposal as the single piece of legislation proposed by this Government that is most likely to have unintended consequences. This provision will be implemented broadly across the investment banking sector. In fact, we will find employees in the investment banking sector with multiple contracts, and subsidiaries in new companies formed beneath teams and groups within an investment bank where they contract themselves to a specific desk or function. The tax leakage from this proposal will exceed by enormous multiples any possible benefit to the economy, but presumably at least the Minister feels a little more comfortable today than he did two days ago when he was called on to defend the indefensible. I appreciate that the Government have moved, but I will not be supporting this proposal.
I defer to the noble Lord’s expertise in tax avoidance and the ways of investment bankers and investment management people in the City, but will he not give some credit to my noble friend who said that the Treasury will look at this and consider whether further measures are needed to avoid this? Some of the obvious possibilities, such as multiple contracts or changing contracts for the purposes of gaining the capital gains tax exemption, are matters that could be looked at. Surely the noble Lord should give some credit to my noble friend for taking that on board.
The question is whether we give credit to the noble Lord’s noble friend or to your Lordships’ House. I think it is the latter that deserves credit for the improvement in this provision. We will see the statute book and regulations getting thicker and thicker as the Government try to head off all the strategies that will be developed to seek to take advantage of this provision. We have come up with something that is of infinitesimal consequence to the economy but that will nevertheless lead to huge red tape. I am afraid that the experience of previous Governments, including the Government of which I was a member, and of this Government is that tax avoidance continues to be sharper and more effective than HMRC and others will ever be in stopping it.
I am happy acknowledge that the Government have said that they will seek to address this issue—they need to—but it will be a nigh-on impossible task.
I wonder why, when he was in government, his Government did not introduce a general anti-avoidance rule of the sort now being introduced by the coalition Government. That should aid and assist the very matters to which the Minister has referred.
I welcome the general avoidance rule, which of course is not the matter that we are discussing. Even there, though, while I was not directly responsible for HMRC or Inland Revenue matters when I was a Minister, we all knew that the agility of tax planners should never be underestimated. We need to be slightly careful that a general tax avoidance rule is not going to create a new nirvana and will not suddenly change things. It is a good thing and I welcome the Government’s proposal; indeed, I think that the Opposition have supported it, so I do not think there is a political point here. However, on this subject we need to be realistic about what will be achieved. We are up against mighty forces in tax planning. One has only to look at structured finance unit at Barclays Bank, which appeared to help people avoid billions of pounds of tax. It really is quite a challenge.
This small proposal will create a huge loophole that tax avoiders will, quite correctly in their view, seek to exploit.
My Lords, I was going to leave the issue of tax loopholes until the end of my contribution, but given the preceding debate I remind the House that at an earlier stage I reminded the House of the business expansion schemes that were set up by the then Government in the late 1980s and early 1990s and targeted at new small high-tech companies that were looking for investors and considerable tax benefits to investors and shareholders in those companies. They progressed reasonably well over the subsequent two or three years, but then the accountants and lawyers found the loophole that enabled at the very least the university sector to entirely rebuild its student accommodation using those schemes. I confess, as bursar of a Cambridge college, that my college and all the other colleges used them in exactly the same way.
An interesting point to note, which the Chancellor might want to consider himself, is that the Treasury immediately closed the schemes down. I suspect that if the noble Lord, Lord Myners, is right, the Treasury would have no option but to close this down immediately, and I think that would signal the death knell of this entire clause. I apologise; that was going to be my peroration at the end but, given the debate that we have just had, I have started with it. Given the debate that we have had, the experience of the business expansion schemes is one that I hope this House and indeed the other place will take note of.
To go back to the beginning, I thank the Minister for negotiating the concessions, which have been vital. At all stages of the Bill on all sides of this House we have insisted that employees and prospective employees must have truly independent legal advice. To repeat the comments of the noble Lord, Lord Forsyth of Drumlean, I, too, went through this with a fine-toothed comb to see where the lacunae were but could not find any. It is extremely helpful that the clause echoes the compromise agreement legislation with regard to the necessary independence of the legal advice that the payment for reasonable advice must come from the employer. By the way, I think that will completely put off the Gradgrinds, who we talked about at some length on Monday, who want to use this as a quick and easy route.
