Growth and Infrastructure Bill

Wednesday 20th March 2013 Lords Chamber

Report (3rd Day)

15:41

Clause 27 : Employee shareholders

Amendment 49C

Moved by

[Lord Flight]

49C: Clause 27, page 35, line 28, at end insert—
“(12) Shares issued or alloted under subsection (1)(b) up to a value of £25,000 will not be treated as a benefit for the purposes of the Income Tax (Earnings and Pensions) Act 2003.”

[Lord Flight]

My Lords, I have always been a strong supporter of employees owning shares in the companies that they work for, particularly smaller companies. In my own history, virtually everyone had shares in the company that I built up in the 1980s and 1990s. Obviously, the principle is observable in groups like John Lewis. It is self-evidently very positive, not just commercially but when people feel part of the business for which they are working.

Anyone is being blind if they do not perceive that employment law has strayed across the boundary of discouraging employment. There are good reasons for much employee protection, a cause that has been fought for over almost 200 years. However, we are now in an area where—dare I say?—there would not have been just 1 million new jobs created over the past year; if employment law was not so discouraging of taking on new people, there might have been 2 million new jobs. Again, in my own history I have seen too often how people are put off by the costs and risks involved. This House is slightly out of touch if it does not perceive that employment law actually discourages us in succeeding economically and producing more jobs.

15:45

I have to say that when the scheme was proposed, I was somewhat sceptical. I did not quite see the logic of tying the two together, but I am by nature a contrarian and as the great and the good were all frightfully critical, I thought the scheme deserved better investigation and consideration. On balance, I think it is a perfectly sensible and reasonable trade off. It is obviously not suitable for everybody; it is not going to be of any interest to individuals who, candidly, are just working for the pay and are not involved in or supportive of the enterprise for which they are working but, as I have said previously, it will be of great interest to those who are ambitious, who have confidence in their own ability and who want to work hard and make a success of the business they are working for. Why should they not have a worthwhile stake in that? It will also be of interest to those who have worked for a business for a number of years and become part of its woodwork. In both cases, the key point is that people have the self-confidence to believe that what they contribute to the business is that which ensures their employment.

[Lord Martin of Springburn]

The noble Lord mentioned John Lewis. We all know that everyone working in John Lewis is a partner and therefore a shareholder but, to my knowledge, John Lewis has never asked anyone to give up their statutory employment rights.

[Lord Flight]

I am sure the noble Lord is correct. The employees who had shares in the company I built did not give up their employment rights, albeit that at that time they were not quite as discouraging of employing people as they are today. The point I was making was that I believe hugely in employees owning shares in their business. On the other hand, it is blind not to see—I understand where the noble Lord comes from, and very decent it is—that employment law has strayed across the boundary to where it does more to discourage new jobs than to protect people.

The point I was working my way towards and commenting on was that the proposals in Clause 27 are clearly not of interest to or appropriate for a lot of people; they are appropriate for certain categories of people, above all, for people who feel that their contribution to their business is such that they do not need to be gold-plated by the extent of the employment protection laws that we currently have.

We now come to the rub, where I hope to encourage the Government further, albeit that it is Budget day today. The limit of only 2,000 shares on which you do not pay tax is too low. There is complete misthinking by the Treasury. Without this legislation, there would be no additional tax whatever because no one would have any more shares to pay any tax on, so it is not a question of losing tax revenues, but of the potential for forgone tax revenues that would not exist if the scheme did not exist.

On the forgone bit, the issue is that if people have worthwhile equity—£20,000 or £30,000—if they are going to have a tax bill of £10,000 or £15,000 including national insurance, they will not be able to afford to do it. People will not have that sort of money lying about in the bank to pay that sort of tax bill. To borrow money to acquire shares in a relatively high-risk small business is not a particularly wise thing to do because it may not succeed and you may be left with the money you have borrowed and no asset against it. The Government ought to think again about the tax position of shares under the employee shareholder scheme. I repeat that I think the starting point is wrong. It is not a tax cost, but how much tax will be forgone as a result of this scheme. The point is simple: unless there is a larger amount with no tax and national insurance liability, people will not take it up so there will be no tax revenue anyway.

The logic is pretty clear. Imagine working for a smaller business, which might employ 10 to 100 people and may be in a new area. One of the great things about success in this country is the number of businesses growing in new, high-tech areas, but it is a tough, competitive world with American businesses trying to out-compete you and products coming in cheaply from China. Not all these businesses are going to succeed. If you are enthusiastic, you can certainly say, “I really want to make this succeed. I would like to take advantage of this scheme. I candidly think that my existence in this company is not about employment protection law, but is due to my working my butt off to make a success of it”. People will want to take advantage of it. However, if they are going to be given a large tax bill, they will either not be able to afford it or the risk-to-reward ratio will not be right.

I encourage the Government to think again about the tax position as part of my genuine support of the proposal. Dare I say that many in this House have not really thought it through? They have not been entrepreneurial. They have not worked for a small business. It is an attractive opportunity for people. Well may they take the risks, succeed and build up some value in the company for which they are working. I ask the Minister to go back to the Treasury and reconsider a greater degree of fiscal generosity. I beg to move.

[The Earl of Erroll]

My Lords, I will speak only to this amendment. We will have the debate on whether employees should give up rights for shares when we deal with the next amendment. I restrict myself purely to the tax issue here. It is a serious point, because I have hit this when I have been offered share options. Because you receive the benefit, theoretically, you are meant to pay income tax on it in that year. You do not really have any money to pay it with because you have not yet been paid. If you are rich, you can use these benefits and invest in start-up companies using the SEIS: the Seed Enterprise Investment Scheme. However, you must have some other income against which to offset it, so taking this up is of no interest to the average employee. They have no other outside income. They will have nothing to pay the tax with because of the cash flow: they are being forced to pay a tax when they have not yet received the money. It is therefore complete lunacy, for the logic of this clause, not to accept the amendment of the noble Lord, Lord Flight. It makes this clause work.

Whether it should exist is a separate issue that we are about to discuss in the debate on Amendment 50. I accept that entirely. However, if the clause is to stay in the Bill, the amendment improves it greatly. The clause will then achieve its purpose of trying to get employees involved in the running of the company and the drive to make that company succeed. However, if they cannot afford to take up the shares because of the tax regime, and there is an anomaly in it and it will just fail anyway—in which case, Amendment 50 will be redundant, because no one will bother with the scheme.

[Lord Forsyth of Drumlean]

My Lords, very unusually, I find myself in disagreement with my noble friend Lord Flight. Normally, we are at one on these matters. I have considerable respect for his experience in the City, and I understand what has motivated him to table the amendment.

I do not propose to talk about Clause 27 until we come to the amendment in the name of the noble Lord, Lord Pannick. Frankly, I am surprised that this clause has survived so long. The scheme is ill thought through, confused and muddled. I will develop those arguments when we come to the next amendment.

This amendment, however, is an absolute open goal to allow the setting up of a huge tax-avoidance scheme. There is no restriction on people changing from being an employee to an employee shareholder. Therefore, they could get £25,000 from their employer as a tax-free sum. On the shares they could make tax-free gains of £50,000. This is therefore a handout of £75,000 to people who just choose to change their employment status. I find that very difficult to justify as a measure.

I have grave reservations about Clause 27. It confuses two desirable things: one is having sensible employment protection legislation, and the other is having sensible proposals for encouraging employee share ownership. My noble friend Lord Younger of Leckie, who I think will be responding to this debate, sent me a very helpful letter that sets out some of the concerns that have been raised about the scheme as a whole. I will concentrate on the issues that arise from this particular amendment.

The first point—and here my noble friend Lord Flight has not shown his normal attention to detail—is that there can be no question of anyone purchasing the shares. It is a condition of the scheme that the shares are given for free. In effect, we are producing a tax-free handout. One of my worries was how, in an unlisted company, perhaps a start-up company, you value the shares. The employer might have a particular view of the value of the shares, as might the employee. The expense and difficulties involved in valuing these shares would be considerable.

I hope my noble friend Lord Younger will not mind me reading out what he says in the letter about the tax treatment of the shares: “When an individual receives shares as part of an employment agreement, these are usually subject to income tax in the same way as that person’s salary”. That is correct, and it is what my noble friend Lord Flight is trying to address. However, he goes on to say: “In some cases income tax will be chargeable on the value of the shares at the time that the employee receives them. However, where certain conditions are attached to the award of shares, for example a requirement to stay in the job for a period, or a no-sale requirement, any income tax that would otherwise be chargeable on the award of the shares may be reduced or removed. In such cases, income tax would be chargeable on the shares at a later date. The precise detail of how the tax rules will apply to an employee shareholder depends upon the type of shares that are awarded. An employer should be able to confirm to an employee shareholder what type of shares they have received”.

This is a complete muddle. Are they shares which they hold, shares that vest at a later date, or shares that have to be sold back at a particular value? You need to have clarity on that before you even begin to consider the tax treatment. The normal tax treatment in employee share schemes is that the shares given usually vest over a period of time, and it is the point at which they vest that tax becomes payable. It is very unclear how that would work in the context of my noble friend’s amendment. Would the £25,000 apply when the shares were vested, and if they are simply options, or the ability for shares to vest subject to particular conditions, how does this offer the employee, who is giving up employment rights, any kind of security?

I entirely understand why my noble friend has tabled the amendment. He has seen that the scheme is not particularly attractive from the employee’s point of view, and the tax rules are certainly unclear. However, this would be used by people. The dead-weight cost of this amendment would be enormous, because anyone working for a company who had no possibility of being fired would want to avail themselves of what would be a huge, tax-free gift.

[Lord James of Blackheath]

My Lords, I feel mounting concern as a result of what I said in Committee about this clause in a discussion on the financial assistance Act. What we have just heard makes my original anxiety even greater. I asked the Minister at that time whether he would give an opinion as to the application of the Act to this clause. I think the situation has got even worse. Where there is in effect a deal between a company and the Inland Revenue to give somebody a tax advantage, or at least a complicit arrangement whereby they co-operate for it, surely there is a breach of the laws that were brought in at the time of the Guinness and Blue Arrow fraud cases and that prohibit any company from giving financial assistance to any employees for the purchase of its own shares. This seems to me to be exactly what is occurring here. It is highly dangerous. We cannot have a scheme that criminalises companies and their employees accidentally and at the same time.

