Lord Flight
Main Page: Lord Flight (Conservative - Life peer)Growth and Infrastructure Bill
Lord Flight Excerpts
Lord Forsyth of Drumlean
My Lords, I hesitate to follow the noble Lord, Lord Pannick, who has set out very clearly and persuasively the points that we discussed before and which are causing concern to the House. I share his concern about the Commons debate, which, as he indicated, was guillotined. All the serious points that were raised in this House have not really been addressed by my noble friend. I exonerate him from any blame in that respect but they are important points. Many of them may be slightly peripheral to the substance that we are discussing here, which is about employment rights, but, for example, I remain concerned as to whether the estimate made that this could result in more than £1 billion disappearing in tax-avoidance schemes is correct. It is not clear to me whether the Treasury has found ways of ring-fencing this scheme, which provides for up to £50,000 of capital gains tax to be relieved, and whether this could not be used as a great tax-avoidance scheme.
I got a call this afternoon from a Mr Mark Florman of the British Venture Capital Association, who wanted me to know that all his members were absolutely behind this scheme and very much supported it. I said to him, “Why are they concerned about a scheme that enables people to give up, in effect, only their rights against unfair dismissal if they have been employed for more than two years and can have £2,000 worth of shares, tax-free? What conceivable interest can that be to the membership of the British Venture Capital Association?”. He said that it was keen to encourage share ownership and for employees to be involved in share ownership. I am sure that people on all sides of this House are keen on that concept. That is why I would strongly support any schemes that encouraged share ownership. However, this proposal mixes up two things—one is employment rights and the other is share ownership. It is not at all clear to me how it would be beneficial to either employers or employees to embark on this scheme.
Being a reasonable, moderate sort of fellow, I looked at where we had got to in this debate, and I looked at the vote in the House of Commons, where the majority was actually somewhat less than the Government’s majority. I looked at the short-term nature of this matter and thought, “Is it possible to find a way of making this look not more sensible but more practical?”. It seemed to me that the Government could have done two things. One was, as the noble Lord, Lord Pannick, pointed out, to ensure that people who were embarking on an employee shareholder contract were given independent legal advice that the shares were worth what the employer was telling them, on what the arrangements in respect of the valuation of the shares would be at the end of the period, and on what employment rights they were giving up and the consequences of that. That seems to be an entirely reasonable suggestion. Regarding the idea that people on low incomes can go and get legal advice on these matters or that issuing and putting values on shares in private companies is straightforward, I have to say to my noble friend that the entire investment banking industry is based on the premise that the valuation of shares is not straightforward.
There is also the idea that by giving people shares in return for employment rights the employee is in a negotiating position. However, they want a job and are not in a position to say no. Even if the provision was that the employer may provide legal advice at the request of the employee, that would not be enough because the thought would be, “It’s going to cost the employer £1,000 and if I say I don’t need the advice, I might have a better chance of getting the job”. The fundamental point was made by the noble Lord, Lord Pannick: the reason that we have employment rights—while I think they go too far in some respects—is that they even up the position between the employer and the employee. I am not particularly persuaded on this.
However, I thank the Government for at least taking up one point, which is to alter the guidance in respect of the jobseeker’s allowance. I was grateful to my noble friend for the letter that he sent us, but I have to say that amending the guidance to say that people who refuse to take up this voluntary agreement would not be found to be intentionally refusing employment is not a concession; that was just a mistake by the Government that they have now corrected. It is not right to present this as a concession. The concession that is needed is to protect the position of the employee against the unscrupulous employer, and independent advice is part of that.
My other thought was that the Government say that this proposal will be of interest to small firms. Some people suggested to me that there could be an exemption stating that the measure would apply only to small firms. However, on reflection, I do not think that that is the issue at all. This is a general provision for employees, and whether it is a big firm or a small one is not the key issue here.
I am also worried that my noble friend said in his opening remarks that it will not be easy for employers to get the shares back, but in his own guidance he makes it clear that these schemes can include a provision that requires the employees to give the shares back. What is the deal here? It is: “You give up your right to be protected against unfair dismissal. We will give you some shares that we tell you are worth a certain value, but you have no idea whether or not we are right, and when you get those shares you have to pay tax and national insurance on them if their value is more than £2,000. Then at the end, I, as your employer, if I decide to sack you, can take them back at a valuation that may be less”. That does not seem to be a scheme that will set the nation alight with people wishing to participate in it.
I have to say to my noble friend that this thing is not thought through. Not only that, but to those of us who have tried to be constructive—I was prepared to go along with this today if the Government showed some sensitivity to the concerns that have been so elegantly expressed by the noble Lord, Lord Pannick, and others—the Government seem determined just to railroad this through and not deal with the arguments. I, as a Conservative, perhaps a Thatcherite Conservative, am not identified particularly with employment rights, but I am proud that it was a Conservative Government that first introduced them because we recognise that there has to be a fair balance in the labour market.
I therefore say to my noble friend, can he not think again and at least offer us a concession in respect of the right to have independent legal advice paid for by the employer whose initiative this is, so that the employee is in a position to know exactly what they are being asked to sign up to?
Lord Flight
My Lords, I cannot match the advocacy of either the noble Lord, Lord Forsyth, or the noble Lord, Lord Pannick, but I feel that there is a saddening negativity towards these proposals. I am glad that everyone agrees.
