Growth and Infrastructure Bill

Baroness Brinton Excerpts

Wednesday 24th April 2013 Lords Chamber

[Lord Myners]

I welcome the general avoidance rule, which of course is not the matter that we are discussing. Even there, though, while I was not directly responsible for HMRC or Inland Revenue matters when I was a Minister, we all knew that the agility of tax planners should never be underestimated. We need to be slightly careful that a general tax avoidance rule is not going to create a new nirvana and will not suddenly change things. It is a good thing and I welcome the Government’s proposal; indeed, I think that the Opposition have supported it, so I do not think there is a political point here. However, on this subject we need to be realistic about what will be achieved. We are up against mighty forces in tax planning. One has only to look at structured finance unit at Barclays Bank, which appeared to help people avoid billions of pounds of tax. It really is quite a challenge.

This small proposal will create a huge loophole that tax avoiders will, quite correctly in their view, seek to exploit.

[Baroness Brinton]

My Lords, I was going to leave the issue of tax loopholes until the end of my contribution, but given the preceding debate I remind the House that at an earlier stage I reminded the House of the business expansion schemes that were set up by the then Government in the late 1980s and early 1990s and targeted at new small high-tech companies that were looking for investors and considerable tax benefits to investors and shareholders in those companies. They progressed reasonably well over the subsequent two or three years, but then the accountants and lawyers found the loophole that enabled at the very least the university sector to entirely rebuild its student accommodation using those schemes. I confess, as bursar of a Cambridge college, that my college and all the other colleges used them in exactly the same way.

An interesting point to note, which the Chancellor might want to consider himself, is that the Treasury immediately closed the schemes down. I suspect that if the noble Lord, Lord Myners, is right, the Treasury would have no option but to close this down immediately, and I think that would signal the death knell of this entire clause. I apologise; that was going to be my peroration at the end but, given the debate that we have just had, I have started with it. Given the debate that we have had, the experience of the business expansion schemes is one that I hope this House and indeed the other place will take note of.

To go back to the beginning, I thank the Minister for negotiating the concessions, which have been vital. At all stages of the Bill on all sides of this House we have insisted that employees and prospective employees must have truly independent legal advice. To repeat the comments of the noble Lord, Lord Forsyth of Drumlean, I, too, went through this with a fine-toothed comb to see where the lacunae were but could not find any. It is extremely helpful that the clause echoes the compromise agreement legislation with regard to the necessary independence of the legal advice that the payment for reasonable advice must come from the employer. By the way, I think that will completely put off the Gradgrinds, who we talked about at some length on Monday, who want to use this as a quick and easy route.

There has been some discussion today about the value of shares. I am less concerned about the value of shares when the shares are first purchased, because we keep being told that this is for brand new companies when their shares are virtually at par value. There is a much bigger issue when an employee leaves if they have to sell the shares back, or at a point at which the company might be sold on and an employee may want to disagree with an arrangement that the company directors have come to with a prospective buyer. Unfortunately, I absolutely cannot think of a way of legislating against that. Let us hope that, should that happen, the increasing value of the shares would be such that the employees found it beneficial. However, my experience of working with high-tech companies throughout the 1980s and early 1990s was that the vast majority of small high-tech companies, which we are told this would be useful for, never make the sort of glorious gains where capital gains tax is a real benefit. There may be a very minor benefit, and that is wonderful, but not for most. The Cambridge silicon technology companies are the stellar ones; they account for less than 5% of such companies.

I wonder whether the Minister could assist the House by sending around the revised draft guidance notes for employers, companies, employees and Jobcentre Plus staff, given the concessions that we have seen during the past two or three days. Having reread them before today’s debate, I realise that they are substantially out of date. It would be extremely helpful to those of us who have been following this in detail.

I am in the same position as the noble Lord, Lord Pannick, in that I do not like this clause. I do not think it is workable. Even fewer companies are now likely to take it up because of the safety net of the independent legal advice, for which I am grateful. I have yet to meet an employer who thinks that it is appropriate to reduce employment rights in return for sharing in growth in the future. That remains my fundamental position. Perhaps unwittingly, though, the Government have made it so unpalatable that most employers will just ditch that and go for the traditional route of offering employees a future share through a straightforward shareholding where everyone shares the gain and there is no disbenefit.

[Lord Christopher]

I support the noble Lord, Lord Pannick. Although they have moved, with this Bill the Government have solved one problem only to create others. I begin by confirming what my noble friend Lord Myners said. I was campaigning for an anti-avoidance, broad-brush approach for 30 years as an official of the Inland Revenue Staff Federation. I agree with my noble friend Lord Myners that this will not work. Over those 30 years, Chancellor after Chancellor said precisely that in relation to the arguments from the union that there should be such a thing. We will await events to see whether it happens.

The only point on which I disagree a little with the noble Lord, Lord Pannick, is the question of independent advice. The press picked it up and said that people will be entitled to go to a lawyer but if you go back to the Employment Rights Act 1996, which is from where this proposal came, you find a weird list of people who are legitimate to give advice in the context of the Bill that we are discussing. An independent adviser can be a qualified lawyer, which is defined in the terms that you would expect, or an officer or official of a trade union who is qualified to value companies. The trade union movement has swarms of people qualified to do that at the moment.

Then we come to the issue of reasonable costs. If this is to happen, we must define “reasonable costs” as probably something that employers are expecting. If we were talking about going to a lawyer and this were a different forum, I would say that if lawyers were present, those who felt they were qualified to do it should put their hands up. Very few would be qualified. I do not know what it has now but the Inland Revenue used to have a specialist section in Hinchley Wood to deal with the valuation of companies. This morning I asked two company chairmen whether they could tell me what the value of their company was and the answer was no. They would have to pay qualified people to value those companies. While it may be initially a case of shares at par, Lord knows what it would be in two, three, four or five years’ time.

As for the advice that is being given, he or she who gives advice has to confirm that they are adequately insured to ensure that there is compensation payable if the advice turns out to be wrong. Why on earth are we debating this? This is a proposition that, prima facie, employers do not want to lessen on the terms that my noble friend Lord Myners has expressed. It will be a considerable disservice not just to working people, because the potential of this is dreadful. I would not need any arguments at all to vote against it on that basis. It is also a disservice to employers. They will read this as saying that they have to pay only a few hundred pounds for the reasonable costs of advice. It will not be that sort of figure. If I had to do this today, I am not certain where I would go if I went to the City of London. Fees there are not cheap.

This is a little explosion that is set to go off the first time that anybody gets serious advice. My advice to the TUC would be to say to every union that has asked: seek and provide them with a list of people who may be capable of giving advice. We are talking about thousands of pounds an hour.