16:00

[Lord Stewartby]

My Lords, I will not follow in detail what my noble friend Lord Flight said in his excellent introduction to this debate, because he said most of what I would like to say, but much more eloquently than I could. What comes out of this debate, despite the various points that have not yet been cleared up, is that this is a voluntary activity. Employee shareholders would come about only if the shareholders wanted them to and voted for them without coercion. It is an experimental proposal, and although I do not share the doubts that some have about its merits I do think it is potentially a somewhat complicated arrangement.

The best thing to do when you have a proposal of this kind is to test it out. If you do not pass the legislation, you will never have a chance to see whether it works. My own view is that the demand for this type of opportunity will become more evident as time goes on. It is very suitable for high-risk, rapid-growth businesses. Of course, there will be failures and shortcomings, as there always are in speculative areas of investment, but this belongs to the area of high-risk reward, and I would like to see it given a chance to show its form.

The Bill in effect constructs a new type of relationship between shareholders and members of a company and adds a new status, giving it a certain novelty. This proposal is sensible, as my noble friend has said, and the way ahead will not emerge until the thing is given a chance. The proposal is imaginative and innovative, and I think it would be a good thing if we put it on the statute book.

[Lord Adonis]

My Lords, I am sorry to disagree with the noble Lord, Lord Stewartby, but to my mind when you have a totally mad idea like the one before us the best thing is not to test it out but to kill it at birth, and I hope that is what we are going to do in the debate that is to follow.

In response to this amendment I should say that never in my life, at least knowingly, have I been in such agreement with the noble Lord, Lord Forsyth—and we look forward to his contribution in the debate that follows. As he says, Clause 27 is ill thought through, confused and muddled. The amendment proposed by the noble Lord, Lord Flight, achieves the remarkable feat of making it even worse, on which I congratulate him. However, I think that the mood of the House is that we should get on to the substance as soon as possible, and I hope that we can now do so.

[The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Viscount Younger of Leckie)]

My Lords, I thank my noble friend Lord Flight for raising this matter, and for his general support for the principle of the clause.

I would now like to speak to Amendment 49C. As noble Lords have said, we will have a chance to debate the fuller aspects of the clause under the next amendment. In effect, this amendment calls for up to £25,000 of share value received by employee shareholders to be free of income tax and national insurance contributions. I note my noble friend’s considerable knowledge of this area from his time shadowing Treasury Ministers and from his chairmanship of the Enterprise Investment Scheme Association, but on this occasion his proposals are not in tune with the underlying aims of the policy. The employee shareholder status is not a new tax-advantaged employee share scheme or an investment incentive, although it may be used alongside existing reliefs in these areas.

In practical terms, the cost to the Exchequer of pursuing this amendment would be prohibitive. A tax relief of that sort of magnitude would make it necessary to attach a great many prescriptive rules to ensure that benefits were targeted and to prevent abuse: for example, by businesses using it as a means of transferring taxable income into employee shareholder shares. I acknowledge that my noble friend Lord Forsyth of Drumlean made these points rather eloquently. This would have the effect of introducing considerable complexity to the new status, working against our stated aim of offering a new option that is flexible and accessible to a wide range of companies.

Of course, tax policy has a part to play in this new employment status. We have listened carefully to concerns that the income tax position could be a significant disincentive for some individuals. We recognise that this could be an issue for a very few and have addressed it. It is a long-established fact, and certainly not unique to employee shareholders, that when a person receives shares as part of their employment, they may be liable for income tax and national insurance contributions on those shares. This is a consequence of the normal tax rules and the way in which income gained from employment is taxed. We must also remember that when an employee shareholder sells their shares, gains from the first £50,000 of shares given to an employee shareholder will be free from capital gains tax, which is part of the wider aspects of the scheme.

I informed the House that the Government were considering an option which would allow the first £2,000 of shares to be given to employee shareholders without incurring income tax or national insurance liabilities. The Chancellor announced in his Budget earlier today the decision to proceed with that option. This means that, typically, if an employee shareholder were to receive shares worth £2,000, no income tax or national insurance contributions would be chargeable when they received them. If they received £2,500 worth of shares, any tax would be due on the £500 excess.

The Finance Act contains several measures that will prevent misuse of the employee shareholder employment status.

[Lord Forsyth of Drumlean]

Will my noble friend give way? I apologise for interrupting.

[Viscount Younger of Leckie]

If I may, I am about to address some points that my noble friend made concerning the tax status.

For example, we do not want directors to manipulate the new status by making fake jobs for family members, which may have been in the mind of my noble friend Lord Forsyth when he made his earlier comments. We want this employment status to be attractive to a whole range of people. If we allow that no income tax or national insurance contributions are payable on the first £25,000 of shares, we think this will create only a disproportionate tax benefit for higher earners. This is about a new employment status that is open and attractive to a range of prospective users.

My noble friend Lord Forsyth asked a number of questions relating to how different types of shares would be treated and what this meant in tax terms for individuals in employment. When a person agrees to become an employee shareholder, the employer should be able to tell them what type of shares they will receive. The types of shares an employee shareholder receives may vary, as I think my noble friend indicated. First, they could be non-restricted shares. These are shares awarded without any ongoing conditions, limitations or requirements that affect their market value. If an employee shareholder holds non-restricted shares, they are usually in the same position as an external investor in the company.

Secondly, restricted shares are shares awarded with conditions, limitations or requirements attached that reduce their value. For example, an employee shareholder may not be able to sell their shares for a certain period or, if they leave the company, they may not be able to retain their shares. The employer may agree to buy the shares back from the employee shareholder.

Thirdly, forfeitable shares are restricted shares awarded on the basis that within a certain period of time, or on the occurrence of certain events, the employee shareholder may have to forfeit them and in return will receive less than their market value. When the tax is payable on these shares will depend on the type of shares that are offered. As my noble friend Lord Stewartby said, this is a voluntary arrangement, under which the individual will go into an agreement with the employer, and the type and status of the shares will be decided with their agreement. That will then lead, by agreement, to the point when the tax will be payable.

[Baroness Brinton]

Does the Minister accept that the flexibility for employees to negotiate the terms of any restrictions in shares will itself be restricted if a number of employees are being offered shares, because the capacity within the company to vary terms will be extremely difficult? In practice, the employee will have no flexibility at all to negotiate.

[Viscount Younger of Leckie]

My noble friend is taking rather a negative view. We need to look at the opportunities that the whole scheme offers. The employee shareholder could decide not to accept any shares or such a role if the situation that my noble friend mentioned applied. It may not suit them; they need to get advice and go into this scheme with their eyes open.

[Lord Forsyth of Drumlean]

Is my noble friend saying that the scheme will work for restricted stock that is subject to conditions? He seems to be saying that restricted stock will be treated in the same way as tradable shares, to the extent that they can be tradable. Perhaps I should declare an interest in that I have been given shares in the form of restricted stock on the condition that if I left the company or was dismissed the shares would be forfeited. Could conditions that effectively took away people’s employment rights be applied to restricted shares? How would that be defined? If it is just something to be negotiated between the employer and the employee, could an employee not find that he gives away his employment rights for some shares that he would lose if he was sacked?

[Viscount Younger of Leckie]

The discussions will take place before the employee shareholder goes into an agreement. If they are at all unsure, they have the right not to do so. Different types of shares and share schemes beyond those that I have highlighted today may be applicable. That, as my noble friend said, will remain a matter for discussion between the employer and the employee shareholder.

[Lord Forsyth of Drumlean]

I apologise for interrupting again—

[Baroness Garden of Frognal]

My Lords, I remind Members of the rule that on Report no Member should speak to an amendment more than once, unless it is to seek brief clarification.

[Lord Forsyth of Drumlean]

That is precisely what I am doing. I am seeking clarification on an important point. If someone comes to work for a company that has a scheme involving restricted shares that you would lose if, for example, you were dismissed, how can that person negotiate when they are told, “This is the job and these are the terms”? What is their negotiating position if 100 people have already signed up? If the Minister is correct, does that not drive a coach and horses through the benefit, limited as it is, that applies to the employee?

[Viscount Younger of Leckie]

That takes me back to the question raised by my noble friend Lady Brinton. If there are too many employee shareholders to make this work, there may indeed be no room for another employee shareholder. I say again: the opportunity is voluntary and the terms are to be agreed between the employer and the employee. That is all that needs to be said. It is exactly why we are not being too prescriptive with this system. We are providing an opportunity for employers to take up this scheme and for employees to share in its risks and rewards.

[Lord Flight]

My noble friend Lord Forsyth makes a fair point. If tax is to apply, it is difficult to determine how the value of the shares in question is to be assessed, given that they may have certain characteristics. However, I will turn that point on its head, in that it is an argument for there being no tax bill at all because the problem goes away if there is none. My basic point is that common sense states that no one will be much interested in a deal whereby you give up your employment rights for just £2,500 of equity. There should be potential for much greater gain. Something like seven out of 10 smaller businesses in this country tend to fail as a result of taxation being too high and the public sector too large. The situation is not like that in Hong Kong, which is much more successful.

The equity element would be of high risk for people in SMEs. I repeat my point: it is not a question of the Government losing revenue; they will not get any revenue under the clause as it stands because not many people will take advantage of it. Therefore, the Government will not lose any revenue. If they believe in the principle, which I believe in very strongly, there has to be an attractive risk/reward ratio. To my mind, one way or the other, that requires the value of shares on which there is no tax charge to be more than £2,500, although my figures are essentially for illustration.

16:15

I repeat that I am disappointed that this House is overly negative on something that I think should be given a try. It has some powerful arguments in its favour but, if it is to work, there needs to be a sensible number of shares that is worth having and is not subject to a tax charge. People are thinking about this in the wrong way. It is not just a question of the principle. If you are a youngish man or woman granted, say, just £10,000 of shares and you have to find £5,000 in order to take them up, that is a lot of money. You will not have that sitting around in the bank; you will have to borrow it against an asset, but a bank would not lend you the money because it is too high a risk. Even if you find someone who will lend you the money, you run the risk of the asset you borrow the money for, sadly, becoming valueless. Therefore, it is not a particularly attractive deal.

