Baroness Brinton
Main Page: Baroness Brinton (Liberal Democrat - Life peer)Growth and Infrastructure Bill
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Baroness Brinton
My Lords, on Second Reading I expressed my concerns about the whole concept behind this clause. Various Ministers have suggested that only a small group of companies are likely to be interested in these proposals: new, high-technology, rapid-growth, micro and small companies which might want to encourage employees into more commitment and endeavour by offering them shares in their company. So far, so good. However, many employers already do this in this sector, especially those running fast-growing, leading-edge, high-tech companies, because they know that they are going to grow much faster than many other companies and they want to commit their staff to working for them, to share the benefits in the longer term and the hardship of trials that most companies face in their start-up phase.
I declare two past interests. First, I have a foster son who has recently been employed by one such firm, joining it from university. He has received a share package as part of his employment. I have talked to him and some of his colleagues about the benefits and whether they would be prepared to talk about giving up their rights. I will come to that later. My second interest is that I advised St John’s College, Cambridge, as it created the St John’s Innovation Centre in the late 1980s and subsequently was a non-executive director at the centre until 2010. The centre works with entrepreneurs and academics spinning their ideas out of Cambridge and other universities, offering them short-term leases and, very specifically, business, legal and technical advice that is the envy of many other science parks and innovation centres that have developed in the intervening 25 years.
These companies are the exact target audience that Ministers tell us will be interested in the proposals in Clause 27. Having talked to the directors of these small but high-growth companies, I know that many already offer shares, as I mentioned. They, as directors, do not understand why an employer would want to do so in return for a reduction in employment rights. One of their key issues as the company grows is to keep the morale of the staff going during the difficult times. It is very rare for a new company to have an entirely smooth journey to success and reward. Proposing that staff should give up their rights to redundancy pay is an issue, as not all early-stage companies survive and so redundancy is a real possibility. They are also concerned about training. This is absolutely vital in the leading-edge technology sector, where the skills of your workforce are likely to make all the difference against your competitors, particularly the business skills that technical staff may not have had when they arrived at the company. They need those skills in order to progress in their market. Losing part of paternal leave is also a concern, as many of their staff are in exactly the age group likely to be beginning their families.
So if the stick—that is, the loss of rights—is not attractive either to employers or to staff, what about the carrot? The carrot of capital gains tax exemption sounds very exciting but I do not believe that the Government have really understood the two likely outcomes for these high-tech companies. The first, sadly, I have already alluded to. Not all of these companies are a success. Probably one in 100 is. There is a chance that the company will not succeed and that the shares will be worthless.
The second is the unlikely event that the company will do well enough to make those shares really worth something in the future. However, even this route is fraught to those coming in on the ground floor. Let us assume, for the sake of argument, that the group of employees who joined the company in its first two years were given shares at the then face value. It would not be unusual after their issue, as the company grows and faces all the typical excitements of launching in the market, for those shares to become worthless. But our fledgling company is taking off, and in order to become a really effective player, it will have to take on finance. It often needs to seek that finance when the company is not attractive. So, some business angels or venture capitalists invest in the company, and all the original shares are diluted substantially by this investment. We are only talking about round two of investment at this stage.
Well, the rubric goes, it is better to have a small share of something than a larger share of nothing at all. Often, though, there are three or four subsequent rounds of financing, and those employees are likely to find that their small share becomes a minute one. This is a really risky business. Would many employees understand the risks that they were taking? Would they honestly be prepared to wait 10 years or more for the carrot of the CGT exemption for the one company in 50 to 100 that starts to make a return for its shareholders? I doubt it. I also doubt that many employees would understand the nature of the process that I have just outlined.
That is why my noble friend Lord Tope and I have tabled Amendments 82A, 82B and 91 in this group. For people working in the financial services sector, such as venture capitalists and bankers, the process of growth and new share issues, with the consequential dilution for longstanding shareholders, is common knowledge, but for a young software engineer, perhaps fresh out of university, it is an area that they are likely to know nothing about The amendments in my name and that of my noble friend address this. We believe that employee shareholders under Clause 27 should have access to independent legal advice. More than that, we think that the employer should have a duty to ensure that the employee has a right to receive the appropriate legal advice and that the employer should make a contribution towards that legal advice.
I am reminded of the small print in the public shares issues of the 1980s: shares can go up as well as down. The noble Baroness, Lady Thatcher—I am astonished to find myself praying her name in aid—felt that it was appropriate for the ordinary man or woman in the street to have that advice then, so I am sure that it is right to be provided in these circumstances for employees who are unlikely to have had training in the finer points of share prices and rounds of investment in high-growth companies.
Amendment 92, in the names of the noble Lords, Lord Pannick and Lord Adonis, takes my proposal one stage further, and in a new subsection (12) demands much more specific types of advice as well as a written agreement for individuals being offered the opportunity of employee shares and specifies the nature of that advice in much more detail. Not only do I think that is more useful but I am sympathetic to it.