There has been some discussion today about the value of shares. I am less concerned about the value of shares when the shares are first purchased, because we keep being told that this is for brand new companies when their shares are virtually at par value. There is a much bigger issue when an employee leaves if they have to sell the shares back, or at a point at which the company might be sold on and an employee may want to disagree with an arrangement that the company directors have come to with a prospective buyer. Unfortunately, I absolutely cannot think of a way of legislating against that. Let us hope that, should that happen, the increasing value of the shares would be such that the employees found it beneficial. However, my experience of working with high-tech companies throughout the 1980s and early 1990s was that the vast majority of small high-tech companies, which we are told this would be useful for, never make the sort of glorious gains where capital gains tax is a real benefit. There may be a very minor benefit, and that is wonderful, but not for most. The Cambridge silicon technology companies are the stellar ones; they account for less than 5% of such companies.
I wonder whether the Minister could assist the House by sending around the revised draft guidance notes for employers, companies, employees and Jobcentre Plus staff, given the concessions that we have seen during the past two or three days. Having reread them before today’s debate, I realise that they are substantially out of date. It would be extremely helpful to those of us who have been following this in detail.
I am in the same position as the noble Lord, Lord Pannick, in that I do not like this clause. I do not think it is workable. Even fewer companies are now likely to take it up because of the safety net of the independent legal advice, for which I am grateful. I have yet to meet an employer who thinks that it is appropriate to reduce employment rights in return for sharing in growth in the future. That remains my fundamental position. Perhaps unwittingly, though, the Government have made it so unpalatable that most employers will just ditch that and go for the traditional route of offering employees a future share through a straightforward shareholding where everyone shares the gain and there is no disbenefit.
I support the noble Lord, Lord Pannick. Although they have moved, with this Bill the Government have solved one problem only to create others. I begin by confirming what my noble friend Lord Myners said. I was campaigning for an anti-avoidance, broad-brush approach for 30 years as an official of the Inland Revenue Staff Federation. I agree with my noble friend Lord Myners that this will not work. Over those 30 years, Chancellor after Chancellor said precisely that in relation to the arguments from the union that there should be such a thing. We will await events to see whether it happens.
The only point on which I disagree a little with the noble Lord, Lord Pannick, is the question of independent advice. The press picked it up and said that people will be entitled to go to a lawyer but if you go back to the Employment Rights Act 1996, which is from where this proposal came, you find a weird list of people who are legitimate to give advice in the context of the Bill that we are discussing. An independent adviser can be a qualified lawyer, which is defined in the terms that you would expect, or an officer or official of a trade union who is qualified to value companies. The trade union movement has swarms of people qualified to do that at the moment.
Then we come to the issue of reasonable costs. If this is to happen, we must define “reasonable costs” as probably something that employers are expecting. If we were talking about going to a lawyer and this were a different forum, I would say that if lawyers were present, those who felt they were qualified to do it should put their hands up. Very few would be qualified. I do not know what it has now but the Inland Revenue used to have a specialist section in Hinchley Wood to deal with the valuation of companies. This morning I asked two company chairmen whether they could tell me what the value of their company was and the answer was no. They would have to pay qualified people to value those companies. While it may be initially a case of shares at par, Lord knows what it would be in two, three, four or five years’ time.
As for the advice that is being given, he or she who gives advice has to confirm that they are adequately insured to ensure that there is compensation payable if the advice turns out to be wrong. Why on earth are we debating this? This is a proposition that, prima facie, employers do not want to lessen on the terms that my noble friend Lord Myners has expressed. It will be a considerable disservice not just to working people, because the potential of this is dreadful. I would not need any arguments at all to vote against it on that basis. It is also a disservice to employers. They will read this as saying that they have to pay only a few hundred pounds for the reasonable costs of advice. It will not be that sort of figure. If I had to do this today, I am not certain where I would go if I went to the City of London. Fees there are not cheap.
This is a little explosion that is set to go off the first time that anybody gets serious advice. My advice to the TUC would be to say to every union that has asked: seek and provide them with a list of people who may be capable of giving advice. We are talking about thousands of pounds an hour.
My Lords, the Minister ended our previous discussions on this matter by saying that, depending on the outcome of the vote and if it went against what he was advising the House at that time, he would make sure that the strength of feeling here was conveyed to his colleagues in the Government. I should like to express my appreciation for his having very precisely discharged that undertaking. As we know in this House, it is unusual for us to have had two occasions on which we have declined to agree with the other place. This has been a difficult exercise for the Minister and at this stage I congratulate him on the extra safeguards that he has managed to introduce. I do not disagree with many Members of this House but my view on this clause is summed up by a phrase that Sir Winston Churchill once used. He said that he could on this matter confine his enthusiasm within the bounds of decorum without any difficulty. I certainly feel that I have made clear my views on this.