That is the point of principle but, going back to the first issue, I have looked at the variance of shares and how their value might be assessed, and it is a bit like dying when you own shares in an unlisted company. They are quite hard to value, although it is possible to do so. However, it is much easier if the problem does not exist in the first place.

This amendment is intended to urge the Government to rethink, late in the day though it is with the announcement having been made in the Budget today, because the thinking is in the box whereas it should be out of the box as regards the tax issue. I beg leave to withdraw the amendment.

Amendment 49C withdrawn.

Amendment 50

Moved by

[Lord Pannick]

50: Clause 27, leave out Clause 27

[Lord Pannick]

Your Lordships now come to whether Clause 27 should stand part of the Bill. As noble Lords have heard, the clause allows for an agreement by which an employee can receive shares worth £2,000 or more at the date of issue and then lose his or her rights to claim unfair dismissal, statutory redundancy pay and other employment rights.

Clause 27 was very heavily criticised in the debates in Committee. There was—I put it as moderately as I can—very little enthusiasm indeed for it on the government Benches or on other sides of the House, with the conspicuous exception of the noble Lord, Lord Flight, whose main argument in defence of the clause, if I understand him correctly, is that the deal will not be very attractive and therefore not many people will take it up.

There are four main objections to Clause 27 that the Government failed adequately to answer in Committee. One could identify many more objections but I will confine myself to four. The first is that the clause is objectionable because the employment rights were created—and have been protected by all Governments, Conservative and Labour—precisely because of the inequality of bargaining power between the employer and the employee. To allow these basic employment rights to become a commodity that can be traded by agreement frustrates the very purpose of these entitlements as essential protections for the employee, who lacks effective bargaining power.

The second objection concerns the jobseeker. Under the clause, an employer will be able to refuse to offer employment to applicants who decline to enter into a Clause 27 agreement. The irony, of course, is that the worse the job market for employment, the more willing the applicant will be to give up his or her employment rights in order to take the job, and the worse the job market, the greater the employee’s need for these basic protections against unfair dismissal and redundancy.

The application of Clause 27 to the jobseeker is particularly indefensible because the Government have now issued guidance, which was promised at Committee stage but which we did not have, that makes it very clear that a person will lose their jobseeker’s allowance if he or she refuses to take a job offer on Clause 27 terms; that is, they will lose basic employment rights. The guidance says that the terms and conditions under which the job is offered are not a good reason for refusing to apply for the job. There is a very limited exception which refers to the financial implications of receiving the shares, to which I will come in a few moments.

The absence of protection for the job applicant means that Clause 27 does not simply allow for an agreement to give up employment rights. In practice, it imposes on the jobseeker considerable pressure to take employment on Clause 27 terms. Clause 27, read with the guidance, will mean that the jobseeker is being made an offer which he or she cannot refuse—an offer that they must give up their employment rights. That is the second objection.

The third objection to Clause 27 was explained in Committee by a number of Peers from the government Benches—I stress, the government Benches—who have business experience. They said that the provision would be positively damaging to industrial harmony and would not be used by any sensible employer. Since this is Report stage, perhaps I may briefly report to the House what noble Lords from the government Benches said. The noble Lord, Lord Vinson, stated that,

“the whole point of wider industrial shareholding”—

with which we all, I apprehend, agree,

“is to try to create a sense of common purpose”—[Official Report, 6/2/13; col. 269.]

in the workplace. Clause 27 will do precisely the opposite. To deny industrial rights to employees will negate trust rather than enhance it. The noble Lord, Lord Strasburger, made a similar point at col. 272.

Perhaps I may quote the noble Lord, Lord Deben, who has considerable experience in small businesses. His words are so important and I could not possibly improve on them. He said:

“I cannot imagine any circumstances whatever in which this would be of any use to any business that I have ever come across in my entire life”.—[Official Report, 6/2/13; col. 293.]

I hope that it is appropriate for me to say that I have spoken to a number of noble Lords on the government Benches since Committee. Many of them share the sentiments of the noble Lord, Lord Deben—some of them in language even stronger than his, and even stronger than the helpful language that we have heard this afternoon from the noble Lord, Lord Forsyth of Drumlean.

As the Minister well knows, there is not simply a lack of enthusiasm for Clause 27 but a degree of opposition to it on the Minister’s own Benches that makes the Government’s commitment to it incomprehensible. To use the word of the noble Lord, Lord Deben, in Committee at col. 294, the Government’s approach is “mystifying”. In Committee, at cols. 298-300, the Minister told the House that the Government calculated that 6,000 companies would be interested in Clause 27. The noble Lord promised the Committee that he would provide the evidence that supported that statement, but I have received no such evidence and I do not believe that any other noble Lord has seen it. Therefore, I ask the Minister: does the evidence exist? If so, why has it not been provided? If it does not exist, will he please withdraw the statement that 6,000 companies are interested in acting under Clause 27?

My fourth and final objection to Clause 27 is that the employee and the prospective employee will not be given the minimum necessary protection to understand what they are being asked to give up. The Government have refused to accept that statutory rights should be lost only if the agreement is in writing and if the individual has received legal advice on the consequences of the agreement from an independent adviser. Parliament has specified such conditions in Section 288 of the Trade Union and Labour Relations (Consolidation) Act 1992 in the context of a compromise agreement to settle particular employment disputes and tribunals. However, no such protection will apply here.

I recognise that the Government have published general advice to employees, but that is really a poor substitute for specific advice to employees from an independent adviser in their particular circumstances. The need for advice is particularly important when the value of the shares when issued may well be higher than their value later on and when there are tax implications for the employee of receiving the shares if they are worth more than £2,000. As I understand it, the employee or prospective employee who enters into an agreement to give up his employment rights for shares with, say, a nominal value of £3,000, will get a nasty surprise when he or she receives their next month’s pay packet. In the real world, the jobseeker and the employee need to know the implications.

The noble Lord, Lord Flight, said that Clause 27 may not be appropriate for all types of employee. The problem of course is that Clause 27 applies to all types of employee, with all the detriments I have mentioned. For all those reasons, I ask the House to reject Clause 27 and I very much look forward to the debate on this issue. I beg to move.

[Baroness Brinton]

My Lords, I am grateful to the noble Lord, Lord Pannick, for so eloquently outlining the case against the proposals in Clause 27 and I was happy to add my name to the amendment, which your Lordships' House has discussed at considerable length at earlier stages of the Bill’s passage.

I remain bemused with the basic philosophy behind the clause. We are told that the scheme is aimed at small businesses that want to grow fast and motivate their workforces. We have heard that employees will take a significant reduction in their employment rights and face tax and NI demands on the free shares that they have been given over £2,000 as they receive them.

I assume that the minimum of £2,000 is for ordinary shares, but given the interchange on the previous amendment I am not convinced that they would necessarily be ordinary shares. In a number of years, possibly with a following wind, they might increase in value, although the House should note that the majority of micro and small companies do not make large returns for their shareholders in the early years. That rarely takes less than eight years or a decade. Worse than that, while the employee currently in a firm can choose not to take part, the applicant on jobseeker's allowance would have no such luxury—a point clarified in the letter from the Minister on 13 March. Either a scheme is voluntary or it is not. It is clearly not for those on jobseeker's allowance. This provision is supposed to encourage growth. We need to go back a step to the coalition agreement’s commitment to growth. With such a key strategy in mind to help SMEs, we should do all that is within our power to assist them. Clause 27 would do the opposite. If an employee has the choice between a company that offers the usual employee benefits and another that exchanges these rights for shares in the company, the evidence suggests that employees would rather maintain their benefits, especially in the current recessionary climate. That was corroborated by my own experience speaking with employees working for high-tech SMEs, who are bemused that they would want to demotivate their staff during the very difficult early days of a company when it is developing products and just beginning to enter the marketplace and unlikely to be making a profit, let alone anything that they could distribute to shareholders.

16:30

Directors have told me that this does not set the relationship off on the right footing. Morale is important because while the shares in an SME are unlikely to yield high returns in the first few years, if any at all—most do not become the superstars implied by the capital gains tax mentioned in the Bill—after a company is founded, especially during this period of low consumption and investment, it has to find ways of motivating employees to help get the business off the ground. It might offer flexible working hours and shares without links to a cut in employment rights. The founders of such firms have been offering shares without any removal of rights for years, and it works. Why would they take up a proposal that destabilises the employee and the company?

Additionally, should the question of unfair dismissal arise, the cost to a company could overwhelm it. Both the Law Society and the Solicitors’ Journal have expressed concerns about this. Clause 27 eliminates the use of unfair dismissal tribunals which help SMEs by placing a cap on the costs of discrimination claims. Without the benefit of these tribunals, the courts could become clogged with costly discrimination suits that may drain the funds of the very businesses we are trying to support. The clause is then doubly debilitating. It removes employment rights that protect the employee from discrimination and at the same time it leaves SMEs vulnerable to very expensive discrimination claims, should an employee feel the sting of the loss of basic rights such as statutory redundancy pay and rights to training and flexible working. The example given by the noble Lord, Lord Forsyth, in the previous amendment of an employee being sent up the blind alley of having to accept terms that meant that they would be forced into redundancy, but the contract saying that the shares would be lost if the employee was made redundant, absolutely exemplifies the point. I believe that a court would want to hear this argument and I do not believe that it is what the Bill intends.

For many British workers, this lingering economic downturn has given them little choice when accepting jobs. There simply are not enough jobs out there for JSA claimants to have the luxury of choosing among several opportunities. With this clause, JSA claimants will be forced into taking jobs that sap their benefits in return for shares in the company. For those who may already have faced not just one but multiple redundancies through no fault of their own, that will not be attractive. I am grateful to the Minister for his letter which sets out the exact terms here, but I fear that it has in fact been unhelpful in that Jobcentre Plus decision managers will now not be able to accept an applicant’s reasonable and real fears about reductions in employee rights when considering a continuation of JSA if the applicant has turned a job down. Although this clause might intend to give employers a choice, it does so at a significant cost to employees. We must avoid creating a coercive environment for jobseekers, many of whom rely on these benefits to enhance their skills and improve their quality of life, lest we discourage job seeking, something the Government are trying to do the opposite of, and encourage reliance on welfare.