Amendment 82B would then put the onus for paying for that advice on to the employer. I am sure that this is correct and only fair. If you are giving up your rights as an employee in return for shares that may, though probably may not, increase in value and will certainly be diluted out of sight in the future, that is a complex decision that needs specialist advice and careful consideration by the prospective employee shareholder.
When we come to discuss clause stand part I will return to some of the principles of the clause in general, but I want to conclude on these amendments by saying that all the evidence that I have heard from both employers and employees, in the sector that Ministers say is the one most likely to take this up, is that it just will not be attractive. I hope that the clause will wither on the vine, but if it does not then we must have protection for the employees who are going to be faced with this sort of proposal.
Lord Vinson
My Lords, I declare an interest in that for many years I was chairman of the Industrial Co-partnership Association. I also happen to be fortunate enough to have floated a company on the stock exchange when we had 1,000 employees, and we gave 10% of the company to our employees.
I am deeply committed to the concept of wider share ownership but I am concerned about Clause 27. I shall give the Committee an example of quite what ownership means to some people. One of the older women in our company came up to me about a month after we had floated it and said, “Guvnor, you just don’t know what it means to me to feel I am part of this company. It has made my life”. That just brought tears to my eyes. People want to belong, and in smaller businesses they can belong and feel that they are names, not numbers.
However, the whole point of wider industrial shareholding is to try to create a sense of common purpose. I fear that the unnecessary obstacles and quid pro quos put into Clause 27 go in exactly the opposite direction; they negate trust rather than increase it. With great reluctance, therefore, I have to speak against the Government, who I am sure are right to encourage wider share ownership. If you wrap it up in complexity, cover it in advisers and make it all too difficult, it simply will not happen, but it is fundamentally the most attractive and important thing to create a wider capital-owning society in which everyone feels they have a stake.
Viscount Younger of Leckie
I thank my noble friend for that question. The shares are treated as taxable income, although they are shares, so there would be tax at whatever level payable on the shares received.
I should now like to answer some questions that have arisen. The noble Lord, Lord Pannick, stated that there was no demand for this new status. I can understand his concern from other comments made this afternoon. This new employment status will not be appropriate for all companies or be taken up across the board. It simply adds to the options and flexibility available to companies and individuals in determining their employment relationships.
My noble friend Lord Flight has eloquently mentioned this particular issue in his speech. The new status will probably appeal mainly to fast-growing and small start-up companies and individuals as this is the level where employment rights are seen to impact the most.
I would like to address directly the points raised by my noble friend Lady Brinton to say clearly that this particular employment shareholder status will not suit the examples that she cited in or near the Cambridge area. My noble friend Lord Strasburger also cited some example and I suspect it would not suit—
Baroness Brinton
Does my noble friend accept that this is exactly the group of companies that Ministers in another place were citing were perfect for exactly this sort of scheme?
Viscount Younger of Leckie
Indeed, it may well be the case, but it is not my position to stipulate exactly which particular companies would be right for this particular scheme; only to say that we are offering this as an incentive and an opportunity for business to help the company grow. If it is not suitable for particular companies, that is absolutely fine—it is not suitable.
My noble friend Lady Brinton also asked why we were removing the statutory right to request time to train. The Government recognise that training in the workplace is important and acknowledge the concerns raised. There is currently no reason to suggest that removal of the statutory right to request time to train, which at present is available only to employees of large organisations—that is, those with more than 250 people—would result in employee shareholders being unable to access training or request it if needed. Larger employers tend to have established appraisal and development processes. On that basis, we do not believe that this proposal will adversely affect future employee shareholders. Employee shareholders can still make non-statutory requests for time off to train.
Baroness Brinton
My Lords, I apologise for intervening again but this point is absolutely critical to the Government’s intended success of the clause, or otherwise—that is, a carrot needs to be available to the employee at the time of the share issue, as well as later when there might be some fruition in terms of the investment. This seems to remove the only carrot at the time of the initial employment.
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 Adonis
My Lords, I spoke too soon. The noble Viscount has now moved back again and now we are not even at “possibly” this afternoon. However, I think he has got the message.
The provision before us is completely contradictory and wholly indefensible. On the one hand the Government say—the noble Viscount said it again this afternoon—that this is about creating a new voluntary employment status which, therefore, potential employees have the right to choose. When the Bill was first before the House of Commons, Michael Fallon said:
“No one wants to see employees pressurised into making a choice that may not be in their own best interests”.—[Official Report, Commons, Growth and Infrastructure Bill Committee, 13/11/12; col. 9.]
He later added, for good measure:
“With regard to the new status being voluntary … people will choose to apply for and accept employee owner contracts”.—[Official Report, Commons, Growth and Infrastructure Bill Committee, 6/12/12; col. 497.]
