Lord Flight
Main Page: Lord Flight (Conservative - Life peer)Growth and Infrastructure Bill
Lord Flight Excerpts
Lord King of Bridgwater
My Lords, the Minister ended our previous discussions on this matter by saying that, depending on the outcome of the vote and if it went against what he was advising the House at that time, he would make sure that the strength of feeling here was conveyed to his colleagues in the Government. I should like to express my appreciation for his having very precisely discharged that undertaking. As we know in this House, it is unusual for us to have had two occasions on which we have declined to agree with the other place. This has been a difficult exercise for the Minister and at this stage I congratulate him on the extra safeguards that he has managed to introduce. I do not disagree with many Members of this House but my view on this clause is summed up by a phrase that Sir Winston Churchill once used. He said that he could on this matter confine his enthusiasm within the bounds of decorum without any difficulty. I certainly feel that I have made clear my views on this.
The situation is now that we have introduced important safeguards. Additional safeguards do not make it easier for employers and they limit the range of businesses to which they might apply. I think that the clause will have limited application. There is now much protection against the real danger of this being mishandled by irresponsible employers. My noble friend Lady Brinton referred to not having met an employer who is in favour of them. I am not in the least surprised. I do not think that an existing employer could use this provision. If he has existing employees with full employment rights, the idea that he starts introducing a small additional recruitment of people who have fewer rights seems to me an unreal situation. I see this being applied now by genuine start-up businesses where the originator trying to start some new IT company. He might say to his friends and bright colleagues who are going to join him that he just cannot take on the liabilities that he might have to face in difficult unfair dismissal cases and cases of redundancy, and that they should all be in this together. Those are the only applications where I see that this might work.
With this additional safeguard we have reached a stage when we must recognise the primacy of the other place. It is very unusual for us to reject twice in a row. I think that I can remember one occasion earlier in my time here but I cannot remember our going any further than this. I would have had to think very hard about that if we had not had such a comprehensive amendment, which, as my noble friend will recall, is precisely what I asked that we should introduce. It involved a lot of hard work and I pay tribute to the officials. The noble Lord, Lord Pannick, ably spelt out that this is a most comprehensive amendment. It covers a wider range than I expected could be covered. The list of the types of shareholdings is warning enough of the problem that this issue contains. In recognising the way in which the Government have respected the view of this House and responded to the points that we have made, I say genuinely to your Lordships that we have done our job. We have introduced additional safeguards. We have challenged the other place twice. Having limited significantly the damage and introduced very dubious questions as to whether this clause will amount to much, we should now ease its passage.
Lord Flight
My Lords, my noble friend Lord King has summed up the position extremely well. It is of interest that this largely appointed House has effectively achieved the democratic changes to Clause 27, for which there was clearly significant support.
The last time that we debated this, my noble friends Lord King and Lord Deben were saying similar things to me about this proposed piece of legislation but from the other side of the fence. As I said from the outset, it is clear that it is applicable only to the sort of situations that my noble friend Lord King described—to entrepreneurial situations, start-ups and groups of bright, young, ambitious people getting together and wanting to keep down the potential costs of their new enterprise. It would not be suitable, nor be taken up by large organisations. It would be strange to have some employees with one sort of equity and others with another sort, and some with one sort of employment contract and some with another. De facto, to the extent that it used, it will be in the territory described.
I may be naive, but I think the noble Lord, Lord Myners, exaggerates the scope for tax avoidance. It seems to me that it will be much smaller-scale, more analogous to the EIS scheme, which has been extremely successful in generating some £10 billion of risk capital for small companies and has more than paid for itself tax-wise. It may be that the noble Lord is a cleverer tax avoider than me—sorry, he is more knowledgeable than I am—but I do not think that the sort of structure to which he referred would work. I would have thought that HMRC would outlaw such things fairly quickly. I do not quite see how it would work to make individuals huge amounts of money that they would not make otherwise. I think the tax avoidance point is overstated.
Lord Myners
Will the noble Lord, Lord Flight, at least acknowledge that the OBR has also expressed serious doubts about how this provision, which is not affected in any way by the laudable proposals now made by the Government, will be exploited for tax advantage? I believe that the OBR projected a cost of £1 billion.
Lord Flight
I thought that what the OBR was effectively saying was that if capital gains tax on these arrangements were payable, that is the sort of revenue it would generate and the extent of the capital gains tax revenue that will be lost is because capital gains tax will not be payable. I am not clear that the OBR was citing fancy and wrong tax avoidance schemes for which it picked up intentions that they would be used. I stand to be corrected.
Lord Forsyth of Drumlean
With all due respect to my noble friend, the tax provisions within the Bill provide for the taxable gains on up to £50,000 shares not to apply, so if it were possible for people who would in the normal course of their employment receive shares to change their employment status, then £50,000-worth of shares that they received would no longer be subject to capital gains tax, which would apply if they had normal employed status. That is the kind of loophole that I hope my noble friend and the Treasury will deal with and which would cause a loss of revenue. While my noble friend and I may think that capital gains tax is too high, it would clearly discredit the scheme if the only people using it were people who would otherwise have had to pay tax in the normal way and who benefited by changing their employment status. That is the argument that we raised at an earlier stage, and I am content to take my noble friend’s assurances that this will be looked at and will not happen.
Lord Flight
I had indeed understood that that was the point, but if an individual chooses to invest in a fairly high-risk new venture via an EIS scheme, he does not pay capital gains tax. If he invests and it does not qualify for that scheme, he does. Self-evidently, new companies will as far as possible qualify for the EIS scheme because it gives that incentive to investors. The position here is not so dramatically different. People may well have equity in new start-ups that does not qualify for this scheme, but in terms of the overall package, as we are well aware, they will have to pay income tax up front, there is a limit to the amount of equity they can have and it is of cash-flow benefit to the company in terms of the potential costs that it removes. I do not see it as a vehicle of fancy tax avoidance. There is a perfectly fair debate about whether it is a good idea, but I do not believe it is useable as a vehicle for the sort of tax avoidance that we are trying to get rid of.
Nearly everything that there is to be said about this has been said in this House.
Lord Flight
I shall close by repeating the point made by my noble friend Lord King. It is a great credit to the Minister that he has gone back and got the key concession that this House clearly wished for when we last discussed this Bill. It would be somewhat churlish of this House at this stage to push things to the wire. This scheme is not going to be a huge issue, and its usage will be limited to appropriate circumstances. There is merit in having a new class of employment between self-employed and fully employed, and if this becomes law there may be some interesting lessons in what it generates.
Lord Bates
My Lords, I sense the mood of the House, and I will be very brief. One thing needs to be reiterated. My noble friend Lord Forsyth of Drumlean paid tribute to the House for securing these concessions and changes, but I should like to pay tribute to him. I came into the debate at Third Reading on 20 March with a speech in my pocket fully in favour of Clause 27. After it had been effectively demolished by my noble friends Lord Forsyth and Lord King and the noble Lord, Lord Pannick, I followed them into the Lobby and voted against this measure. They have done an immense service because I believed at the time that this should be an opportunity for the strong, not a fait accompli for the weak. The concessions that they have brought about and the way that the Minister has responded in bringing forward these comprehensive announcements reflects very well on those individuals and on the processes in this House. I will have no hesitation in supporting the Government when the vote is called.