The situation is now that we have introduced important safeguards. Additional safeguards do not make it easier for employers and they limit the range of businesses to which they might apply. I think that the clause will have limited application. There is now much protection against the real danger of this being mishandled by irresponsible employers. My noble friend Lady Brinton referred to not having met an employer who is in favour of them. I am not in the least surprised. I do not think that an existing employer could use this provision. If he has existing employees with full employment rights, the idea that he starts introducing a small additional recruitment of people who have fewer rights seems to me an unreal situation. I see this being applied now by genuine start-up businesses where the originator trying to start some new IT company. He might say to his friends and bright colleagues who are going to join him that he just cannot take on the liabilities that he might have to face in difficult unfair dismissal cases and cases of redundancy, and that they should all be in this together. Those are the only applications where I see that this might work.
With this additional safeguard we have reached a stage when we must recognise the primacy of the other place. It is very unusual for us to reject twice in a row. I think that I can remember one occasion earlier in my time here but I cannot remember our going any further than this. I would have had to think very hard about that if we had not had such a comprehensive amendment, which, as my noble friend will recall, is precisely what I asked that we should introduce. It involved a lot of hard work and I pay tribute to the officials. The noble Lord, Lord Pannick, ably spelt out that this is a most comprehensive amendment. It covers a wider range than I expected could be covered. The list of the types of shareholdings is warning enough of the problem that this issue contains. In recognising the way in which the Government have respected the view of this House and responded to the points that we have made, I say genuinely to your Lordships that we have done our job. We have introduced additional safeguards. We have challenged the other place twice. Having limited significantly the damage and introduced very dubious questions as to whether this clause will amount to much, we should now ease its passage.
My Lords, my noble friend Lord King has summed up the position extremely well. It is of interest that this largely appointed House has effectively achieved the democratic changes to Clause 27, for which there was clearly significant support.
The last time that we debated this, my noble friends Lord King and Lord Deben were saying similar things to me about this proposed piece of legislation but from the other side of the fence. As I said from the outset, it is clear that it is applicable only to the sort of situations that my noble friend Lord King described—to entrepreneurial situations, start-ups and groups of bright, young, ambitious people getting together and wanting to keep down the potential costs of their new enterprise. It would not be suitable, nor be taken up by large organisations. It would be strange to have some employees with one sort of equity and others with another sort, and some with one sort of employment contract and some with another. De facto, to the extent that it used, it will be in the territory described.
I may be naive, but I think the noble Lord, Lord Myners, exaggerates the scope for tax avoidance. It seems to me that it will be much smaller-scale, more analogous to the EIS scheme, which has been extremely successful in generating some £10 billion of risk capital for small companies and has more than paid for itself tax-wise. It may be that the noble Lord is a cleverer tax avoider than me—sorry, he is more knowledgeable than I am—but I do not think that the sort of structure to which he referred would work. I would have thought that HMRC would outlaw such things fairly quickly. I do not quite see how it would work to make individuals huge amounts of money that they would not make otherwise. I think the tax avoidance point is overstated.
Will the noble Lord, Lord Flight, at least acknowledge that the OBR has also expressed serious doubts about how this provision, which is not affected in any way by the laudable proposals now made by the Government, will be exploited for tax advantage? I believe that the OBR projected a cost of £1 billion.
I thought that what the OBR was effectively saying was that if capital gains tax on these arrangements were payable, that is the sort of revenue it would generate and the extent of the capital gains tax revenue that will be lost is because capital gains tax will not be payable. I am not clear that the OBR was citing fancy and wrong tax avoidance schemes for which it picked up intentions that they would be used. I stand to be corrected.
With all due respect to my noble friend, the tax provisions within the Bill provide for the taxable gains on up to £50,000 shares not to apply, so if it were possible for people who would in the normal course of their employment receive shares to change their employment status, then £50,000-worth of shares that they received would no longer be subject to capital gains tax, which would apply if they had normal employed status. That is the kind of loophole that I hope my noble friend and the Treasury will deal with and which would cause a loss of revenue. While my noble friend and I may think that capital gains tax is too high, it would clearly discredit the scheme if the only people using it were people who would otherwise have had to pay tax in the normal way and who benefited by changing their employment status. That is the argument that we raised at an earlier stage, and I am content to take my noble friend’s assurances that this will be looked at and will not happen.