This principle, however, is then flatly contradicted by not allowing benefit claimants to make such a choice. On the contrary, if benefit claimants decline to apply for or accept shares-for-rights jobs, they stand to lose their benefits or have them docked. This is a fundamental point that goes to the heart of this debate. Michael Fallon was explicit about this in the House of Commons. He said:
“The Government believe that jobseeker’s allowance claimants must actively seek and be available for work … it is right that employee-shareholder jobs should be as much a part of that consideration as any other”.—[Official Report, Commons, 17.12.12; col. 649.]
He went on to say that in cases where there is the offer of a job without employment rights—an employee-shareholder job—the unemployed person should “normally accept the offer”. Those were his words.
It is simply impossible to square that statement with the Government’s commitment that acceptance of jobs on such contracts would be voluntary. It is clear that benefit claimants will be pressurised into accepting contracts that may be against their own best interests, unless the guidance with which the noble Viscount is unable to provide the House makes it clear that that is not the case. This amendment and that of the noble Baroness, Lady Brinton, will bring the Bill into line with the Government’s own statements that accepting shares-for-rights jobs should be voluntary and not compulsory. I beg to move.
Baroness Brinton
My Lords, these two amendments are trying to achieve the same objective. I commend the noble Lord, Lord Adonis, on the wording of Amendment 82. My Amendment 90 echoes those sentiments. We have already discussed, in the previous group, the complex decision required of an individual being asked to become an employee-shareholder, who must take account of current employment rights versus the slim chance of future capital gains. However, there is a further and even more worrying aspect for one particular group of individuals: those who are currently unemployed and in receipt of jobseeker’s allowance.
What will happen to those offered a position in a company on the condition that they become an employee-shareholder and give up some of their rights? I am aware of people who find themselves being made redundant, through no fault of their own, not once but twice, or even more frequently. I am reminded of a friend in Luton who, following the closure of Vauxhall, moved from one company to another in the supply chain and was made redundant four times in the short space of a year. For people with that sort of history, the idea of giving up the right to future redundancy pay will be horrifying and would make the job extremely unattractive. This is not a run-of-the-mill job offer and I would be extremely concerned if an individual turned down a job and share ownership opportunity, and then discovered that his or her JSA was to be cut.
The Minister in another place said:
“The Government believe that jobseeker’s allowance claimants must actively seek and be available for work … and it is right that employee-shareholder jobs should be as much a part of that consideration as any other. If a claimant applies for an employee-shareholder job and is offered a position, they should normally accept the offer”.—[Official Report, Commons, 17/12./12; col. 649.]
It is this quote from the Minister that underlies the concern that the noble Lord, Lord Adonis, has laid out in some detail. I echo that because we have to see the guidance and information to make it exactly clear where the boundaries lie. I will not go back through the timescale of this, but it is essential that all sides of the House—all sides of the House have concerns about this clause—have time to consider the very serious implications for jobseeker’s allowance for people who are sent off for that type of post.
In addition, some people may send off hundreds of job applications but receive only one reply; some may get one interview; some may even get one offer. A job offer for shares-for-rights is a job: do the Government seriously think that someone will turn it down after months of searching? Many people cannot pick and choose jobs, even if they are worried about the reduction in rights, especially in the current climate, with many businesses folding. I cite Paul Callaghan from the legal fund Taylor Wessing, who suggests that shares-for-rights contracts will be optional to the extent that eating and drinking are optional.
The amendment would write into the Bill a statement that makes it absolutely clear that the Department for Work and Pensions and Jobcentre Plus will not penalise an individual who makes the difficult choice to turn down a job. Should they accept it, they must have access to the same legal and financial opinion that we discussed under the previous group of amendments. That needs to be written into the Bill to ensure that protection and to provide Jobcentre Plus with clear and unequivocal direction.
Lord Pannick
My Lords, I share the concerns expressed by the noble Lord, Lord Adonis, and the noble Baroness, Lady Brinton, about the absence of the guidance that the Government are eventually to publish. The whole point of Committee on a Bill is that we can debate in detail the implications of the Government’s proposals. By not publishing the guidance at this stage, the Government are preventing the Committee discussing the essential detail of their proposals. For my part, I do not find it satisfactory, even if the noble Viscount produces answers this afternoon. It should have been done in time for noble Lords to debate the matter today.
In the absence of any guidance, we can proceed only on the basis that Clause 27 does not at all protect the prospective employee from being denied welfare benefits if he or she refuses to take up a job offer which involves the absence of employment rights. Even if there were adequate guidance, I share the view of the noble Baroness, Lady Brinton, that guidance is in principle inadequate. The Bill must state clearly the legal position in order to protect the prospective employee.