While it is important for an employee to feel that he or she has a real stake in the success of a company, this employee shareholder scheme will do little to benefit the average worker. The guidance provided by the Minister fails to invite employees to take legal advice or even employers to encourage them to do so. It only says, “Read about the shares and what they are and talk to the company about the type of shares”. A company trying to offer shares is not exactly going to say, “This is dangerous and you may well lose money”. Most employees will not be able to afford to pay the upfront costs of income tax and national insurance, and may not benefit at all from the capital gains tax exemption, given the current annual individual exemption limit of £10,600. This means that only the most senior employee shareholders on high salaries will benefit from this new scheme, not average workers. I thought that they were the ones who we were trying to attract into the scheme. Robin Williamson, technical director at the Low Incomes Tax Reform Group, put this more bluntly when he stated that employees will lose universally available employment rights for a tax relief from which they might never benefit.

The Government have taken many steps forward to help SMEs, but this is a step in the wrong direction. It asks the average British employee to give up his or her rights in the workplace in exchange for shares in a company that are likely to yield very little other than an income tax charge at the front and a possible blue skies capital gains tax many years in the future. It coerces claimants into accepting these terms as they have no options and hurts small companies by eliminating motivational tools that encourage long-term loyalty to the company and leaves them vulnerable to costly discrimination lawsuits.

The best the Minister has been able to say is that this scheme is not for very many companies, but I think that the figure of 6,000 is something of a finger in the wind. It may well be that no companies take it up at all, and I ask your Lordships’ House if this is a sensible way to proceed. This clause needs to be removed now, and faith and trust built up between employers and employees, with them sharing the risks and benefits of growth and success. Clause 27 is not the way to do it.

[Baroness Turner of Camden]

My Lords, I opposed this clause at Second Reading and in Committee, and I do so again. I support the noble Lord’s amendment to remove this clause. I believe this Bill to be one of a series of government Bills designed to remove employment rights from individual workers without seeming to do so. The clause seeks to get workers voluntarily to give up employment rights by pretending to make them part-owners of the company. We are told that it will be entirely voluntary to become an employee shareholder. Will it really, when there is so much unemployment and consequently high concerns about employment security? People will be told that it is in their interests to become employee shareholders and that it will offer better internal progress, possible promotion and security, so that they do not have to worry about these old-fashioned employment rights. It is a way of dividing the workforce as well: an end to collectivity, with no unions to represent or negotiate for workers or to press for higher wages.

This Government do not like employment rights. LASPO, which we discussed in this House last year, rules out legal aid on employment law and on welfare. This clause is another way of getting rid of employment rights which previous generations fought hard to establish. The Government want tame workforces, where employers can hire workers—cheaply of course—and get rid of them easily when no longer required; in other words, disposable people. It is really surprising why this should be regarded as modern when it takes us back about 120 years. I do not believe that people should ever be regarded as disposable. I oppose this clause because that is what it is all about. The possession of shares in no way compensates for the loss of employment rights such as the right not to be unfairly dismissed, the right to a redundancy payment in suitable cases; the right to flexible working, and the rights relating to constraints on the notice about maternity and parental leave. I do not really believe that it is intended to.

I do not think the Government will succeed with this. Good employers do not like it. Shareholding schemes already exist in some enterprises without workers having to give up employment rights in order to participate—the John Lewis Partnership is one such enterprise. This clause is backward-looking and dishonest. The Beecroft recommendations were widely opposed when pronounced and it was clear that they could not be introduced in quite that form, so we have Beecroft by the back door, to persuade workers voluntarily to give up employment rights to which they are currently legally entitled. We should throw out this clause. The TUC is against the clause and tells us that it has the potential not only to remove employment rights but to cause hardships to employees and their families. It can also open up damaging tax loopholes, to which reference has already been made. It is thoroughly unpleasant and should be thrown out by this House.

[The Lord Bishop of Bristol]

My Lords, I have put my name in support of this amendment to remove Clause 27 for two main reasons, one general and one specific. In preparing my thoughts on what I was going to say today, I am grateful to a number of family charities, including the Family and Parenting Institute, the Daycare Trust, Working Families and the Fawcett Society, for their efforts in making the case against what I sense many of us instinctively feel is a seriously flawed proposal, which will create many unintended consequences.

Permitting companies to purchase certain rights in this way seems ethically wrong in principle. It is foremost the precedent of allowing employment rights to be bought and sold like a commodity that I believe must be rejected. Basic safeguards against unreasonable employer behaviour should not have a price tag attached to them. To quote from Michael Sandel’s latest book:

“Such treatment fails to value human beings as persons, worthy of dignity and respect; it sees them as instruments of gain and objects of use”.

For example, the right to protection against unfair dismissal, through placing a responsibility on employers to act reasonably, discourages arbitrary behaviour and the sham redundancies that can be used as a cover for discrimination or to penalise whistleblowers. It is not enough to give employees who have such unfortunate experiences recourse to an employment tribunal; employment law must discourage the behaviour from taking place at all. Likewise, redundancy payments are a modest but important safeguard for employees, providing a minimum cushion to support people who have lost their jobs and have family and financial commitments. Employees acquire these rights only after two years of service and they represent a proportionate responsibility for employers whose employees have made a long-term commitment to their businesses.

These safeguards are particularly important because there is no provision for advice for jobseekers before taking up this kind of contract. This point has been well made. I expect therefore that many workers who find themselves in the employee shareholder category will be those who are most vulnerable to poor employment practice, where the imbalance in power and financial means between employer and employee is most marked. Employment law is effective precisely because it constitutes a coherent framework based on clear principles of fairness and responsibility. Allowing companies effectively to buy off those rights undermines the integrity of that framework.

More specifically, I am also very concerned that employee shareholder contracts are not family-friendly and could discriminate against women. Women, particularly those with caring responsibilities, are most likely to exercise the right to request flexible working and will be most affected by the requirement to give longer notice periods when returning from parental leave. They will find it more difficult to take up the employee shareholder status and may be indirectly discriminated against in the recruitment process as a result, either being overlooked by potential employers or pressured into accepting the status as a condition of a job offer. Whatever the take-up of this new employment status, it will create a new subset of jobs that are unsuitable for many parents and carers.

Furthermore, the proposal reinforces inaccurate perceptions among some of the business community that flexible working is a burden to be avoided if at all possible. I strongly believe that society as a whole shares with families a responsibility to support those with caring responsibilities. One way in which we express this collective commitment is through promoting the rights of parents and carers to work flexibly. Removing these protections for some workers sends a negative message about the value of flexible working rights, undermining the very real progress that has been made in this area in recent years.

As currently constructed, the proposed employee shareholder status is fundamentally flawed. It puts a price on employment rights that should never be up for sale and takes a step backwards in efforts to promote a more family-friendly employment culture. For these reasons, I hope your Lordships will support this amendment.

16:45

[Lord King of Bridgwater]

My Lords, I am delighted to follow my own Bishop, who represents a city in which for a considerable number of years I had the privilege to work in industry and to have considerable responsibilities for employment and factory management. I have found this experience extremely valuable in addressing some of the issues that are before your Lordships’ House.

As my noble friend may know, and as the noble Lord, Lord McKenzie, will know, I was very robust yesterday in supporting the Government’s main programme to restore our economic strength. Today, however, I have to say that I regret the approach which the Government are taking. I am a very strong supporter of employee share ownership. Indeed, the great company in which I worked in Bristol was exactly like John Lewis, and every single employee enjoyed substantial bonus arrangements at the end of the year in a profit share. It is a valuable way of building up employee relations throughout any workplace.

I recognise the real challenges for employers at the current time, the complexity of legislation as it has increased and the need to try to make sure that the legislation that we pass, often with the best of intentions, does not become a substantial block to employment. For example, I welcome the fact that the exemption period for the unfair dismissal arrangements has been changed from one year to two years. However, that is where my support stops. My noble friend will know my views on this because I made them very clear to him. I express my appreciation for the very courteous and diligent way in which he sought to respond to a number of the points that I and others have made. I am sorry, for reasons which I will give, that the Government have got us into this position.

I think that it was Field Marshal Lord Alanbrooke who said that Winston Churchill used to have some wonderful ideas and some very stupid ones as well, and that his job was to determine which was which and make sure that the former were pursued and the latter quickly dropped. When I had some responsibility for the reform of employment law under the noble Baroness, Lady Thatcher, a number of people came to me who fitted exactly into that category of having some very good ideas and some pretty stupid ones as well, and one had to try to distinguish between them.

As soon as I heard the announcement of this proposal and of the brief period of consultation which would take place on it—and I understand that 92% of those who responded to the consultation were against the proposal—I carried out my own consultation. I have not found anybody yet who is in favour of the proposal or who says that they think that they will use the provision. I accept that the noble Lord, Lord Flight, has a good point, because he has huge experience of the City of London. I can see that very bright people, anxious to be successful and to enjoy good financial reward, and who are confident in their own judgment, might be prepared to embark on this course. However, if one then looks at the generality of SMEs and at the range of industry and employees up and down the country, one sees that the balance is completely wrong.

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”. In relation to the earlier amendment we discussed the complexity of the tax arrangements which might apply and the complexity around the type of stock being offered—whether it is stock that cannot subsequently be sold. Given the overall complexity of this, is it a fair arrangement that an applicant for a job can be told that he can either take the job on this basis or not take it? I know exactly what the employer will say—“Well, do you want the job or don’t you?”. With a queue of 25 waiting outside, nobody can be happy.

I am trying to say as forcefully as I can that I am a strong supporter of the Government. I hate standing up here in the presence of all your Lordships to criticise something, but I have a greater duty to the Government—to prevent them going down a track which would lead to some really unhappy consequences. The opportunity provided by Clause 27 could be used by some very dubious employers indeed, and a large number of their employees could be deprived of their employment rights. If that happens there will be a feast for lawyers. With the greatest of respect to the noble Lord, Lord Pannick, he will do himself out of some work if this clause is omitted, because lawyers would have a field day.

With the opprobrium that could return to the Government as a result of this proposal, my duty is to give to my noble friend and the Government the best advice that I can from my own experience. I cannot support this clause. It is not at all the right way to go forward. I strongly support any sensible measures to help employers, and I welcome and congratulate the Government on the significant increase in private sector employment, but I say to them: do not pursue this route; it is the wrong way to go.