I had indeed understood that that was the point, but if an individual chooses to invest in a fairly high-risk new venture via an EIS scheme, he does not pay capital gains tax. If he invests and it does not qualify for that scheme, he does. Self-evidently, new companies will as far as possible qualify for the EIS scheme because it gives that incentive to investors. The position here is not so dramatically different. People may well have equity in new start-ups that does not qualify for this scheme, but in terms of the overall package, as we are well aware, they will have to pay income tax up front, there is a limit to the amount of equity they can have and it is of cash-flow benefit to the company in terms of the potential costs that it removes. I do not see it as a vehicle of fancy tax avoidance. There is a perfectly fair debate about whether it is a good idea, but I do not believe it is useable as a vehicle for the sort of tax avoidance that we are trying to get rid of.
Nearly everything that there is to be said about this has been said in this House.
I shall close by repeating the point made by my noble friend Lord King. It is a great credit to the Minister that he has gone back and got the key concession that this House clearly wished for when we last discussed this Bill. It would be somewhat churlish of this House at this stage to push things to the wire. This scheme is not going to be a huge issue, and its usage will be limited to appropriate circumstances. There is merit in having a new class of employment between self-employed and fully employed, and if this becomes law there may be some interesting lessons in what it generates.
My Lords, I sense the mood of the House, and I will be very brief. One thing needs to be reiterated. My noble friend Lord Forsyth of Drumlean paid tribute to the House for securing these concessions and changes, but I should like to pay tribute to him. I came into the debate at Third Reading on 20 March with a speech in my pocket fully in favour of Clause 27. After it had been effectively demolished by my noble friends Lord Forsyth and Lord King and the noble Lord, Lord Pannick, I followed them into the Lobby and voted against this measure. They have done an immense service because I believed at the time that this should be an opportunity for the strong, not a fait accompli for the weak. The concessions that they have brought about and the way that the Minister has responded in bringing forward these comprehensive announcements reflects very well on those individuals and on the processes in this House. I will have no hesitation in supporting the Government when the vote is called.
My Lords, I shall be very brief, but there is one point on which I should like confirmation from the Minister when he sums up. The provisions that have been introduced into this statute refer to all sorts of guidance and recommendations. They do not include the valuation of shares, yet quite a lot of the discussion has taken place as though they do. An opportunity to correct that would be helpful.
My Lords, I said at the outset of our debates on this shares-for-rights scheme that it makes the back of the envelope look like Magna Carta. As a result of our deliberations, the envelope is somewhat more neatly addressed, and for that at least we should be grateful. I join other noble Lords in paying tribute in particular to the noble Lord, Lord Pannick, who has pursued the Government tirelessly on this scheme and, if I may say so, has become something of the constitutional conscience of the House, with large numbers of Members being dragged along or tagging along with him but none the less getting to the right place in the end.
I also acknowledge the important role played by Conservative and Lib Dem Peers on this issue, notably the noble Lords, Lord Forsyth and Lord King, and the noble Baroness, Lady Brinton, who have been indefatigable in raising the issues that we have had to address and in ensuring that we have secured at least some safeguards in the Bill and made the proposal at least somewhat less objectionable than it was when it was introduced.
There have been some safeguards and the Bill is somewhat less objectionable, but the reality is that this shares-for-rights proposal is still fundamentally flawed and fundamentally wrong. It is not the details that are wrong; like the poll tax, the basic idea is wrong. The idea that fundamental employment rights granted by Parliament to ensure that employees are treated fairly can or should be traded for shares, let alone shares worth as little as £2,000, is fundamentally objectionable. We are talking about basic employment rights which, as the noble Lord, Lord Forsyth, pointed out in our deliberations, have been granted by Governments, including Conservative Governments, over recent decades: the right to redundancy pay; the right not to be dismissed unfairly; the right to request flexible working in order to look after dependants; and the right to request training. These are basic rights and, as the noble Lord, Lord Bilimoria, said, there is a fundamental confusion at the heart of this proposal between employment rights on the one hand and enhancing wider share ownership on the other. We are all in favour of wider share ownership. Indeed, the Government commissioned the Nuttall review, which reported only six months before this proposal came out of the Chancellor’s bath in favour of a whole set of measures to widen share ownership. Not one of them was the proposal before your Lordships this evening and indeed it was not even considered by Nuttall, so absurd would it have been to the Nuttall advisers.