Clause 27 is bad enough in its implications for employees, as we explained in a previous debate. It is even worse for the prospective employee. Under Clause 27, the employer can refuse to offer employment to applicants who decline to enter into one of these agreements giving up statutory employment rights. The irony is that the worse the job market, the more willing prospective employees will inevitably be to take the job, even if employment rights are lost. However, the poorer the job market, the greater the employee’s need for the statutory protection against unfair dismissal and redundancy that the employee will be giving up. It is a vicious circle indeed.
Amendment 82 and the amendment of the noble Baroness, Lady Brinton, each address a particular vice of Clause 27 in that respect. The vice is clear. It is that the prospective employee who wishes to maintain his or her statutory employment rights—during the previous debate, the noble Viscount emphasised that this is a matter of choice—and refuses to be bought off, is at risk of losing welfare benefits. That is indefensible for a simple reason. Clause 27 can only be based on a theory of equal bargaining power. It is a wholly unrealistic theory, but that is the theory. That is the fig leaf which shelters the substance of Clause 27. Even the fig leaf—the theory of equal bargaining power—is removed by the fact that the prospective employee’s bargaining power is wholly removed if he or she is going to lose welfare benefits if he or she does not agree to take the job in the absence of the statutory protection of employment rights. Therefore, the absence of protection against losing welfare benefits for the job applicant inevitably means that, in practice, Clause 27 does not simply provide for a choice, it imposes an obligation.
Baroness Brinton
Does the Minister accept that even if the Government say that it is likely that very few companies will be offering this type of employee share ownership, having a couple of points of guidance buried in 3,000 pages, or even 300, would mean that the average member of staff at a Jobcentre Plus would probably be unlikely to find the relevant information straight away? Does this not argue for the need to put this very special interest in the Bill?
Viscount Younger of Leckie
I would like to pick up only one of the points made by my noble friend. It is important, and I am sure that the officials are working hard on this, to ensure that the guidance that is offered is simple, and that there is a way that those involved who need to go to the guidance can do so quickly and effectively, despite the fact that it is 3,000 pages long.
Viscount Younger of Leckie
I just want to re-emphasise what I was trying to say about the document being 3,000 words long. I wanted to reiterate that this is no small task. One may well say, “You should’ve done it before Committee stage today and certainly before Report”, but as the noble Lord knows, I cannot at the moment give a guarantee that it will be ready by Report. I simply wanted to state that this is a major document, a lot of detailed work is going on, and it will come.
Baroness Brinton
My Lords, I apologise for intervening on an intervention, but I just wanted clarification on this. The noble Viscount just said that the document was 3,000 words long, but I understood that we had been told earlier that it was 3,000 pages. There is some difference.
Viscount Younger of Leckie
I stand corrected—it is indeed 3,000 pages long.
Lord Pannick
The noble Lord, Lord Deben, posed a series of questions about the benefits of Clause 27. Perhaps I may add to the burdens on the Minister, who is playing a very straight bat—he would be a credit to the cricket team of the noble Lord, Lord Strasburger. I will put these questions to the Minister in the hope that he can explain whether the Government have taken account of two very troubling legal consequences that will follow from the current contents of Clause 27 and which are relevant to the amendments in my name and that of the noble Lord, Lord Adonis.
First, some of the rights that the employee or prospective employee is being invited to sell are concerned with issues that are particularly sensitive in anti-discrimination law. There is the right to request flexible working, which is obviously of particular importance to working mothers—as is the eight-week notice period that would be imposed for the return to work after maternity leave. These are very sensitive matters. It is inevitable that employers who seek to rely on an agreement which purports to override rights in this context will face legal challenges under EU law, the expense of which will far exceed the amounts that they would pay to employees for giving up those rights. Have the Government taken that into account in deciding on the merits or otherwise of Clause 27?
I would be grateful if the Minister would comment also on a second legal implication. If the law allows for the sale of unfair dismissal and redundancy rights, it is inevitable that aggrieved employees, when they are dismissed or made redundant at some stage in future, will not go quietly. Having sold their unfair dismissal and redundancy rights, they will formulate their grievances by reference to whatever legal avenue has not been sold. Nothing in Clause 27 affects—and because of EU law nothing in Clause 27 could affect—their rights of protection under anti-discrimination law. So instead of claiming unfair dismissal, or seeking compensation for redundancy, the aggrieved employee will contend that the dismissal or redundancy was based on a prohibited ground. Therefore, my second question to the Minister is whether the Government have really taken into account that any employer that enters into one of these agreements—and it seems highly unlikely that there will be many of them—will not be protecting themselves against the litigation that will result when an employee is dismissed or made redundant in future.
Baroness Brinton
Clause 27 requires employees to give up a range of rights. Many of these rights are ones that the Beecroft report recommended should be removed from employees more generally. The Secretary of State, Vince Cable, hit out at Beecroft’s unfair proposals. He said:
“One of Mr Beecroft’s recommendations was a suggestion to bring in no-fault dismissal. In my daily conversations with businesses, this has very rarely been raised with me as a barrier to growth. Businesses are much more concerned about access to finance or weak demand than they are about this issue”.