[The Earl of Erroll]

My Lords, I will make a couple of quick points on this. I keep hearing this tale about how power lies with the employers. Noble Lords talk about large companies that have expensive and well staffed HR departments and lawyers who work on this full time. I am afraid that the SME world that I live in a lot of the time is not like that. There, you cannot afford it. When you employ one, two, three, four or even up to 25 people, you cannot afford expensive HR advice every time you twitch, move, open your mouth or anything. That is what we have got down to because people say that the power lies with the employer. It does not.

We are seeing more and more vexatious demands over discrimination. In employment law, cases of sex, race, disability and age discrimination immediately mean unlimited liability. That means that your house and everything goes. If you are not a company—you may be a sole trader as a small employer—you will lose everything and be out in the street. Everything will be taken from you. If you incorporate, you are now told you are doing it for tax avoidance or evasion purposes and the press have a go at you for that instead. So in what way are you supposed to protect yourself?

The power may lie with the large employers. I do not know. I am not in that rich and rarefied world of some of the Silks who sit here and can afford that. As a small businessman I, and people like me, cannot afford the noble Lord, Lord Pannick. It would be wonderful if we could because we might get some protection as employers. For once, he might not represent the employee. I fear that it would normally be the other way round and we know who would win when someone was confronted with his incisive way of thinking.

All I want to tell noble Lords is that the world is not how some people see it. There are everyday problems out there and they limit employment. At the moment, half the people in the country are employed by microbusinesses and small and medium-sized enterprises of up to 250 people—there are very few in the bracket above 25 to 40 and below 250. Those are the people who need protection from a lot of this and we are not giving that in employment law as it stands today. Whatever noble Lords say, it is not there.

The charity world is another case. I know a charity that needed to rejig some things and wanted to bring in someone with greater expertise. It therefore needed another someone to move on to something else. It thought that it had reached a compromise agreement with him but then this chap did not sign it. When it came to the point of the tenth or eleventh month, when the charity thought it was all about to happen, he said, “I have not signed it yet and I have just gone to see some lawyers”. He is now trying to plead all the discriminations. I cannot see how he can, and nor can anyone else, but the cost of fighting that will be phenomenal. The fear of everyone, particularly the trustees of the charity—who are terrified—is their exposed position if he wins because the case can be proceeded against them. That is the bit that noble Lords forget about. They live in a dream world where we have a fair legal system, tribunals think fairly and lawyers always act in the best interests of law and not of these people. It is not like that. Therefore, I would like to see Clause 27 come in so that at least some people might negotiate a different arrangement. It is there for small businesses not large ones.

[Lord Forsyth of Drumlean]

The noble Earl made a speech about employment protection being excessive. I am not sure I understand how Clause 27 would alter any of the things that he complained about, with the one exception of the request for flexible working, unfair dismissal and redundancy payments. All the issues that he referred to would still apply if Clause 27 went ahead.

[The Earl of Erroll]

Even better. Passing it does not matter then, but at least it would send the right signal and some people may relax. If, as the noble Lord says, it will not change the unfair dismissals process, we can all proceed happy that that continues. Why object? At the moment, I know that the law is biased in favour of the employee, not the other way round. With that, I will sit down. I would love to see other things tried. At the SME end, we need signals sent by the Government, and this is one.

[Lord Lea of Crondall]

My Lords, I think that it is fair to say that the noble Lord, Lord King of Bridgwater, has some of the best political antennae in the business. I therefore think that we can look forward with some interest to the response of the noble Viscount, Lord Younger of Leckie. In debate in Committee, precisely the proposition made by the noble Lord, Lord King—that in effect people could say, “You can only get this job if you sign up to the scheme”—was made. The Minister said:

“I have not seen the guidance”—

the 3,000-page guidance—

“but I do not believe that it will say that”.—[Official Report, 6/2/13; col. 289.]

Two questions arise. First, can the Minister tell us definitively this afternoon, before we vote, whether the noble Lords, Lord King of Bridgwater and Lord Pannick, are correct or incorrect: yes or no? I will not detain the House, but what baffles me, picking up the point made by the right reverend Prelate the Bishop of Bristol, is how on earth the Government got the idea that this was convincingly presentable as part of the moral platform for modernising capitalism. As I think that the right reverend Prelate said, straight out of the Bible we have the precept, which is probably in the Koran as well, that you do not sell your birthright for a mess of pottage—that was Esau, I recall. Let me dub this Esau’s clause. It is incumbent on the Minister to give us a brief reply on that question.

[Lord Forsyth of Drumlean]

My Lords, I think that this is a positively dreadful clause. Perhaps I should declare three interests as a former Minister of Employment, as chairman of a start-up run by my daughter and as someone who has set up a number of businesses in the past. I could not believe the clause when I read it. It seemed to involve two really good things. I have much sympathy with what the noble Earl had to say about the burdens placed on businesses and the costs of going to an employment tribunal, but that is an argument about the extent to which employment protection legislation should apply and the costs associated with sorting out whether there has been an injustice to employees.

Employee share ownership is a very desirable thing up to a point. It can go too far if your salary and your savings are tied up in the shares of the company that is your employer but, as a general principle, giving people a stake or encouraging people to take a stake in the business is part of being a good and successful employer. I very much agree with what my noble friend Lady Brinton had to say about creating a culture in a company where people can feel part of a team and motivated. The idea in this clause has all the trappings of something that was thought up by someone in the bath, taking these two ideas together and believing that they made for a great scheme. In fact, it is damaging to both. I do not propose to reiterate the careful and precise arguments that the noble Lord, Lord Pannick, made in moving this amendment, which I support and which I will vote for if he chooses to divide the House on it.

17:00

The most important thing in all this, leaving aside the details, which the Government have clearly not thought out, is the principle that employment rights, although the noble Earl may feel that they go too far, are enshrined in statute and are not negotiable. They give the employee a position where the employer cannot ask them to give up those rights, because they are enshrined in statute. What I find offensive about the clause is that it does not seek to argue, as I would, that the Government’s proposals to extend maternity leave are costly and unnecessary. I would not go down that track. If those rights are in place, it is essential that the employee is not put in a position where he is under pressure from the employer. The clause is an absolute gift to the Gradgrinds of this world because they will be able to use it to force people to give up employment rights, which are essential, although we might differ over what their extent should be. It is a foolish measure for that reason.

As for the practicalities of the clause, shares are not defined. I am not going to repeat the points that I made in our debate on the previous amendment about the difference between options, shares, shares that vest and the tax implications of that. As a Conservative, I am very proud of some of the employment legislation. The noble Lord, Lord Pannick, referred to the 1992 Act, which says that in seeking compromise agreements, advice is to be taken. Normally the employer pays for that advice up to a certain figure, which is normally up to £500 or £1,000. However, having to go through the whole business of valuing shares of over £2,000 and getting advice will at the end of the day cost more than £2,000. The valuation of shares in unquoted companies is extremely difficult, especially in start-ups where the employer might think that he has the next Google on his hands and that the shares are worth considerably more than the employee. How does one set about that valuation, and what are the implications of taxation?

In his letter, my noble friend Lord Younger says, “Oh well, this is something that would be put on the self-assessment form”. How would you reach a view on what the value should be? If I may switch sides for a moment, if I were an employer, why on earth would I want to give away shares in a company to employees who I had doubts about and thought I might want to sack? Why would I want to give away shares, which are a very expensive way of raising capital or rewarding employees, especially in a start-up, if I had doubts about the competence of the employee? You would not want to do that. If I were an employee in those circumstances, why would I want to take on these shares and give up my employment rights if I did not feel that my employer valued my contribution and that I was part of the team? Therefore, why would I want to give up these rights?

Another thing that I find extraordinary is the attitude of the Business Secretary, who led a great media campaign when the Beecroft proposals were put forward and talked about how outrageous it would be that people could be dismissed without cause. At least Beecroft did not take away the entitlement to redundancy payments. This proposal is worse than Beecroft from the point of view of the employee, yet for some mysterious reason the Business Secretary has obviously signed up to it.

This is not limited to high-tech start-up companies; it applies to all companies. Let us suppose that we have a high-tech start-up company, it does terrifically well and the founders of the company wish to IPO it and raise more capital to expand their business. What are they going to do when they have perhaps 20 or 30 former employees who they dismissed still hanging on to the shares and pretty angry about having been dismissed? The practicalities, costs and difficulties of making this work have simply not been thought through.

Then we have all the opportunities—you do not need to be a smart accountant or lawyer to start thinking about them—for tax avoidance schemes and the rest, but the final blow for me, if I had any doubts about this, was when the noble Lord, Lord Pannick, said that guidance had been issued, which should have been available to this House at an earlier stage and should certainly have been available to the other place, which says that if someone refuses to take this deal they are no longer able to obtain jobseeker’s allowance. That is absolutely unacceptable, and I am astonished that the coalition would even think of bringing forward such a measure. This is a very ill thought through attack on the employment rights of individuals that creates complexity for small businesses. That is not to say that I do not believe that there is scope for reducing the costs and burdens on small businesses in respect of employment, but this clause is not the clause to do that.

[Lord Morris of Handsworth]

My Lords, I rise to support the amendment removing Clause 27. Let me make it absolutely clear that I am a passionate believer in—and advocate of—the stakeholding society, the stakeholding community and, of course, the stakeholding workplace. Applied to the workplace, the stakeholder principle can deliver workplace harmony, increase productivity and change the culture. I want to see all British workers benefit from the success of their companies, but instead of a few shares that may benefit only a few who have given up their rights, why can we not have a more imaginative approach, for example a profit-sharing scheme through which everyone can benefit from the prosperity of their company while maintaining their rights?

I very much regret that at this critical point in our social and economic history we are still having a debate about the disempowerment of British workers. Frankly, Clause 27 does nothing to increase productivity, improve the quality of what we do or, above all, address issues around investment, research, plant and equipment, people and education. What is needed in the workplace is good industrial relations. Indeed, someone should tell the Chancellor that you cannot build a world-class economy by creating first-class and second-class workers. Under these proposals we would have two groups of workers: workers with rights but no shares, and workers with shares but no rights. What about those who work in the public sector: nurses, doctors, those who sweep our streets or teach our children? Where is their reward for good industrial relations? Where there is harmony in the workplace, Clause 27 is guaranteed to bring strife.

