European Union (Withdrawal) (No. 6) Bill

Debate between Lord Forsyth of Drumlean and Lord James of Blackheath

Committee: 1st sitting (Hansard): House of Lords
Friday 6th September 2019 Lords Chamber

[Lord James of Blackheath]

I thank the noble Lord. I tabled my amendment because, in everything that has been said so learnedly on this matter, nobody has covered the subject of sovereignty, which is really at the core of the original intention to take back control. Therefore, I am concerned that the public might be asked to give an opinion on this—

[Lord Forsyth of Drumlean (Con)]

We had a very long period of what some people have called filibustering. It resulted in a deal between the Front Benches in which the Opposition Leader gave an undertaking not to use the guillotine or this procedure again. We respected that. We agreed that the Bill would be given safe passage with speed through the House. Does my noble friend not think that it might be more sensible to withdraw his amendment and allow us to proceed with what both sides of the House have agreed to do?

[Lord James of Blackheath]

I entirely recognise that fact. My concern, which I am sure the noble Lord will share, is for the understanding of the British public when they have to accept whatever is the final decision. I do not believe they have enough knowledge of the reality of what stands behind the agreements between which they have to choose. That is why I worded the amendment as I did, as the only way to bring this into the discussion today. I thank noble Lords for their comments. I will beg leave to withdraw my amendment but at the same time I make an urgent plea to all who are concerned about this to get the public better informed. They are not well informed.

Growth and Infrastructure Bill

Debate between Lord Forsyth of Drumlean and Lord James of Blackheath

Wednesday 20th March 2013 Lords Chamber

[Lord Forsyth of Drumlean]

My Lords, very unusually, I find myself in disagreement with my noble friend Lord Flight. Normally, we are at one on these matters. I have considerable respect for his experience in the City, and I understand what has motivated him to table the amendment.

I do not propose to talk about Clause 27 until we come to the amendment in the name of the noble Lord, Lord Pannick. Frankly, I am surprised that this clause has survived so long. The scheme is ill thought through, confused and muddled. I will develop those arguments when we come to the next amendment.

This amendment, however, is an absolute open goal to allow the setting up of a huge tax-avoidance scheme. There is no restriction on people changing from being an employee to an employee shareholder. Therefore, they could get £25,000 from their employer as a tax-free sum. On the shares they could make tax-free gains of £50,000. This is therefore a handout of £75,000 to people who just choose to change their employment status. I find that very difficult to justify as a measure.

I have grave reservations about Clause 27. It confuses two desirable things: one is having sensible employment protection legislation, and the other is having sensible proposals for encouraging employee share ownership. My noble friend Lord Younger of Leckie, who I think will be responding to this debate, sent me a very helpful letter that sets out some of the concerns that have been raised about the scheme as a whole. I will concentrate on the issues that arise from this particular amendment.

The first point—and here my noble friend Lord Flight has not shown his normal attention to detail—is that there can be no question of anyone purchasing the shares. It is a condition of the scheme that the shares are given for free. In effect, we are producing a tax-free handout. One of my worries was how, in an unlisted company, perhaps a start-up company, you value the shares. The employer might have a particular view of the value of the shares, as might the employee. The expense and difficulties involved in valuing these shares would be considerable.

I hope my noble friend Lord Younger will not mind me reading out what he says in the letter about the tax treatment of the shares: “When an individual receives shares as part of an employment agreement, these are usually subject to income tax in the same way as that person’s salary”. That is correct, and it is what my noble friend Lord Flight is trying to address. However, he goes on to say: “In some cases income tax will be chargeable on the value of the shares at the time that the employee receives them. However, where certain conditions are attached to the award of shares, for example a requirement to stay in the job for a period, or a no-sale requirement, any income tax that would otherwise be chargeable on the award of the shares may be reduced or removed. In such cases, income tax would be chargeable on the shares at a later date. The precise detail of how the tax rules will apply to an employee shareholder depends upon the type of shares that are awarded. An employer should be able to confirm to an employee shareholder what type of shares they have received”.

This is a complete muddle. Are they shares which they hold, shares that vest at a later date, or shares that have to be sold back at a particular value? You need to have clarity on that before you even begin to consider the tax treatment. The normal tax treatment in employee share schemes is that the shares given usually vest over a period of time, and it is the point at which they vest that tax becomes payable. It is very unclear how that would work in the context of my noble friend’s amendment. Would the £25,000 apply when the shares were vested, and if they are simply options, or the ability for shares to vest subject to particular conditions, how does this offer the employee, who is giving up employment rights, any kind of security?

I entirely understand why my noble friend has tabled the amendment. He has seen that the scheme is not particularly attractive from the employee’s point of view, and the tax rules are certainly unclear. However, this would be used by people. The dead-weight cost of this amendment would be enormous, because anyone working for a company who had no possibility of being fired would want to avail themselves of what would be a huge, tax-free gift.

[Lord James of Blackheath]

My Lords, I feel mounting concern as a result of what I said in Committee about this clause in a discussion on the financial assistance Act. What we have just heard makes my original anxiety even greater. I asked the Minister at that time whether he would give an opinion as to the application of the Act to this clause. I think the situation has got even worse. Where there is in effect a deal between a company and the Inland Revenue to give somebody a tax advantage, or at least a complicit arrangement whereby they co-operate for it, surely there is a breach of the laws that were brought in at the time of the Guinness and Blue Arrow fraud cases and that prohibit any company from giving financial assistance to any employees for the purchase of its own shares. This seems to me to be exactly what is occurring here. It is highly dangerous. We cannot have a scheme that criminalises companies and their employees accidentally and at the same time.