Growth and Infrastructure Bill

Debate between Baroness Brinton and Lord Adonis

Wednesday 6th February 2013 Lords Chamber

[Lord Adonis]

My Lords, I spoke too soon. The noble Viscount has now moved back again and now we are not even at “possibly” this afternoon. However, I think he has got the message.

The provision before us is completely contradictory and wholly indefensible. On the one hand the Government say—the noble Viscount said it again this afternoon—that this is about creating a new voluntary employment status which, therefore, potential employees have the right to choose. When the Bill was first before the House of Commons, Michael Fallon said:

“No one wants to see employees pressurised into making a choice that may not be in their own best interests”.—[Official Report, Commons, Growth and Infrastructure Bill Committee, 13/11/12; col. 9.]

He later added, for good measure:

“With regard to the new status being voluntary … people will choose to apply for and accept employee owner contracts”.—[Official Report, Commons, Growth and Infrastructure Bill Committee, 6/12/12; col. 497.]

This principle, however, is then flatly contradicted by not allowing benefit claimants to make such a choice. On the contrary, if benefit claimants decline to apply for or accept shares-for-rights jobs, they stand to lose their benefits or have them docked. This is a fundamental point that goes to the heart of this debate. Michael Fallon was explicit about this in the House of Commons. He said:

“The Government believe that jobseeker’s allowance claimants must actively seek and be available for work … it is right that employee-shareholder jobs should be as much a part of that consideration as any other”.—[Official Report, Commons, 17.12.12; col. 649.]

He went on to say that in cases where there is the offer of a job without employment rights—an employee-shareholder job—the unemployed person should “normally accept the offer”. Those were his words.

It is simply impossible to square that statement with the Government’s commitment that acceptance of jobs on such contracts would be voluntary. It is clear that benefit claimants will be pressurised into accepting contracts that may be against their own best interests, unless the guidance with which the noble Viscount is unable to provide the House makes it clear that that is not the case. This amendment and that of the noble Baroness, Lady Brinton, will bring the Bill into line with the Government’s own statements that accepting shares-for-rights jobs should be voluntary and not compulsory. I beg to move.

[Baroness Brinton]

My Lords, these two amendments are trying to achieve the same objective. I commend the noble Lord, Lord Adonis, on the wording of Amendment 82. My Amendment 90 echoes those sentiments. We have already discussed, in the previous group, the complex decision required of an individual being asked to become an employee-shareholder, who must take account of current employment rights versus the slim chance of future capital gains. However, there is a further and even more worrying aspect for one particular group of individuals: those who are currently unemployed and in receipt of jobseeker’s allowance.

What will happen to those offered a position in a company on the condition that they become an employee-shareholder and give up some of their rights? I am aware of people who find themselves being made redundant, through no fault of their own, not once but twice, or even more frequently. I am reminded of a friend in Luton who, following the closure of Vauxhall, moved from one company to another in the supply chain and was made redundant four times in the short space of a year. For people with that sort of history, the idea of giving up the right to future redundancy pay will be horrifying and would make the job extremely unattractive. This is not a run-of-the-mill job offer and I would be extremely concerned if an individual turned down a job and share ownership opportunity, and then discovered that his or her JSA was to be cut.

The Minister in another place said:

“The Government believe that jobseeker’s allowance claimants must actively seek and be available for work … and it is right that employee-shareholder jobs should be as much a part of that consideration as any other. If a claimant applies for an employee-shareholder job and is offered a position, they should normally accept the offer”.—[Official Report, Commons, 17/12./12; col. 649.]

It is this quote from the Minister that underlies the concern that the noble Lord, Lord Adonis, has laid out in some detail. I echo that because we have to see the guidance and information to make it exactly clear where the boundaries lie. I will not go back through the timescale of this, but it is essential that all sides of the House—all sides of the House have concerns about this clause—have time to consider the very serious implications for jobseeker’s allowance for people who are sent off for that type of post.

In addition, some people may send off hundreds of job applications but receive only one reply; some may get one interview; some may even get one offer. A job offer for shares-for-rights is a job: do the Government seriously think that someone will turn it down after months of searching? Many people cannot pick and choose jobs, even if they are worried about the reduction in rights, especially in the current climate, with many businesses folding. I cite Paul Callaghan from the legal fund Taylor Wessing, who suggests that shares-for-rights contracts will be optional to the extent that eating and drinking are optional.

The amendment would write into the Bill a statement that makes it absolutely clear that the Department for Work and Pensions and Jobcentre Plus will not penalise an individual who makes the difficult choice to turn down a job. Should they accept it, they must have access to the same legal and financial opinion that we discussed under the previous group of amendments. That needs to be written into the Bill to ensure that protection and to provide Jobcentre Plus with clear and unequivocal direction.

--- Later in debate ---

[Lord Adonis]

My Lords, all I need to do to let these proposals collapse is allow the noble Viscount to carry on speaking because, proposal by proposal, his case disintegrates. It turns out that the 6,000 figure is indeed a mystifying figure that has no basis in fact. I am thinking of why he might have chosen that figure—it appears to be twice as long as in the guidance for DWP decision-makers. Perhaps that is the basis on which the figure has been devised. We look forward to hearing the justification for it, and therefore whether this measure is incidental or fundamental.