Therefore, we are in a situation now where we have some safeguards, particularly respecting the most vulnerable members of the community who might be faced with signing shares-for-rights contracts without the knowledge of what is in them, and for that we should be grateful. However, we still have fundamental objections to this proposal, and it comes to us as a revising Chamber with the weakest possible mandate: it was in no one’s manifesto; it was not in the coalition agreement; it was not recommended by any independent review of any kind; the majority which came to us from the Commons was below the Government’s normal majority; and it has been opposed by business, and so on. Therefore, as I said, it comes to us with an extremely weak mandate.
Even with the safeguards in the Bill, this proposal is still unacceptable, and not just in principle, as I said a moment ago, but in practice too—in particular, in respect of the tax status of these shares and the huge opportunities which this proposal gives for tax avoidance, as my noble friend Lord Myners stressed. Of course, I understand that discussions have taken place between those who were opposed at an earlier stage and the Government, and that a way forward has now been reached, but the noble Lord, Lord Forsyth, can never contain his real views. He is always commendably frank. His exchange with the noble Lord, Lord Flight, could not have been more telling. We are now just hoping that the Government, after we have enacted this legislation, will deal with the huge potential for tax avoidance which is not just theoretical but which the independent Office for Budget Responsibility stated, as my noble friend Lord Myners noted, is a potentially massive vehicle for efficient tax planning in a way that will lose the Treasury money. The OBR said that,
“the cost is expected to rise towards £1 billion”—
I repeat: £1 billion—
“beyond the end of the forecast horizon … it is hard to predict how quickly the increased scope for tax planning will be exploited; again this could be quantitatively significant”.
We are expected to pass this legislation this evening in the hope that this will be resolved when I had always thought that it was the job of Parliament not to enact legislation until we were clear that the possibly unacceptable effects of that legislation had been addressed. Paul Johnson, the director of the Institute for Fiscal Studies, said:
“Just as government ministers are falling over themselves to condemn”,
“that same government is trumpeting a new tax policy which looks like it will foster a whole new avoidance industry”.
And in my discussions with tax lawyers this afternoon, which I assure your Lordships made the last debate that we had in the House look like a bundle of laughs, they pointed out to me a whole string of potential loopholes raised by this provision that will not be easily dealt with at all. Matthew Findley, a partner of the lawyers Pinsent Masons and a member of the Share Plan Lawyers group and the Share Schemes Expert Group, says:
“The Government has … sought to limit the scope for major shareholders to become ‘employee shareholders’ ... It has barred those who own 25% or more of a company from becoming employee shareholders”.
“there remains considerable scope within SMEs and unlisted companies for senior management to be provided with very tax-efficient equity in return for giving up employment rights which they probably don’t value or need”.
Richard Murphy, a chartered accountant and tax expert who is a member of the General Anti-Abuse Rule interim advisory panel that drafted the guidance on anti-abuse for the Treasury, says that the rules in respect of employee shareholders to prevent tax abuse are weak and likely to be open to considerable abuse. For example, while it is suggested that an employee shareholder may not hold more than 25% of the shares in a company and qualify for this scheme, this would be all too easy to manipulate, especially in the case of a new company where any share ownership might be extremely flexible. In addition, given the ingenuity shown by many lawyers in their structuring of share capital, it would be all too easy to attribute value of much more than 25% to shares issued to any employee shareholder if that was desired. Furthermore, when there are no clear rules laid down on how valuations are to be agreed, and when these are exceptionally difficult to determine objectively in the case of small start-up companies whose owners might be tempted to make use of this arrangement, then the scope for tax avoidance exempting large swathes of future profits from the sale of SMEs is all too easy to envisage.
That is just the beginning. I have pages more like that which I am not going to detain the House with, all of which will need to be resolved if we are not to face, as the OBR said, a potential tax leakage of £1 billion or more in respect of a scheme which was entirely designed to promote growth and more entrepreneurial activity and not to give a big handout in terms of capital gains tax to those who are able to organise their tax affairs accordingly. In short, this shares-for-rights scheme is like the Hydra: every time you cut off one head, another two appear. As the noble Lord, Lord Forsyth, put it when we first debated this:
“The scheme is ill thought through, confused and muddled”.—[Official Report, 20/3/2013; col. 597.]
We agree; this scheme is ill thought through, confused and muddled. It will do nothing to promote growth and we will not be supporting it this evening.