A lot of the issues raised in this House have been addressed—in particular, the concern, which I completely supported, that it would be a nonsense if people were forced to give up the ability to claim their jobseeker’s allowances if they turned down the offer of an employee shareholder job. That is the most important issue of the lot. But there are other important issues where the proposals have been improved. I see the situation in the context of a half-way house between self-employment and standard, typical, large-corporation employment.
An interesting survey has been published by the RSA which finds that more than 30% of people in their 20s now want to be entrepreneurs, self-employed individuals who will have no protection rights whatever. In terms of giving up rights, there are three important areas, including unfair dismissal rights—which are not given up as regards improper grounds such as discrimination—rights to statutory redundancy pay, and certain rights to request flexible working hours and time to train. People retain a whole lot of other employment rights and the issue is not, by a long chalk, about giving up all your employment rights.
Of the concessions that have come from the Commons, the most important is that the Secretary of State will have power to regulate the buy back of shares. That does not amount to legal advice, which would be nice, but it does afford a protection there. I suggest that, in practice, what will happen if any businesses embrace these schemes is that there will be the usual sort of standard formula. If there is a buy back by the company, then there will be a prescribed price earnings multiple, or such like, on which to value them. That will unfold as time passes.
Lord Forsyth of Drumlean
I am most grateful to my noble friend. I agree with his point about the tax allowance. If someone is awarded shares in the way that he has described and the value of the shares is, say, £20,000, will they then be liable to pay the tax and national insurance on that? Where will they find the money from?
Lord Flight
That is the very point that I made when we last debated the issue in this House. That is why I think the £2,000 limit is too low. The response to that is that it obviously depends on their tax rate. If people are accepting £10,000 worth of shares they may be able to find the tax which might be of the order of £2,000 to £2,500 on that award. It entirely depends. I also make the point that in more traditional entrepreneurial circumstances, which was my own experience, I had to put up the money myself and I had to remortgage my house to raise the money to start a business. I would like to see the limit raised, and I think for the scheme to work it will need to be raised, but we should not overstate the tax burden.
Lord Forsyth of Drumlean
I am most grateful to my noble friend. Does that not then mean that the value of the employment rights you are giving up depends on how much money you are able to find in order to buy the shares?
Lord Flight
First of all, it depends on what is on offer. It is broadly for the company to decide the amount of employee shares that it is going to offer under this scheme. To repeat the point, the employment rights which are being surrendered, particularly as viewed by ambitious entrepreneurial types, are not perceived as of particular value. The grant of free shares is of value and, to the extent there is a tax bill, I wish it were lower, but the tax bill is not entirely outrageous. I suspect that the tax limit will be raised in due course.
It is easy to be negative and to pick holes in what has not yet been fully addressed. I would like to see some of the improvements that noble Lords have suggested. But I think to take a rather superior view of, “Oh, no, we really don’t want this”, is wrong. I think it should be given a try and the issues that need sorting out will be sorted out. There are substantial numbers of ambitious young people for whom the objective is not to work for the Civil Service or to work for Shell or Unilever and to have a secure job with a generous pension, but to have equity in the businesses they work for, to make that business work and to make their equity worth a considerable amount of money.
Lord Monks
My Lords, unfortunately, I was unable to be present at Report stage, but I was struck when I read in Hansard that the House of Lords was doing its job like it perhaps does not do enough in an admirable and exemplary non-partisan way, looking at the practicalities of this proposal, not looking for negativity but simply giving it some forensic examination, which has clearly not been done by many in the Government and many who supported it in the other place.
This proposal about shares for rights is implausible. It is difficult to see too many people showing any significant interest in it. If we want to abolish red tape, well, just look at this proposal. It is full of red tape. I believe it is also objectionable—the idea that somehow you can sell your rights or trade in your rights. It is very clear which rights you will lose. It is a lot less clear, for all the reasons that have been stated, what employees will get and how those shares will be valued.
The proposal is also perverse. In the Report stage debate the noble Baroness, Lady Wheatcroft, set out one example. If matters do come to redundancy, will the employer decide to get rid of those with shares who have given up their redundancy pay or those to whom the employer will have to pay redundancy pay? It could well be the employee shareholder who is first out of the door.
The advice that the House of Lords gave to the Government has been treated with contempt. It has just been brushed aside. That includes the advice given by distinguished former Conservative Employment Ministers who are loyal on nearly all occasions, but not on this one. That is not being negative. That is not looking for negativity. It was good advice that was given, it is good advice that is being given now and I hope that this time, if the vote goes the right way from the point of view of those of us who are critics, it will be listened to with a little more concern and consideration than it got last time.
The noble Lords, Lord Pannick and Lord Forsyth, have ably pointed out the fallacies and flaws in the proposal and I will not repeat those. However, I do not think that many employers will give it much of a second look unless there is some tax advantage which will no doubt come to light in due course. Some unscrupulous employers will do so and that is where the individual worker would need some source of independent advice about what they agree to and what they do not.
I find the position of the Business Secretary in this matter intriguing. He fought a battle against the Beecroft proposals, but let us remember—I am no fan of the Beecroft proposals—that he did not propose taking away rights to compensation for redundancy. He was talking about a single payment. It seems to me very strange and disappointing that the Liberal Democrats and the Business Secretary have let this clause slither through the processes of government in the interests no doubt of a deal with the Chancellor of the Exchequer. I hope for the Liberal Democrats’ sake that it is a good deal which compensates for their disgraceful agreement on this matter. I hope they will think again in the time that we have available and put this clause where it really belongs, which I believe is in the nearest recycling bin.