The truth is that the Government cannot possibly know. However, so far as your Lordships are concerned, we have a responsibility not to put on to the statute book provisions that could be seriously detrimental to the health of the nation. No part of the health of the nation is more significant than people at work and their rights there. It is not satisfactory simply to proceed with the provisions on the basis of figures that have been plucked out of the air.

The second thing that has become clear is that the Government suffer from two fundamental problems of schizophrenia. They want more entrepreneurial zeal in the economy, as we all do, but almost none of the entrepreneurs to whom it looks to generate new companies, new ideas and new ventures supports the proposal and believes it will have the effect that the Government state. A number of noble Lords with a great deal more experience of business ventures than me have made that point. I think I quote the noble Lord, Lord Deben, correctly as saying that he could not imagine “any circumstances whatever” in which he would seek to offer these contracts to employees in a small start-up company as a way of motivating them.

The fundamental problem that the Government have with the proposal—the basis upon which it has been put forward is that it will stimulate in the context of the lack of growth new, vitally needed entrepreneurial zeal and companies—is that the entrepreneurs and companies to which he is looking to provide that energy do not believe that this proposal is necessary. On the contrary, almost all of them are critical because they believe that the reputational damage that it will create may undermine the cause that the Government are seeking to promote.

However, a third big tension that has come through clearly from the noble Viscount’s remarks is that the Government speak with two voices. One part of the Government celebrates the extension of employment rights and says that that is a fundamental objective of the coalition Government established in 2010, at the very same time as another part of the Government celebrates the withdrawal of those rights as being necessary to stimulate the economy in a period of economic downturn. I have a view on these matters, but surely the Government should make up their mind which is true. Is the extension of employment rights essential to stimulate the economy to provide greater flexibility and protection for those at work, or is the withdrawal of those rights necessary to spur economic growth? At the moment, one Minister comes here on one day and says that it is the withdrawal of rights, and another Minister comes here on another day and says that it is the extension of rights.

The noble Baroness, Lady Brinton, referred to the Deputy Prime Minister. At the very time the Bill was going through the House of Commons, he made a speech entitled, “Greater equality for a stronger economy”. That was the title on his website. He said:

“I can also confirm today that the Government will legislate to extend the Right to Request Flexible Working to all employees”.

At precisely the same time, this legislation was brought forward: legislation that withdraws the right to request flexible working from employees who are on these employee shareholder contracts.

Are the Government not aware that there is a fundamental problem when one Minister says one thing and another Minister says another, and the two are totally at variance?

[Baroness Brinton]

That was indeed why I asked the noble Viscount about employee status and whether this was a new form that would circumvent that. On our Benches, we welcomed the Deputy Prime Minister’s comments about increasing flexible working rights to all employees. I remain concerned that this is under threat for the employees of perhaps around 6,000 firms that may or may not take up this particular option.

--- Later in debate ---

[Lord Adonis]

My Lords, we are now on the issue of the cost of these proposals to the Exchequer. I would like to invite the noble Viscount to explain more fully to the House what he believes the revenue implications would be as a result of the proposals. The independent assessment by the Office for Budget Responsibility suggests very large figures might be at stake, which is why we are asking for figures to be made available in respect of each financial year up to 2030.

I quote from the policy costings document published by the OBR alongside the Autumn Statement:

“There are a number of uncertainties about this costing”—

that costing being the figure of £80 million over the current spending review period—

“The static cost is uncertain in part because of a lack of information about the current amount of CGT arising from gains on shares through their employer. The behavioural element of the costing is also uncertain for two main reasons. First, it is difficult to estimate how quickly the relief will be taken up; this could make a significant difference as the cost is expected to rise towards £1 billion beyond the end of the forecast horizon. Second, it is hard to predict how quickly the increased scope for tax planning will be exploited; again this could be quantitatively significant as a quarter of the costing already arises from tax planning”.

I would like to invite the noble Viscount to expand on what the OBR said so that we have a better basis for understanding the potential costs of what could be an extremely expensive proposal once the tax planners get going on the opportunities available to them.

[Baroness Brinton]

My Lords, I apologise for referring again to the coalition agreement, but I am concerned that the tax loopholes proposed under the CGT allowances for employee shareholders conflict with the coalition agreement because the shares that a company gives to employee shareholders will not be liable to CGT.

Paul Johnson, the director of the IFS, has said:

“Just as government ministers are falling over themselves to condemn such behaviour, the same government is trumpeting a new tax policy which looks like it will foster a whole new avoidance industry”.

He refers to it as a “£1 billion lollipop”. I am prepared to negotiate the billion with Paul Johnson on the understanding that it is only likely to affect a small number of companies. Or perhaps not, because we know that advisers to companies, if they find a loophole will find a way of making it apply to everyone.

The Government have pledged in the coalition agreement to clamp down on tax loopholes and tax avoidance. The agreement says:

“We will make every effort to tackle tax avoidance, including detailed development of Liberal Democrat proposals”.

These include exactly what I have cited earlier. Why do the Government in the draft Finance Bill 2013 create this loophole where shareholders can avoid paying capital gains tax? I quote:

“Legislation will be introduced to exempt all gains made on disposals of up to £50,000 worth of ‘employee shareholder’ shares from capital gains tax”.

The coalition agreement also says:

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

We have pledged, as a Government, to raise capital gains tax and yet we are removing it for shares related to employee shareholders. I support the amendment because we need to understand the cost to the Treasury. I would welcome an explanation from the Minister why it is acceptable for one small group of shareholders to be exempt from CGT when the Government are moving in the opposite direction for all others.