Given that the clause is in the Growth and Infrastructure Bill and that the Secretary of State does not believe that giving up the right to claim unfair dismissal is a barrier to growth, why should we ask workers to give it up under this new status? In fact, Mr Cable went even further and stated that it would be counterproductive. He said:
“At a time when workers are proving to be flexible in difficult economic conditions it would almost certainly be counterproductive to increase fear of dismissal”.
I never thought that I would support Mr Beecroft, but he recommended a compensated no-fault dismissal. The Government are going one step further and do not even provide compensation for no-fault dismissal under the employee shareholder status. Given how controversial Mr Beecroft’s proposals were in the first place, and the Secretary of State’s protest, does this not give us further reason for the removal of subsections (2)(c) and (d)? Beecroft also recommended the removal of the right to request flexible working—another of his recommendations that the Government are trying, perhaps, to sneak in by the back door through this status for certain employees. However, I have to say that this directly contradicts the coalition agreement and the mid-term review, which states that the Government will extend,
“the right to flexible working to all employees”.
How can the Government fulfil that pledge when they will be removing the right from employee shareholders?
Viscount Younger of Leckie
My Lords, Clause 27 is about providing further choice to the range of employment statuses that employers can consider and choose. I want to take this opportunity to explain to the House the difference between “employee shareholder”, “employee” and “worker”. This will help us understand the context of the noble Lords’ amendments.
People and companies already have a choice in how they wish to work and how they structure their workforce. The choice is usually between hiring someone as a worker, an employee or on a self-employed basis. The difference between these employment statuses is the level of obligation and mutuality to provide and carry out work, and the rights associated with the statuses. I hope that the following explanation goes a little way to answering some questions that my noble friend Lord Deben raised.
Workers have limited rights such as the right to be paid the national minimum wage, protections against unlawful deductions from their pay, paid annual leave and rest breaks, and protection against discrimination, which includes on the ground that they work part time. Employees who meet the relevant conditions have the following additional rights: a general right not to be unfairly dismissed after two years working with the same employer; automatically unfair dismissal rights; statutory redundancy pay; statutory minimum notice period; statutory collective redundancy notice period; TUPE, which was mentioned earlier by the noble Baroness, Lady Turner; the statutory right to request flexible working; and, finally, if they work in a large business of more than 250 employees, they have the statutory right to request training.
The self-employed have limited employment rights linked to discrimination and health and safety. The new employee shareholders will have more rights than someone taken on as a worker, but not all those of an employee. They will not have: first, the right to unfair dismissal except for automatically unfair reasons or on discriminatory grounds; secondly, the statutory right to request flexible working or certain statutory rights to request training; and, thirdly, statutory redundancy pay.
I turn to employee shareholders wishing to return to work earlier than originally planned from maternity, additional paternity or adoption leave. When returning early from these types of leave, employee shareholders will need to give 16 weeks’ notice, compared to six weeks for employees returning from additional paternity leave or eight weeks for employees returning from maternity leave or adoption leave. The noble Lord, Lord Pannick, proposes with Amendments 83 to 89 to take out the employment law references in Clause 27, where it states what rights the employee shareholder will have that are different from those of an employee. This includes removing the distinguishing features of the clause and therefore it will remove choice from the options that employers can consider when taking on staff. The amendments would create an employment status that is essentially the same as that of “employee”, but where the employee shareholder would be given fully paid-up shares. In effect, we would be regulating for an additional employment status that essentially already exists in that of “employee” in order for the individual to be given shares. As the noble Lord, Lord Pannick, knows—he is supported in this by the noble Lord, Lord Adonis—employee ownership, either through direct employee share holdings or shares held in trust on behalf of and for the benefit of employees, is already a well known concept that is in use in the labour market. Companies are already free to offer shares to their employees.
My honourable friend Jo Swinson, the Minister for Employment Relations and Consumer Affairs, is chair of the implementation group taking forward the recommendations of the Nuttall review which is promoting the employee ownership agenda. The Government do not want to create an additional burden by regulating for something that can already take place in the labour market and that an employer can already offer. Such action would not help growth.
I should like to answer some questions that were raised by noble Lords. First, my noble friend Lord Deben stated that, as he saw it, there was no support from business. I have listened very carefully today to the comments made by other noble Lords. It might be helpful for noble Lords to know that Neil Clifford, the chief executive of Kurt Geiger, the shoe retailer, has stated that this measure would,
“provide a massive boost to innovation and enterprise”.
Becky McKinlay, who runs Ambition, a marketing communications company, is cited as saying that,
“she would have welcomed such a scheme when she started her marketing communications company, Ambition, six years ago because she could not afford to outbid her peers on wages”.
I could go on.