When will the Government understand that some things are not for sale? Workers’ rights are not for sale. They cannot be traded. Dignity at work is not for sale and cannot be traded. The fight against injustice is not for sale and cannot be traded. Clearly, the Government do not understand that there are some things that money cannot buy and that shares cannot put right: dignity at work, self-esteem and fundamental human rights. Clause 27 strikes at the very heart of these principles, which this nation holds so dear. It is sad that the Bill will do nothing to make the workplace more harmonious or productive. Indeed, Clause 27 undermines workplace harmony and I hope that the House will oppose it.

[Lord Vinson]

It is a privilege to follow such an impassioned speech, as well as the extremely logical speech of the noble Lord, Lord King of Bridgwater. I have spent a lifetime promoting wider share ownership, and was for 10 years chairman of the Industrial Co-partnership Association.

All the points that show this clause to be madness have been made. It is extraordinary, in view of the very sensible criticisms in Committee, that the Government have proceeded with this and have seemed to ignore every single comment that this House, with its great qualifications in this area, has put forward. I wonder who is on the receiving end of our help in trying to forge better legislation.

The noble Lord, Lord Flight, was perfectly right to say that legislation to safeguard employee rights has reached the point where it is now preventing jobs from being created. Far from protecting jobs, it has reached the point of job destruction. The right reverend Prelate raised the point about flexible working. Try running a small business, nursing home or anything you care to think of with everybody asking for flexitime. Who mans the ship? It is important that you have core staff working through, to more or less hold the thing together. Of course, there is a nice element of human relationships in small businesses, and they go out of their way to try to meet employee needs in that direction, but pretending that you can bring in a level of compulsion on flexible working would only be done by somebody who has never actually experienced the first-hand difficulties of a running small business.

In Committee I made the point, which has been cited today, that to encourage wider share ownership is good. To recognise that employee protection has possibly been overdone in a number of instances is also right. However, to muddle the two together, to make a quid pro quo in this way, strikes at the very heart of the trust and sense of common purpose that all businesses are trying to build up. Therefore, this clause must be resisted on all fronts.

[Lord O'Donnell]

My Lords, I support the amendment. On this Budget day, it behoves us all to think about how we stimulate growth. This particular clause would actually be very harmful to growth; I agree in particular with what the noble Lord, Lord Forsyth, and others said.

When I was in the Civil Service, the Government set up the Red Tape Challenge initiative. That was really important, and there is a second round of that in the Budget today. It is hugely important that we tackle the issues that are holding businesses back, but I am not sure that this proposal emerged from the Red Tape Challenge or that businesses came forward with it.

How does the proposal fit with the Government’s policy of pushing mutuals, which I strongly support? There is a technical point as well: what we economists call adverse selection. If an employer is offering this, they are probably the kind of employer that you do not want to go near. If an employee accepts it, it is probably because they do not really understand what they are doing. On those grounds, it is bad.

I also take the point of the right reverend Prelate and the noble Lord, Lord Morris, about the moral case. I expected to hear the biblical reference: we know that in the old days the price of slavery was 20 or 30 pieces of silver. Is it now £2,000?

17:14

[Baroness Wheatcroft]

My Lords, many noble Lords today have explained that this is not the way to get the workplace flexibility that we need, and I agree. This clause purports to construct a new class of employee shareholder, but there are already 3.5 million people who believe themselves to be employee shareholders, in more than 5,000 companies. It threatens to give the wrong idea of what employee ownership is all about.

Employee share ownership brings many good things, such as lower absenteeism, staff turnover and higher productivity. The Deputy Prime Minister is a fan. He is so enthusiastic about this concept that in January last year, in the City, he suggested that perhaps employee ownership was such a good thing that the Government should consider giving employees the right to ask for shares in their business. We seem to have turned that round in the most extraordinary way. I cannot believe that he envisaged a scheme whereby employees would have to give up their rights in order to become shareholders.

This proposal troubles me, as it did in Committee, because I fear that it will bring out the worst in business, and not the best. We have heard about so many things that are wrong with this clause. The original government consultation was responded to by 184 organisations. Only three said that they might consider adopting it. However, being told that probably very few will take it up is hardly a recommendation.

There are some supporters. The Institute of Directors has now come out in favour of the proposal, although when I asked if they had consulted their members, the answer was no. The chief executive of the British Venture Capital Association has also come out in favour. He says that in every start-up that he has ever been involved with, employees have been given shares. I am sure he is right, and I am sure that it has worked. Clause 27 might be more acceptable—I doubt it, but it might—if it were restricted to start-ups, where the rate of failure is obviously clear, and where the potential of gain, if one were lucky enough to be employed by Google or the like, would be an attractive alternative. However, the scheme is not restricted to start-ups or even small companies. Instead, it will appeal to those middle-sized and larger businesses that may see it as a way of becoming part of what is already being referred to as the “Gradgrind tendency”.

Let us imagine a group of employees who have sold their rights—for a mess of pottage, as we have heard—and another group who have not. The company falls on hard times and has to declare redundancies. Who will be first in the line for redundancy? I would hazard a guess that it will be those who have shown the most commitment to the business by becoming employee shareholders under the new scheme. That is the sort of perverse effect that we are likely to see if the clause goes through.

This legislation risks giving employee ownership a very bad name. I would not advocate the idea, suggested by the Deputy Prime Minister, that we should give employees the right to request shares in their company. However, to give those in larger companies the option of taking shares and giving up their right to request training seems extraordinarily perverse at a time when we need the best-skilled workforce we can get.

There are so many reasons why this clause should be opposed today. Much as it grieves me to speak against my Government, and much as I see many things in the Budget that should be applauded, this would end in tears.

[Lord Flight]

My Lords, as I suggested in our debate on the previous amendment, I accept that some improvements could be made to this clause, and it is unlikely that its take-up will be substantial if it goes ahead as it is. I also certainly agree with the principle that it has to be voluntary. If it was the case—I am not sure that it is, despite the advice of the noble Lord, Lord Pannick—that people lost their jobseeker’s allowance if they did not accept employment, I think that is wrong. But this House should listen a little more to the noble Earl, Lord Erroll, and those who really are engaged at the SME level. It is very interesting that nearly all those opposed to this clause had nothing to comment on the extent to which employment law has clearly become discouraging of employment and has, in a sense, gone too far in the protective direction, generating massive income for lawyers, with too many vexatious claims. This clause is, in some senses, no more than a perhaps not totally well thought out attempt at an experiment to see what happens and whether we can agree, with benefits to the employee, to have much less demanding employment law.

I am a little concerned that those opposing this Bill are, to me, today’s establishment from all sides of the House, and not the people at the coal face who are trying to promote small businesses. The clause could be polished up—I hope that it will be—before it is enacted, and some things may be wrong, but at least in an important way it accepts the point that many others do not seem to accept, which is that employment law in this country, particularly in the world in which we live today, is costing us jobs and prosperity, and something needs to be done about it.

[Lord Adonis]

My Lords, in my eight years in the House I have never witnessed a government policy with less support not only in Parliament but within the Government themselves. We greatly admire the stoicism of the noble Viscount, who will read out his brief in a moment, but it is no secret that his own Secretary of State, Vince Cable, does not support this clause. This is what he said when he vetoed the original Beecroft plan to scrap unfair dismissal rights:

“Britain has already got a very flexible, co-operative labour force. We don’t need to scare the wits out of workers with threats to dismiss them. It’s completely the wrong approach”.

Most Conservative and Lib Dem Back-Benchers clearly think that it is the wrong approach, too. Only two government Back-Benchers have supported this clause at any stage in our debates, and they have been not only outnumbered on their own Benches but massively outgunned, not least by the powerful speeches made this afternoon by the noble Baroness, Lady Brinton, the noble Lords, Lord Forsyth, Lord King, and Lord Vinson, and the noble Baroness, Lady Wheatcroft.

To remove this clause today would be an act of mercy to the Government, let alone to the employees adversely affected by it. Justin King, the chief executive of Sainsbury’s, who was on the Prime Minister’s business advisory group, said that trading basic employment rights for shares was,

“not what we should be doing”.

He went on to say:

“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”.

That is absolutely right.

We are talking here about the right to statutory redundancy pay, the right not to be dismissed unfairly, the right for parents and other carers to request flexible working, and the right to request training. The idea that depriving employees of these basic rights is somehow going to boost growth is not supported by a single employer I have met, let alone employee. Out of the 219 responses to the government consultation, only five welcomed the idea. The noble Lord, Lord Deben, summed up the mood of the business community and the House when he told us in Committee:

“I cannot imagine any circumstances whatever in which this would be of any use to any business that I have ever come across in my entire life”.—[Official Report, 6/2/13; col. 293.]

He might have added that protection against unfair dismissal and the restriction on contracting out from basic employment rights were introduced by Conservative Governments in the 1970s and 1980s.

Throughout our debates, I have emphasised that we on this side strongly support wider employee share ownership, and we backed proposals to that effect in the Nuttall report, published only eight months ago. However, that is entirely different from trading shares for basic rights in what is generally an unequal employment relationship, which is the very reason why employment rights exist in the first place and why they have been built up by Governments of all parties over many decades.

I stress that the Nuttall review did not so much as mention trading shares for rights, and the Minister has been quite unable to explain to the House why, if this proposal is such a good idea, it was not even considered, let alone endorsed, by the most comprehensive review of employee share ownership in recent years. Meanwhile, the Employee Ownership Association has said:

“There is no need to dilute the rights of workers in order to grow employee ownership”.

However, let me put these arguments of principle aside for a moment. The policy is internally flawed in two key respects. First, its key rationale is that it will promote growth by reducing employment law red tape for companies. In fact, as the Law Society argues cogently, it will create more red tape, not less, because it is bound to lead to costly litigation. In particular, it will lead to a rash of claims of discrimination because discrimination will be the only avenue for aggrieved employees to pursue once they have no rights to redundancy pay or unfair dismissal.

