Growth and Infrastructure Bill
Debate between Baroness Brinton and Lord Myners
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.