The noble Lord, Lord Pannick, raised the issue of why we think there is a statutory right to request flexible working and why it is unnecessary for employee shareholders. The statutory right to request flexible working creates a structure for conversations between employees and employers about changes to ways of working that will be mutually beneficial. Employee shareholders will have a greater interest in the performance of their employer as it is linked to the value of their shares. We consider that employee shareholders are more likely to request flexible working if they think it will help them and the company and do not need the statutory right to request. Employee shareholders can still make non-statutory requests for flexible working.
My noble friend Lord Strasburger raised the issue of which rights will increase motivation. As we see it, this new employment status will increase motivation as the employee shareholder will own shares from the outset and capital gains on these shares of up to £50,000 will not attract capital gains tax.
Viscount Younger of Leckie
The overall package of the employee shareholder, with the extra risk as well as the extra reward, is designed to ally the employee with the employer more readily. The motivation will be there because the employee will feel more aligned to the objectives of the company and will help more towards building and growing the company. That is one of the clear objectives behind this scheme.
The noble Lord, Lord Pannick, raised the issue of the legal consequences of selling rights. A full equality impact assessment has been done and no significant discrimination issues were identified. On the European law issues, I can reassure him that no European guaranteed rights have been affected.
My noble friend Lady Brinton asked whether we can ensure that an employee shareholder is treated fairly and not sacked just because their employer does not like them or has argued with them. An employee shareholder would still retain the majority of protections such as, as I mentioned earlier, automatically unfair dismissal rights and rights underpinned by EU law and discrimination legislation. If an employee shareholder was dismissed in any other circumstances, they would not be able to claim unfair dismissal at an employment tribunal, which we understand. Employees do not get the general right to protection against unfair dismissal or to statutory redundancy pay until they have been with their employer for two years, so there are already employees who currently do not have these rights.
In conclusion, Clause 27 creates a new employment status that gives companies and people more choice. This new status is a creative scheme for companies and people who wish to use it. It gives them a new opportunity to better share the risks and rewards of the business. I hope noble Lords realise that this new, innovative status is a force for good in the labour market, and that they will withdraw their amendments so that companies and people can benefit from this additional choice.
Baroness Brinton
I was slightly confused by some of the Minister’s earlier response on the employee status for employee shareholders. I would welcome clarification on whether they are actually regarded as employees, generally, or whether the only respect in which they are not employees is where those rights have been specifically removed by the Bill.
Viscount Younger of Leckie
I can confirm that it is an entirely new status, so the individual who agrees with their employer to a contract to be an employee shareholder is not the same as an employee.
Viscount Younger of Leckie
I would be delighted to furnish the noble Lord with whatever information I can find, but I remind him—he may well know the statistic—that the total estimated number of businesses in the UK is 4,794,000. Therefore, breaking down the figure to 6,000 perhaps re-emphasises that this employee shareholder status is not for every company. It is aimed at a particular type of company, and it is important to round off this debate by emphasising that this is not as big a deal as some noble Lords are making it out to be.
Baroness Brinton
I apologise for intervening again. Can the noble Viscount explain what niche group of companies this provision would interest, given that in our discussion on the first group of amendments, when I outlined the problems facing high-tech, leading-edge companies going through rapid growth—which Ministers have told us was exactly the audience the clause was aimed at—the Minister said that it was probably not appropriate for them? Perhaps he could cite the type of company it is appropriate for.
Viscount Younger of Leckie
I re-emphasise that the Government stick by their idea and plan that the provision will suit small start-up companies, but not exclusively those. However, from my noble friend Lady Brinton’s comments, it certainly does not seem to suit the companies that she has been in touch with, and I thoroughly respect that. I say again that this will not suit every company, but I have given quotations from individuals who seem to think that this is a good, innovative new scheme, which I very much welcome. I hope that it will take off, despite the fact that it is obviously quite contentious.
Lord Adonis
My Lords, all I need to do to let these proposals collapse is allow the noble Viscount to carry on speaking because, proposal by proposal, his case disintegrates. It turns out that the 6,000 figure is indeed a mystifying figure that has no basis in fact. I am thinking of why he might have chosen that figure—it appears to be twice as long as in the guidance for DWP decision-makers. Perhaps that is the basis on which the figure has been devised. We look forward to hearing the justification for it, and therefore whether this measure is incidental or fundamental.
The truth is that the Government cannot possibly know. However, so far as your Lordships are concerned, we have a responsibility not to put on to the statute book provisions that could be seriously detrimental to the health of the nation. No part of the health of the nation is more significant than people at work and their rights there. It is not satisfactory simply to proceed with the provisions on the basis of figures that have been plucked out of the air.
The second thing that has become clear is that the Government suffer from two fundamental problems of schizophrenia. They want more entrepreneurial zeal in the economy, as we all do, but almost none of the entrepreneurs to whom it looks to generate new companies, new ideas and new ventures supports the proposal and believes it will have the effect that the Government state. A number of noble Lords with a great deal more experience of business ventures than me have made that point. I think I quote the noble Lord, Lord Deben, correctly as saying that he could not imagine “any circumstances whatever” in which he would seek to offer these contracts to employees in a small start-up company as a way of motivating them.
