Growth and Infrastructure Bill

Debate between Viscount Younger of Leckie and Lord James of Blackheath

Wednesday 6th February 2013 Lords Chamber

[Viscount Younger of Leckie]

As promised, I will revert to the noble Lord, Lord Adonis, as quickly as possible to confirm what I said.

[Lord James of Blackheath]

Will the noble Viscount please also assure the Committee that there will be an absolute bar on companies lending individuals the money to pay that tax? They will be in enough trouble already.

[Viscount Younger of Leckie]

I would like to think that I could say yes to that. However, it is up to the company to decide, and it is something that I cannot stipulate or guarantee.

I should like to address the question raised by the noble Lord, Lord Adonis. I can confirm that the shares are taxable, but the Chancellor is considering making the first £2,000 tax-free.

--- Later in debate ---

[Viscount Younger of Leckie]

First, it depends on whether the employee shareholders are 40% taxpayers, but I can confirm that tax is payable on the shares that are given.

My noble friend Lady Brinton expressed concern surrounding the share dilution, particularly when small businesses have additional investment. Additional investment shows that a company has potential and this should benefit the shareholders in the long run. We envisage that it will. Minority shareholders already have some protection under company law, and employee shareholders would be able to make appropriate representations under these rules.

I now turn to a question raised by the noble Baroness, Lady Turner, concerning TUPE. She asked whether TUPE will be affected by employee shareholders. Exactly how TUPE would apply would depend on the precise details of the transfer, but there is nothing in the employee shareholder clause as it stands that would require an interpretation incompatible with TUPE. It is important to realise that any employee transferred under TUPE cannot be forced by the transferee into becoming an employee shareholder. The employee will still have a right not to be unfairly dismissed or suffer a detriment as a result of refusing an employee shareholder contract. There is nothing to stop business arrangements being made in such a way as to provide that a person who is an employee shareholder in one company becomes an employee shareholder in another company. It is also possible to agree that the employee shareholder would no longer have employee shareholder status and become a full employee. I also want to clarify that if an employee has bought shares privately in a company, and he has transferred to that company under TUPE, he is not deemed then to have become an employee shareholder of the company by virtue of holding shares in that company. That is because the shares were not given to him as part of the employee agreement to become an employee shareholder.

The noble Baroness, Lady Turner, also raised the issue of Beecroft. I think she said that this was Beecroft by the back door. I reiterate that it is certainly not. The new employee shareholder status is different from the no-fault dismissal proposal because individuals become shareholders of the company at the start of the employee relationship. That is an important benefit conferred by the employee shareholder status. Unlike no-fault dismissal, the employee shareholder status will be freely agreed between employers and individuals in contractual negotiations. Employers will also be free to offer improved contractual terms, such as contractual redundancy payments, as raised earlier, in an employee shareholder contract. After reviewing the evidence, the Government found no compelling reasons to implement the no-fault dismissal proposal.

My noble friend Lord James of Blackheath was concerned that shareholders might be locked in and subsequently would have to pay the debts of the company. The shares must be fully paid up by the company. No financial liabilities are attached to the shares. No personal guarantee can be demanded from an employee shareholder as a condition of the particular status.

[Lord James of Blackheath]

Can the noble Viscount please explain what would happen in the event of a rescue rights issue?

[Viscount Younger of Leckie]

I will certainly have to come back to my noble friend with a full answer to that question.

I shall conclude by agreeing in part with the noble Lord, Lord Pannick, on a particular point. There is indeed a large number of sources of quality legal and financial advice available. The Government do not need to stipulate where people should seek advice, nor would it be appropriate to oblige people to seek such advice when they may not need or want it. The best approach is to provide guidance, which we will do, to ensure that people enter into contracts with their eyes open. That is the approach that we are taking. With those reassurances I hope that the noble Lord will withdraw his amendment.