Growth and Infrastructure Bill
Debate between Earl of Erroll and Lord Flight
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.