Once again, I thank all noble Lords who have spoken. I can only reiterate that the Government would like to give individuals and companies more choice in how they structure their workforce. That is the aim of the employee shareholder employment status—to provide this additional choice. It remains correct that the employee shareholder status will be likely to be taken up largely by new small companies, which my noble friends Lord Flight and Lord King acknowledged. A large number of points were raised during the debate and I would like to address as many as possible.
The first was a very important point raised by the noble Lord, Lord Pannick, and my noble friend Lord Forsyth and concerns the question of the cost of legal advice to the employee shareholder. I just make it clear that the issue is whether they are charged in terms of having a benefit in kind. I can confirm that the Government will introduce an exemption within the benefits-in-kind legislation to ensure that the requirement to provide legal advice will not lead to a tax cost on individuals looking to take up the employee shareholder status, regardless of whether they choose to take up the status. This should be addressed in the Finance Bill.
The second point is a point of clarification and concerns the definition or description of drag-along and tag-along rights. Perhaps at this stage I should defer to the superior knowledge of my noble friend Lord Forsyth. The answer, for the education of the House, is that these rights are sometimes found in a company’s articles of association or shareholder agreements. Drag-along rights refer to the rights of a majority shareholder to require minority shareholders to sell their shares if the majority shareholder sells theirs on the same terms, and tag-along rights, which are more active, are the rights of minority shareholders to procure an offer for their shares on the same terms as the majority shareholders are selling theirs.
The noble Lord, Lord Bilimoria, in a passionate speech, raised the issue of consultation. I should like to clarify that we consulted on how to implement the option, not on whether we should proceed in principle. Therefore, it is not true to say that no one supported the measure, although he did not say exactly that. The consultation responses included some positive responses. As organisations said, businesses of all sizes might be able to benefit because the changes suit the dynamic way that their business operates. Therefore, the Government believe that it is a good additional option for companies and individuals. It adds to the existing status of employee and worker, which has been much covered in previous debates, and it provides those taking it up with the flexibility as well as the opportunity to share the reward and the risk that comes with having an interest in a growing company. As I have said in the past, we recognise that not all companies will wish to take up this new status, and that is fine. What is important is giving those companies that wish to take on people in this different way the opportunity to award share equity.
The noble Baroness, Lady Turner of Camden, raised the issue of withdrawal of employment rights, which I believe she raised in previous debates and which I understand. The argument is that we believe it is wrong to focus on just one aspect. Forgive me if I am repeating myself, but the employee shareholder status must be seen as a package. It is a package of employment rights, mandatory shares and tax incentives. It is the interaction of all three aspects that will motivate staff.
This new status confers a number of benefits for both the employer and the employee shareholder. From an employer’s perspective, the employee shareholder is more likely to generate ideas, as I remember mentioning in the past, for bettering the company, and to have a greater incentive to contribute to the organisation. Indeed, the hope is that they will stay longer than they otherwise might in their particular organisation.
Changing tack, the noble Lord, Lord Myners, raised the issue of multiple use of connected companies. Employee shareholder status is intended to be part of a flexible and efficient labour market in which people can move from job to job if opportunities arise—a point which may not surprise the noble Lord. However, where a person takes up an employee shareholder status in a number of companies which are associated with one another, such as banks and subsidiaries, income tax will be payable on any shares received from whatever company beyond the first £2,000 in value. Likewise, any shares beyond the first £50,000 in value will not enjoy the exemption from capital gains tax. This will prevent multiple use of the scheme for tax advantages, because the relevant limits for the tax exemption will apply to all employee shareholder contracts with connected companies.
I finish on this note. I outlined extensively in my opening remarks the points that have been raised in past debates about the share status. I reiterate that the Finance Bill will be used to sweep up any issues. We will be looking at this extremely carefully.
My noble friend Lady Brinton asked a relevant question as to whether I will be sending around revised guidance to the House. Of course, we will be sending guidance around once we have incorporated all the changes which have come from the various concessions which we have outlined today, made by Parliament and stakeholders. However, consultation continues, and I would not at this stage wish to commit myself to any particular date for passing that on.
The noble Lord, Lord Myners, raised a point about a general anti-avoidance rule. Forgive me if I am repeating myself, but the Finance Bill also introduces a general anti-avoidance rule which will tackle abusive avoidance schemes or contrived arrangements designed to avoid tax. This rather neatly rounds up a quite interesting debate that we have had this afternoon, including from my noble friend Lord Flight and the noble Lord, Lord Myners, on this issue.