The fundamental problem that the Government have with the proposal—the basis upon which it has been put forward is that it will stimulate in the context of the lack of growth new, vitally needed entrepreneurial zeal and companies—is that the entrepreneurs and companies to which he is looking to provide that energy do not believe that this proposal is necessary. On the contrary, almost all of them are critical because they believe that the reputational damage that it will create may undermine the cause that the Government are seeking to promote.
However, a third big tension that has come through clearly from the noble Viscount’s remarks is that the Government speak with two voices. One part of the Government celebrates the extension of employment rights and says that that is a fundamental objective of the coalition Government established in 2010, at the very same time as another part of the Government celebrates the withdrawal of those rights as being necessary to stimulate the economy in a period of economic downturn. I have a view on these matters, but surely the Government should make up their mind which is true. Is the extension of employment rights essential to stimulate the economy to provide greater flexibility and protection for those at work, or is the withdrawal of those rights necessary to spur economic growth? At the moment, one Minister comes here on one day and says that it is the withdrawal of rights, and another Minister comes here on another day and says that it is the extension of rights.
The noble Baroness, Lady Brinton, referred to the Deputy Prime Minister. At the very time the Bill was going through the House of Commons, he made a speech entitled, “Greater equality for a stronger economy”. That was the title on his website. He said:
“I can also confirm today that the Government will legislate to extend the Right to Request Flexible Working to all employees”.
At precisely the same time, this legislation was brought forward: legislation that withdraws the right to request flexible working from employees who are on these employee shareholder contracts.
Are the Government not aware that there is a fundamental problem when one Minister says one thing and another Minister says another, and the two are totally at variance?
Baroness Brinton
That was indeed why I asked the noble Viscount about employee status and whether this was a new form that would circumvent that. On our Benches, we welcomed the Deputy Prime Minister’s comments about increasing flexible working rights to all employees. I remain concerned that this is under threat for the employees of perhaps around 6,000 firms that may or may not take up this particular option.
Lord Adonis
My Lords, we are now on the issue of the cost of these proposals to the Exchequer. I would like to invite the noble Viscount to explain more fully to the House what he believes the revenue implications would be as a result of the proposals. The independent assessment by the Office for Budget Responsibility suggests very large figures might be at stake, which is why we are asking for figures to be made available in respect of each financial year up to 2030.
I quote from the policy costings document published by the OBR alongside the Autumn Statement:
“There are a number of uncertainties about this costing”—
that costing being the figure of £80 million over the current spending review period—
“The static cost is uncertain in part because of a lack of information about the current amount of CGT arising from gains on shares through their employer. The behavioural element of the costing is also uncertain for two main reasons. First, it is difficult to estimate how quickly the relief will be taken up; this could make a significant difference as the cost is expected to rise towards £1 billion beyond the end of the forecast horizon. Second, it is hard to predict how quickly the increased scope for tax planning will be exploited; again this could be quantitatively significant as a quarter of the costing already arises from tax planning”.
I would like to invite the noble Viscount to expand on what the OBR said so that we have a better basis for understanding the potential costs of what could be an extremely expensive proposal once the tax planners get going on the opportunities available to them.
Baroness Brinton
My Lords, I apologise for referring again to the coalition agreement, but I am concerned that the tax loopholes proposed under the CGT allowances for employee shareholders conflict with the coalition agreement because the shares that a company gives to employee shareholders will not be liable to CGT.
Paul Johnson, the director of the IFS, has said:
“Just as government ministers are falling over themselves to condemn such behaviour, the same government is trumpeting a new tax policy which looks like it will foster a whole new avoidance industry”.
He refers to it as a “£1 billion lollipop”. I am prepared to negotiate the billion with Paul Johnson on the understanding that it is only likely to affect a small number of companies. Or perhaps not, because we know that advisers to companies, if they find a loophole will find a way of making it apply to everyone.
The Government have pledged in the coalition agreement to clamp down on tax loopholes and tax avoidance. The agreement says:
“We will make every effort to tackle tax avoidance, including detailed development of Liberal Democrat proposals”.
These include exactly what I have cited earlier. Why do the Government in the draft Finance Bill 2013 create this loophole where shareholders can avoid paying capital gains tax? I quote:
“Legislation will be introduced to exempt all gains made on disposals of up to £50,000 worth of ‘employee shareholder’ shares from capital gains tax”.
The coalition agreement also says:
“We will seek ways of taxing non-business capital gains at rates similar or close to those applied to income”.
We have pledged, as a Government, to raise capital gains tax and yet we are removing it for shares related to employee shareholders. I support the amendment because we need to understand the cost to the Treasury. I would welcome an explanation from the Minister why it is acceptable for one small group of shareholders to be exempt from CGT when the Government are moving in the opposite direction for all others.
