Lord Adonis
Main Page: Lord Adonis (Labour - Life peer)Growth and Infrastructure Bill
Lord Adonis Excerpts
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 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.
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 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.
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.