The key point about tax abuse which has not been made is that the Finance Bill is an annual process. This issue can therefore be tackled at least on an annual basis if necessary. I confirm, too, that HM Treasury and HMRC will be keeping the scope for tax abuse under constant review.
The noble Lord, Lord Christopher, asked what happens if the legal advice given to putative employee shareholders is erroneous or negligent. Legal advisers are likely, of course, to have professional indemnity insurance which covers negligent advice and its consequences, so there will be safeguards there.
The noble Viscount has been very coy about what “reasonable” means. I sought to demonstrate that it could be much more expensive than it might appear at first sight. I do not know of any trade union lawyer, for example, who would do other than say, “Go to the City for advice”. Equally, it may well be more difficult to be satisfied by a valuation on the sale or disposal of those shares. Will there still be available to workers the opportunity to get advice on that?
I believe that I have spelt out the comprehensive and extensive advice that will be on offer to employees. The noble Lord, Lord Christopher, has brought up the issue of what can be defined as “reasonable costs”. We recognise that the cost of legal advice will depend on individual circumstances. I remind the House that employee shareholder status and its ramifications will entirely depend on the type of company, type of employee and the wishes of the employee shareholder. Those discussions will go on outside any control from government. The costs involved will vary depending on the type of contract or job offered and the level of knowledge of the individual seeking that advice. What is reasonable in one particular instance may not be reasonable in another. Very deliberately, we are not stipulating a minimum or maximum price which would come under the definition of “reasonable costs”. It relates to other areas and sectors in entirely different circumstances. The concept of “reasonable costs”, as I am sure the noble Lord will be aware, is not an unusual matter.
Who is to determine the result if there is a dispute about the costs involved?
There is deliberately no determining factor. This is a matter which has to be part of a discussion between the employer and the employee shareholder. The issue remains that the employer has to decide whether the costs are reasonable. If, for example, the costs are not reasonable, the employee shareholder has the right to complain and raise an issue. The ultimate sanction, of course, is that he may decide not to take up the job at all. That of course remains a matter for him.
The noble Lord, Lord Christopher, raised the question of valuation, which I earlier covered to some extent. He also raised the expense for companies in terms of valuing the shares. We acknowledge that it is not easy for private companies to value shares, a matter which I covered in some depth earlier. As I said, if the company is issuing new shares as part of an employee shareholder scheme, it is likely to take advice from their accountant, who will use standard methods to value the company. Again, I covered that earlier.
The House will be aware that the other place has now voted to retain this clause three times, a point made by my noble friend Lord King. I acknowledge the important role of this House, too. I believe that we have more than fulfilled that role. This House has carefully considered and improved the clause, which is evident from the package of amendments that we have discussed today. With your Lordships’ assistance, we have ensured that this clause now contains important protections for individuals. It is now for companies and individuals to use it if it is right for them.
My Lords, I thank the Minister for all his considerable efforts in securing the comprehensive amendment on independent advice. I also thank the noble Baroness, Lady Brinton, and the noble Lords, Lord Forsyth of Drumlean and Lord King of Bridgwater, without whose considerable efforts, the House would not have secured this important protection.
The noble Lord, Lord Adonis, exposed the defects in Clause 27 at Second Reading. He has since then, at every stage of the Bill, used his considerable forensic skills to expose each and every defect in this lamentable provision. I entirely agree with the substance of his powerful criticisms of Clause 27. However, the Government are determined to introduce Clause 27. It is impossible to see what further protections this House could usefully add. Therefore, the question, as it seems to me, is whether this House should continue to stand in the way of the Government’s determination to include Clause 27 in the light of the considerable safeguards that this House has introduced.
This House has had its say. It is now time to give way on this issue to the elected House. I therefore do not intend to divide the House further on this matter. I beg leave to withdraw the amendment.
Some Lords objected to the request for leave to withdraw the amendment, so it was not granted.
24 April 2013
Division on Motion A1.
Motion A1 disagreed.View Details
As an amendment to Motion A, at end insert—
25K: Page 35, line 28, at end insert—
“( ) For the avoidance of doubt, nothing in this section shall create a category of job vacancy which is solely an “employee shareholder job vacancy”.”
