Growth and Infrastructure Bill
Debate between Viscount Younger of Leckie and Lord Graham of Edmonton
Viscount Younger of Leckie
My Lords, we have discussed the employee shareholder clause at length, and some Members of this House in Committee questioned the merits of establishing a new employment status. Several noble Lords raised concerns about who will use the new status, the quality of the guidance, to whom it would apply and when it would be available. Concerns were also raised about income tax and jobseeker’s allowance as it applies to those who are seeking employee shareholder status. I am grateful to noble Lords from all sides of the House for their contribution to the debate, and I want to take some time to address some of the main concerns about the new status—and it is a new status. I acknowledge the negative comments that have arisen today, but it is the Government’s belief that there is demand for a new employment status of employee shareholder, that it will be used, that it will benefit employers and individuals, and that, in turn, it will help the economy to grow.
We believe that the two existing employment statuses of worker and employee do not offer enough flexibility to employers or offer real opportunities for individuals who want to share the rewards of a growing business. There is support for this new employment status, and we have evidence of that from the Institute of Directors, the British Venture Capital Association, the Federation of Small Businesses, Stuart Rose and, at the other end of the scale, from the heads of many small businesses, including Will Butler-Adams, the chief executive of Brompton Bicycle Ltd, and Jamie Murray Wells from Glasses Direct. I could go on.
By creating a new employment status with fewer rights than employees have but more rights than workers have, we are providing a new contract type to give employers more flexibility and options in how they structure their workforce. This new employment status will support this Government’s ambition of securing a strong UK labour market where individuals can have greater and potentially more rewarding access to the work they want. Employers can secure the labour that they need at the right time in order to capture new markets and sell their products in an increasingly competitive global environment.
This new status is most likely to be attractive to young and growing companies, which will be able to share potential future growth with their staff. The employee shareholder status may tip the balance in favour of these types of companies as they seek to attract high-calibre people. This is because companies will be able to offer shares that will not be subject to capital gains tax, as we have heard today, and it is a radically new approach to taking people on.
We should be developing and supporting innovative ideas that give employers new tools to manage their workforce effectively and to succeed. This new employment status is one such tool and we should give employers the option of using it. Indeed, with the interest expressed, it would be an opportunity missed to deny them the use of this novel tool.
When we think of people working, we automatically have in mind employees with substantial employment rights. However, we must not make such assumptions. Not all individuals in the labour market are employees. Some are sole traders, others are self-employed and some are defined as workers. These individuals do not have a whole host of employment rights, as I outlined clearly in Committee.
Employee shareholders will have more employment rights than workers and they will own thousands of pounds-worth of shares in the company or parent company for which they work. Because these shares are exempt from capital gains tax, employee shareholders may be in an advantageous position. Of course, the risk remains that the shares held may decrease in value, emphasising the greater risk and reward-sharing that this employment status represents. I think that those points on the negative side have been made pretty clearly today.
I now turn to how the new status will work. We must all remember that before an individual can be considered to be an employee shareholder, paragraphs (a), (b) and (c) of new Section 205A(1) introduced in Clause 27 stipulate that three criteria must be fulfilled. This means that if an individual does not agree to be an employee shareholder, they cannot become one; it means that if an individual does not receive at least £2,000-worth of shares, they will not be an employee shareholder; and it means that if the company tries to charge for the shares or does not give fully paid up shares again, the individual will not be an employee shareholder. If the individual signs what looks like an employee shareholder contract without all three qualifying criteria being fulfilled and still works for the company, that person is likely to be an employee and will be entitled to all the employment rights associated with that status.
The new status confers more advantages than beneficial tax treatment alone. I intend to give a much more positive picture than that given by several noble Lords today, including my noble friend Lord Forsyth. Let us consider what this means for the employer of an employee shareholder. An employee shareholder is more likely to generate ideas for growing the company and will have a greater incentive constantly to strive to improve a product, effect a sale or streamline a system. Because the employer knows that the employee shareholder is an owner, the employee shareholder is more likely to be listened to. The employee shareholder status is more likely to encourage co-operation and cohesion between the employer and employee shareholder as their personal goals are more aligned. I listened carefully to my noble friend Lord King and was pleased that he conceded that this could suit certain companies and certain employees, which is precisely what we are saying.
Our companies are competing in a global race to increase their competitiveness and market share, and to create wealth. In turn, this will create new job opportunities. Employee shareholder status presents our companies with an additional option to employ people who will invest in the long-term success of the company, lowering labour turnover and associated costs.
Let me turn now to guidance. During our debate in Committee, guidance for employee shareholders was discussed at length. As promised, a full pack of draft guidance was laid in the Library of the House on 14 March. This has given your Lordships the opportunity to see what the employee shareholder guidance for individuals, companies, DWP jobcentre advisers and decision-makers will look like. It is something that we promised. It is in draft form. It will continue to be drafted. The plan is that in September it will be in its final form. I welcome comments to improve the guidance on all fronts.
We have designed the guidance in collaboration with other government departments, such as HMRC and DWP, and have worked hard to keep it as simple as possible so that it is easily understood by its target audience. Noble Lords will remember that in Committee I referred to a much larger document of 3,000 pages. This has produced a much more simple approach. The guidance is not final. We have tested the guidance with jobcentre advisers and are continuing to test it with the Employment Law Review Business Challenge Panel. Where needed, we will refine the guidance before the new status is used in September this year.
The draft guidance comprises three parts. The first part is guidance for individuals that will make it clear for people considering employee shareholder jobs what employment rights are associated with these jobs, the risks and rewards of being a shareholder and other factors that they may wish to consider before accepting, or otherwise, an employee shareholder role. Secondly, guidance for companies will help them understand the employee shareholder status, what it means for them and how they can use the status within their workforce. The third part is guidance for DWP Jobcentre Plus advisers and decision-makers to ensure that they understand the new employment status.
People in receipt of jobseeker’s allowance will be expected to consider employee shareholder jobs if they match the criteria agreed in their jobseeker’s agreement. This agreement would have been discussed and agreed with a Jobcentre Plus adviser on first attending a jobcentre and would set out the jobseeker’s job goals, availability for work, any agreed restrictions and what steps they will take to look for work. I will return to that in a moment.
I should like to pick up on a number of questions. There were quite a few and I may not be able to answer them all. The noble Lord, Lord Pannick, stated that no evidence was provided about the number of companies that might be interested. I believe he will know that last year the Government published an impact assessment. The background to how we came to the figure of 6,000 businesses is that there are a large number of businesses within the UK. In 2012 figures, it is estimated that there are about 4.8 million, not all of which will be able to use the employee shareholder status, as only companies can issue or allot shares. That is essential for the employee shareholder status to operate.
Just over 55% of all businesses in the UK are registered companies: that is, around 2.7 million. However, not all are estimated to have employees beyond the self-employed owner-manager of the company or a single employee director. This figure is probably less than 1 million. In 2010-11, around 9,000 companies were operating any form of approved tax-advantage share scheme in the UK. There will be more than this operating non-tax-advantage share schemes. Our approximate estimate, therefore, is that around 6,000 companies, as I said in Committee, may use the employee shareholder status, although I acknowledge that it could be more or less. Employee shareholders are a new option for companies, which they can choose to use when it suits their circumstances. It is not so much about whether the figure is 6,000, 4,000 or 7,000; the point is that the opportunity is there for companies to pick this up, or not, as is their wish.