The second respect in which this proposal is internally flawed is that the Government claim—the noble Viscount repeated the claim in the previous debate—that this is an entirely voluntary new employment status, with no coercion on anyone to accept it. The problem is that on any fair assessment this claim is simply not true. There is no requirement in the Bill for employers to provide independent advice to those being offered these shares-for-rights jobs. It is therefore likely that individuals, particularly the more vulnerable and low paid, will not be properly aware, if they are aware at all, of the rights they are forgoing in return for shares worth as little as £2,000 at the time they are issued—shares that could easily be worthless by the time they come to sell them. That is why, in Committee, we supported amendments requiring independent advice to be made available before individuals sign shares-for-rights contracts, but the Government refused to accept those amendments. This being the case, Clause 27 stands condemned by the Equality and Human Rights Commission, which says in its advice to your Lordships:

“A failure to include effective safeguards in the proposals would make it strongly arguable that the proposals indirectly discriminate against those less likely to be able to make a properly informed or truly voluntary decision, for example, people whose first language is not English, those with learning disabilities, or young workers”.

Worse still is the position of individuals on unemployment benefits, who far from being given a voluntary choice about accepting no-rights jobs are being told by the Government that they stand to lose their income if they do not do so. In order to make it look as if they were sympathetic to these concerns, Ministers said that they would amend the guidance to DWP decision-makers in cases of appeal against loss of benefits so that decisions were taken on a reasonable basis. Despite months of badgering the noble Viscount and his department, we did not even see this revised DWP guidance until last week. I am very grateful to him for finally making it available to us. Now that we have it, I can see why the noble Viscount thought concealment the better part of valour, as the noble Lord, Lord Pannick, said so eloquently, for it states in terms:

“Employee shareholder vacancies should on the whole be treated in the same way as any other vacancy”.

In other words, if the jobseeker does not take a no-rights job, they are likely to lose their benefits. I cannot see what is voluntary about that transaction.

As Paul Callaghan, a partner of the respected legal firm, Taylor Wessing, puts it,

“shares-for-rights contracts will be optional to the extent that eating and drinking are optional”.

As if all I have said so far is not enough, there is another major and completely unacceptable aspect of this shares-for-rights proposal. The independent Office for Budget Responsibility has reported that it opens up a £1 billion tax avoidance loophole. During Committee, the noble Baroness, Lady Brinton, quoted the coalition agreement, which says that the Government will,

“make every effort to tackle tax avoidance”—

and,

“will seek ways of taxing non-business capital gains at rates similar or close to those applied to income”,

yet Clause 27 does precisely the opposite.

In his letter to me last week, the Minister confirmed that the first £50,000 of shares given to an employee shareholder will be free from capital gains tax when they are sold. It is for this reason that the Office for Budget Responsibility estimates that the scheme will cost the Exchequer £1 billion a year when it is mature. At this point, we enter the world of the surreal.

17:30

[Lord Flight]

I cannot see the argument that making shares free from capital gains tax is an act of tax avoidance or improper tax treatment, when one considers the other side of the coin, which is that a valuable employment allowance is being given up. It is not dissimilar to other situations where there are tax incentives to invest.

[Lord Adonis]

I am sorry that the noble Lord has difficulty in seeing the argument. This is creating a completely new branch of the tax avoidance industry. If that is not obvious, not many obvious statements have been made in the House this afternoon.

[The Earl of Erroll]

Excuse me, but I cannot let the noble Lord get away with that. It is the same as any other employee shareholding scheme; to suggest that it will create new tax avoidance, when the Government are trying to introduce tax-efficient schemes for investment purposes, is hammering people ridiculously.

[Lord Adonis]

My Lords, a new scheme is being introduced by this Bill. It is not an existing scheme. If that were the case, we would not be here debating it. It is the new opportunities that the scheme creates for efficient tax planning, if I may put it that way, that has led the Office for Budget Responsibility to say that it will lead to the Treasury forgoing up to £1 billion.

At this point, we enter the world of the surreal because we are debating a tax loophole that will add £1 billion a year to the deficit. The proposals are from a Chancellor of the Exchequer who tells us day in and day out—indeed, only a few hours ago in the Budget—that reducing the deficit is the nation’s overriding priority.

[Lord Flight]

My Lords—

[Lord Adonis]

My Lords, I have given away twice to the noble Lord. He has had plenty of opportunity to make his case.

[Lord Ahmad of Wimbledon]

My Lords, we are on Report. Only points of clarification should be sought, and I ask the House to respect the rules.

[Lord Adonis]

I am happy to give way to the noble Lord because every time he intervenes he maximises the vote in favour of the amendment.

[Lord Flight]

The noble Lord clarified my previous point that the scheme was a new scheme that did not create tax avoidance. If the scheme did not exist, there would be no tax revenue at all. 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.

[Lord Adonis]

My Lords, who knows to what the funds would have been devoted before the scheme was created? That is the answer to the point about whether the scheme leads to more efficient tax planning of a kind that leads to real income being forgone, not just additional income that might be generated from these contracts.

To conclude, by removing this clause we will be saving the Chancellor from himself; we will be saving the Government from themselves; we will be doing our basic duty as a revising Chamber; but, more importantly than any of this, we will be protecting decent hard-working people from the unfairness and humiliation of being stripped of basic rights at work. Our duty is clear.

[Lord Razzall]

My Lords, I was hoping to precede the noble Lord, Lord Adonis, but he was too far out of his trap, and I am sure that he wanted to speak immediately before the Minister. It is not often that we have the perils of coalition government being laid as bare as it has been in the House this afternoon. It is particularly refreshing to see that the strains in the coalition are not just among the Liberal Democrats. I sometimes wish that the noble Lord, Lord Strathclyde, had been in his place this afternoon to see that it is not only the Liberal Democrats who cause problems within the coalition discussions.

[Lord Ahmad of Wimbledon]

My Lords, I have already indicated that there are specific rules on Report that need to be respected. I think it is the will of the House that we should now hear from the Minister.

[Lord Graham of Edmonton]

Good luck.

[Viscount Younger of Leckie]

My Lords, we have discussed the employee shareholder clause at length, and some Members of this House in Committee questioned the merits of establishing a new employment status. Several noble Lords raised concerns about who will use the new status, the quality of the guidance, to whom it would apply and when it would be available. Concerns were also raised about income tax and jobseeker’s allowance as it applies to those who are seeking employee shareholder status. I am grateful to noble Lords from all sides of the House for their contribution to the debate, and I want to take some time to address some of the main concerns about the new status—and it is a new status. I acknowledge the negative comments that have arisen today, but it is the Government’s belief that there is demand for a new employment status of employee shareholder, that it will be used, that it will benefit employers and individuals, and that, in turn, it will help the economy to grow.

We believe that the two existing employment statuses of worker and employee do not offer enough flexibility to employers or offer real opportunities for individuals who want to share the rewards of a growing business. There is support for this new employment status, and we have evidence of that from the Institute of Directors, the British Venture Capital Association, the Federation of Small Businesses, Stuart Rose and, at the other end of the scale, from the heads of many small businesses, including Will Butler-Adams, the chief executive of Brompton Bicycle Ltd, and Jamie Murray Wells from Glasses Direct. I could go on.

By creating a new employment status with fewer rights than employees have but more rights than workers have, we are providing a new contract type to give employers more flexibility and options in how they structure their workforce. This new employment status will support this Government’s ambition of securing a strong UK labour market where individuals can have greater and potentially more rewarding access to the work they want. Employers can secure the labour that they need at the right time in order to capture new markets and sell their products in an increasingly competitive global environment.

This new status is most likely to be attractive to young and growing companies, which will be able to share potential future growth with their staff. The employee shareholder status may tip the balance in favour of these types of companies as they seek to attract high-calibre people. This is because companies will be able to offer shares that will not be subject to capital gains tax, as we have heard today, and it is a radically new approach to taking people on.

We should be developing and supporting innovative ideas that give employers new tools to manage their workforce effectively and to succeed. This new employment status is one such tool and we should give employers the option of using it. Indeed, with the interest expressed, it would be an opportunity missed to deny them the use of this novel tool.

When we think of people working, we automatically have in mind employees with substantial employment rights. However, we must not make such assumptions. Not all individuals in the labour market are employees. Some are sole traders, others are self-employed and some are defined as workers. These individuals do not have a whole host of employment rights, as I outlined clearly in Committee.

Employee shareholders will have more employment rights than workers and they will own thousands of pounds-worth of shares in the company or parent company for which they work. Because these shares are exempt from capital gains tax, employee shareholders may be in an advantageous position. Of course, the risk remains that the shares held may decrease in value, emphasising the greater risk and reward-sharing that this employment status represents. I think that those points on the negative side have been made pretty clearly today.

I now turn to how the new status will work. We must all remember that before an individual can be considered to be an employee shareholder, paragraphs (a), (b) and (c) of new Section 205A(1) introduced in Clause 27 stipulate that three criteria must be fulfilled. This means that if an individual does not agree to be an employee shareholder, they cannot become one; it means that if an individual does not receive at least £2,000-worth of shares, they will not be an employee shareholder; and it means that if the company tries to charge for the shares or does not give fully paid up shares again, the individual will not be an employee shareholder. If the individual signs what looks like an employee shareholder contract without all three qualifying criteria being fulfilled and still works for the company, that person is likely to be an employee and will be entitled to all the employment rights associated with that status.

The new status confers more advantages than beneficial tax treatment alone. I intend to give a much more positive picture than that given by several noble Lords today, including my noble friend Lord Forsyth. Let us consider what this means for the employer of an employee shareholder. An employee shareholder is more likely to generate ideas for growing the company and will have a greater incentive constantly to strive to improve a product, effect a sale or streamline a system. Because the employer knows that the employee shareholder is an owner, the employee shareholder is more likely to be listened to. The employee shareholder status is more likely to encourage co-operation and cohesion between the employer and employee shareholder as their personal goals are more aligned. I listened carefully to my noble friend Lord King and was pleased that he conceded that this could suit certain companies and certain employees, which is precisely what we are saying.

Our companies are competing in a global race to increase their competitiveness and market share, and to create wealth. In turn, this will create new job opportunities. Employee shareholder status presents our companies with an additional option to employ people who will invest in the long-term success of the company, lowering labour turnover and associated costs.

Let me turn now to guidance. During our debate in Committee, guidance for employee shareholders was discussed at length. As promised, a full pack of draft guidance was laid in the Library of the House on 14 March. This has given your Lordships the opportunity to see what the employee shareholder guidance for individuals, companies, DWP jobcentre advisers and decision-makers will look like. It is something that we promised. It is in draft form. It will continue to be drafted. The plan is that in September it will be in its final form. I welcome comments to improve the guidance on all fronts.