My Lords, the reason for this Motion is because there is one point which has been made repeatedly the last four or five times in which this matter has been discussed in the Lords and the Commons. It relates to the category of job vacancy which is solely for employee shareholders.
Those of us who are versed in industrial relations have been very puzzled by this from the word go. What is this category of job vacancy which is offered by employers solely to employee shareholders? The Minister cannot possibly stick to what he has expressed once or twice that there is always an option. There is no option in this Bill unless the guidance is radically rewritten.
On 22 April, the Minister said that the guidance possibly did need rewriting but that that was not too difficult. I would invite him to do so but, given the time, perhaps all he needs to do is to acknowledge that, at the moment, the guidance is not perfect and needs to be rationalised in the light of much of what has been said in both Houses of Parliament.
Of course, it is true that employers may want some of these jobs to be for employee shareholders. However, if they then say that the only jobs available for that warehouse, or that factory, are employee shareholder jobs, that is saying that those prospective employees can either have a job and give up their rights against unfair dismissal or redundancy, or not have a job at all. That is not offering options.
The Minister needs to respond to this Motion in some way tonight but, more importantly, how is Parliament going to scrutinise all the various introductory procedures before this can become operational in Loughborough, for example, and elsewhere?
In conclusion, would the Minister now concede for the first time that there is in the Government’s mind—as is stated in the guidance—a category of job vacancy called an employee shareholder job vacancy? I beg to move.
My Lords, I support the Motion in the name of my noble friend Lord Lea of Crondall. My support is based on two principles which I want to clarify. First, it is important that the intention of Parliament is clear and my noble friend’s Motion does that. Secondly, there is the issue of equality of opportunity in the recruitment process.
Given the extent of the Government’s effort to secure the passage of this Bill, employers at every stage of the recruitment process will assume that having shareholder employees is the preferred option. For the avoidance of doubt, it is therefore imperative that the legislation is clear and that what Parliament means is recorded on the face of the Bill. The Motion does that: it removes any inadvertent preference for shareholder employees.
My second point concerns the avoidance of discrimination at the point of recruitment. Here is a very simple example. A job is advertised by an employer who is currently operating an employee shareholder scheme. It is my view that, without this Motion, there is no duty, no guidance to the employer not to discriminate in favour of a shareholder preferred option. For those reasons, the legislation can be enhanced by clarity of purpose in order to protect the employee and also the employer, who might have to answer questions about the choice that was made at the point of recruitment. There is no protection in respect of recruiting a shareholder employee rather than someone else who is equally or better qualified. I support the Motion.
I thank the noble Lords, Lord Morris and Lord Lea, for their interventions. As I made clear in my opening remarks, we do not believe that the provision in the Motion of the noble Lord, Lord Lea, is necessary. It should be up to employers to recruit as they see fit. If a company wants to recruit an employee shareholder, as companies already do with employees and workers, it should be able to do so in its own way. Taking the argument further, if an employer wishes to post a notice for, or advertise, an employee shareholder position, they should be free to place this as one role, just as they would be able to do in an advertisement for any other role. While the House has raised concerns on behalf of the individual, and particularly given the concessions we have made, we must ensure that we do not tie the hands of employers. The noble Lord’s Motion would do just that. Therefore, I hope that it will not be supported by the House.
I thank the Minister for his reply. Perhaps I should first mention my thanks to my noble friend Lord Morris of Handsworth, who some 15 years ago was the chairman of the TUC working party on rights at work. I recall that this was part of a hugely successful programme of improving the quality of the contract of employment in many ways. This is the first time I have seen legislation that explicitly states that you can have a contract of employment of less satisfactory quality. That should be a source of concern. It would have been a source of concern in Whitehall in the days of the Ministry of Labour. At the moment we have legislation that is like a dog with three legs. There is input from the Treasury, Customs and Excise and BIS, but because there is no ministry of labour, the collective experience of people who know about recruiting and agreements seems to have been totally lost.
I think that our predictions will come true and that the Government—or the Government in power at the time, because we are only two years from a general election—will see this programme staggering on its feet. All the difficulties, from those raised by my noble friend Lord Myners to those raised in our last debate by other noble Lords on all sides of the House, will come to pass. However, in light of the hour and having had a full debate on this question over many days, I beg leave to withdraw the amendment.
Motion A2 withdrawn.
Motion A agreed.
My Lords, after completion of proceedings on the growth Bill, in the Division on the Procedure Committee report regarding a Back-Bench debates committee, there voted not content 245 rather than 243 as announced.