We have designed the guidance in collaboration with other government departments, such as HMRC and DWP, and have worked hard to keep it as simple as possible so that it is easily understood by its target audience. Noble Lords will remember that in Committee I referred to a much larger document of 3,000 pages. This has produced a much more simple approach. The guidance is not final. We have tested the guidance with jobcentre advisers and are continuing to test it with the Employment Law Review Business Challenge Panel. Where needed, we will refine the guidance before the new status is used in September this year.

The draft guidance comprises three parts. The first part is guidance for individuals that will make it clear for people considering employee shareholder jobs what employment rights are associated with these jobs, the risks and rewards of being a shareholder and other factors that they may wish to consider before accepting, or otherwise, an employee shareholder role. Secondly, guidance for companies will help them understand the employee shareholder status, what it means for them and how they can use the status within their workforce. The third part is guidance for DWP Jobcentre Plus advisers and decision-makers to ensure that they understand the new employment status.

People in receipt of jobseeker’s allowance will be expected to consider employee shareholder jobs if they match the criteria agreed in their jobseeker’s agreement. This agreement would have been discussed and agreed with a Jobcentre Plus adviser on first attending a jobcentre and would set out the jobseeker’s job goals, availability for work, any agreed restrictions and what steps they will take to look for work. I will return to that in a moment.

I should like to pick up on a number of questions. There were quite a few and I may not be able to answer them all. The noble Lord, Lord Pannick, stated that no evidence was provided about the number of companies that might be interested. I believe he will know that last year the Government published an impact assessment. The background to how we came to the figure of 6,000 businesses is that there are a large number of businesses within the UK. In 2012 figures, it is estimated that there are about 4.8 million, not all of which will be able to use the employee shareholder status, as only companies can issue or allot shares. That is essential for the employee shareholder status to operate.

Just over 55% of all businesses in the UK are registered companies: that is, around 2.7 million. However, not all are estimated to have employees beyond the self-employed owner-manager of the company or a single employee director. This figure is probably less than 1 million. In 2010-11, around 9,000 companies were operating any form of approved tax-advantage share scheme in the UK. There will be more than this operating non-tax-advantage share schemes. Our approximate estimate, therefore, is that around 6,000 companies, as I said in Committee, may use the employee shareholder status, although I acknowledge that it could be more or less. Employee shareholders are a new option for companies, which they can choose to use when it suits their circumstances. It is not so much about whether the figure is 6,000, 4,000 or 7,000; the point is that the opportunity is there for companies to pick this up, or not, as is their wish.

17:45

I now return to the subject of the jobseeker’s allowance. The noble Lord, Lord Pannick, as I mentioned earlier, supported by my noble friends Lady Brinton and Lord Forsyth, questioned whether it was reasonable to require JSA claimants to take on an employee shareholder role. If down the road a jobseeker was seeking a job where benefits might be lost, it would be because they had reached the point when they were defined as a mandated jobseeker. It would be very unlikely and unusual, we think, for an individual to reach the point at which they were mandated, be offered an employee shareholder job and then turn it down. There may be one or two, but it is very unlikely.

Overall, the main point that I want to make is that, when it comes to jobseeker’s allowances, the employee shareholder role, as a new role, is being treated in the same way as that of employee and worker. We believe that it is just as important to move jobseekers into work at whatever level they are looking at.

[Baroness Brinton]

The guidance notes that we saw were quite explicit that the prospective employee shareholder applicant should be treated exactly the same as any other applicant, with the one exception of their financial resources being such that they could not pay the tax bill right at the start. If that is the case, the argument made by the noble Lord, Lord Pannick, myself and others is that, first, that penalises those who are concerned about losing their rights. Secondly—and this is the core question—is it voluntary? The Minister has emphasised right the way through the debates on the Bill that the scheme is utterly voluntary.

[Viscount Younger of Leckie]

It is indeed voluntary, but I would like to clarify that when it comes to a jobseeker seeking a job, they are treated in exactly the same way as other statuses. That is because we believe it is important to move jobseekers into work as quickly as possible, just like other statuses. Periods of unemployment, as we know, can have a most damaging effect on individuals’ long-term employment prospects and indeed earnings. That is why the jobseeker allowance regime focuses on moving claimants into any work as quickly as possible. This remains the case for the employee shareholder should they be mandated and reach the point when they are offered this particular position. We think it is right that they should not be treated any differently in this particular respect.

[Lord Adonis]

I am having some difficulty following the Minister's argument. He says that the acceptance of these posts is indeed voluntary, even though the individual in question stands to lose a substantial part or the entirety of their income if they do not accept the post. Could he explain to the House in what meaningful sense that is voluntary?

[Viscount Younger of Leckie]

It is voluntary in that the individual can decide whether he or she wants to take this particular role. If it has got to the point where they are mandated and there is an issue as to whether they take it or not, there are processes in place to work out how to go forward. That is the process that the noble Lord, Lord Adonis, will know is set as part of the guidance. The decision makers and the jobcentres know how to deal with it on a case-by-case basis.

[Lord Adonis]

This is a really crucial point in our deliberations. The guidance that the Minister circulated to your Lordships says:

“Employee Shareholder vacancies should be treated in the same way as any other vacancy. If a claimant … fails to apply for or accept if offered an Employee Shareholder vacancy … the DM”—

the decision maker—

“will consider a higher-level sanction in the normal way”.

It could not be clearer that those not accepting these posts will be subject to sanctions. Therefore, in any meaningful sense, their decision is not a voluntary one.

[Viscount Younger of Leckie]

I can only reiterate that employee shareholder status is being treated in the same way, and that if in a specific case an issue arises, that is down to the discussions and decisions made at the local level in the jobcentres and with the employees who are seeking work. It is not just work for an employee shareholder as it may be that they are looking at a number of other positions at the same time.

The noble Lord, Lord Pannick, asked why we do not compel legal advice such as compromise agreements. Again, in the same bracket, we would say that this is to do with individuals looking at and accepting employment; it is not to do with departure from employment. We do not wish to treat the entry into employment in a different way. That is where we are.

The right reverend Prelate the Bishop of Bristol raised a number of points concerning whether this scheme is morally wrong. I think he used the expression “the thin end of the wedge” and that it was the beginning of the end for employment rights. I would reiterate that this is a new employment status which offers a different set of rights and mandatory share ownership. The status is not compulsory for companies to use and it will be suitable only 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. As I said earlier, we have been consistent that the new status will not suit all people or all companies, but 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.

The right reverend Prelate also asked about flexible working. The statutory right to request flexible working creates a structure for conversations between employees and employers about changes to the ways of working that will be mutually beneficial. Employee shareholders will have a greater interest in the performance of their employer as it is linked to the value of their shares. We consider that employee shareholders are more likely to request flexible working if they think it will help them and the company, and do not need the statutory right to request. Further, employee shareholders can still make non-statutory requests for flexible working.

The Government want a labour market that works for employers and individuals. We want flexibility so that it is easy for people to find work that suits them and we want to help employers manage their staff more effectively so that they can focus on running and growing their businesses. We want to give individuals more chances to share in the growth agenda and to own shares in their employer. It is the Government’s belief that with this new status we are offering companies more choice and more flexibility. It is a new way of attracting high-calibre talent to growing companies. It may provide a boon to companies and improve UK competitiveness. This status offers individuals something new: employment with favourable tax treatment.

We all recognise that this may not suit everyone, and I have listened carefully to all the comments this afternoon. However, we should not deny people the opportunity to use this status or deny companies in the UK that are striving to grow and are looking for innovative and modern ways of taking people on. We want the House to embrace the opportunity and flexibility that this new status presents, and I would therefore ask the noble Lords, Lord Pannick and Lord Adonis, my noble friend Lady Brinton and the right reverend Prelate the Bishop of Bristol to withdraw the amendment.

[Lord Pannick]

My Lords, I thank the Minister for his comprehensive reply. I sympathise with him because I am sure it was not in his bathtub that this foolish idea was dreamt up. I am very sorry that the Government have not listened in particular to the noble Lords, Lord King of Bridgwater, Lord Forsyth of Drumlean and Lord Vinson, and to the noble Baroness, Lady Wheatcroft. Between them they have years of experience as employment Ministers and in business. Their views echo those expressed in Committee by the noble Lord, Lord Deben, with his business experience, and by many others. They are views that reflect the opinions around the House, not just on the Government Benches but on all sides, on the implications of this unwise proposal.

As your Lordships have heard, concern about Clause 27 is not a partisan issue. It is a question of the damaging effect that this clause will have on employment relationships, on industrial harmony and through the power it will confer on bad employers. Since the Government have declined to listen, it is time for noble Lords to put Clause 27 out of its misery. I wish to test the opinion of the House.

17:54

Division 1

Ayes: 232

---

Labour: 148
Crossbench: 56
Conservative: 9
Independent: 5
Liberal Democrat: 3
Plaid Cymru: 2
Bishops: 1
Ulster Unionist Party: 1

Noes: 178

---

Conservative: 113
Liberal Democrat: 51
Crossbench: 10
Independent: 1
Ulster Unionist Party: 1

18:07

Amendment 50A not moved.

Clause 28 : Orders

Amendments 51 and 52

Moved by

[Baroness Hanham]

51: Clause 28, page 36, line 19, leave out “6(4)” and insert “6(5)”

52: Clause 28, page 36, line 28, at end insert—
“( ) Subsection (4) does not apply to an order under section 6(6).”

Amendments 51 and 52 agreed.

Clause 31 : Commencement

Amendments 53 and 54

Moved by

[Baroness Hanham]

53: Clause 31, page 37, line 9, at beginning insert “Section 1(1) so far as it inserts the new section 62B,”

54: Clause 31, page 37, line 9, after “8,” insert “14,”

Amendments 53 and 54 agreed.

Amendment 55 not moved.

Amendments 56 to 58

Moved by

[Baroness Hanham]

56: Clause 31, page 37, line 9, leave out “Schedule 2”and insert “Schedules 2 and 4”

57: Clause 31, page 37, line 11, leave out “14,”

58: Clause 31, page 37, line 11, leave out “, and Schedule 4,”

Amendments 56 to 58 agreed.