Lord Deben
I hope that my noble friend will be very careful in his response to this because underneath there are two falsities. The first is the schizophrenia on the side of the Opposition. On the one hand, they say that no one will be taking it up, and on the other hand they say that it might be very expensive. I do not think that the noble Lord, Lord Adonis, should get away with that argument.
I also do not want him to take too seriously the comments about exempting people from capital gains tax. I declare an interest as the chairman of a number of small companies, which are, I hope, growing. I have the feeling that there is a kind of nastiness abroad on this issue, because capital gains tax is very much a destroyer of value and of enterprise. One problem in this country is that many people do not like other people being wealthy as a result of hard work and employment. I dislike that kind of attitude very much. If that is part of the coalition agreement, it is a bad part, because we need a society in which people are encouraged to put their lives into businesses and to gain some of the benefits of that. One reason the United States is so much more successful than other countries is that it has been more sensible about that bit of its taxation. It is very stupid about a lot of other taxation, but on that bit at least it has said that there is a real reason for encouraging people to create businesses. One way of encouraging them is by giving them a lower rate of tax on capital gains and dividends than they would have elsewhere. That seems perfectly right, and one problem that we have is that we have not taken that seriously.
I am not worried about this proposal because I do not think that anyone is going to take it up and so they are not going to lose any money. However, I hope that my noble friend will be kind enough to suggest that the Government will do a great deal more to enable people, through employment, to create wealth and to take some of that wealth in a way that we do not allow them to do at the moment.
It really is sad that we have a society in which it is perfectly proper to say, “We’ve really got to stop people possibly gaining from the creation of jobs”. That is what we mean when we say that we want to make sure that nobody benefits. That is not what I want to happen—and it will not happen—but I hope that in his answers my noble friend will make sure that he does not commit the Government to not taking some pretty radical steps to remove and reduce taxation in a number of areas that will encourage job creation.
Baroness Brinton
I should like to clarify the point that I was trying to make about finding a tax loophole that provides a source of employment for many industry experts. We need a capital gains tax system which is fair and which certainly encourages growth. I do not think that we would suggest anything other than that from these Benches. The concern arises when, on the one hand, the Government say that they want to make a clear, open and transparent level playing field but then, on the other, they create a category that appears to have a built-in loophole.
Lord Deben
I am sorry if I misunderstood my noble friend, and of course I accept what she has just said. I find it very hard when the guns are turned on this issue because of the loose use of the words “tax loophole”. This is not a tax loophole; it is a decision—a mistaken decision, I think—to encourage people to do something through a tax concession. I repeat: it is not a tax loophole. I shall tell noble Lords what a tax loophole is. It is Amazon organising itself so that it runs people out of the high streets of Britain by ensuring that it does not pay proper taxes. A tax loophole—I declare an interest as being concerned with the business of packaging recovery—is when Amazon can put packaging on the marketplace and not pay the proper price of so doing. That is what a loophole is. It is not a loophole if the Government specifically say that in particular circumstances people will pay a lower rate of tax. That is a proper use of the taxation system. For goodness’ sake, do not let us use the term “loophole” in this instance. There are some very big loopholes which we ought to be stopping and, for me, Amazon is the biggest example of a company that does not pay proper tax wherever it operates.
Baroness Brinton
I apologise for intervening again and I thank the noble Lord for his contribution. There is absolutely no doubt that we agree about Amazon. Perhaps I may give an illustration from the early 1990s of the sort of loophole that I was alluding to. The Conservative Government of the day created generous tax facilities for investors in the business expansion scheme. When the scheme was originally devised, it was intended for small high-growth companies—where have I heard that before in this debate? Investors would get those tax benefits because they were investing in something that carried a slightly higher risk. I confess, as the bursar of a Cambridge college, that within two or three years every Oxbridge college, and subsequently every university in the country, used the business expansion scheme, and that tax benefit was quickly closed down by the Government, who described it as a tax loophole.
It is exactly that sort of loophole that I want to avoid. I absolutely understand the Government saying that it is supposed to be a niche group of companies that will apply for this, although I still wait to hear which ones they are. However, I would not want to see some sort of tax provision that suddenly made this proposal attractive to the majority of companies in this country. That was not the intention and it certainly has not been the tenor of the debate.
Lord Flight
My Lords, although I welcome the suggestion that the Chancellor might allow there to be no income tax on grants of up to £2,000, as I understand it, the spirit of the provision is more about the go-getter employee shareholders. I would suggest that if there is income tax on amounts over £2,000, this scheme will not get anywhere because the amount of tax that people pay will be quite disproportionate to the risk they are taking on their equity and to the values—as the noble Lord, Lord Pannick, pointed out—of what they are giving up. It is important to sort out by the time we return on Report precisely what the income tax position will be.
Baroness Brinton
My Lords, I am grateful for the comments of the noble Lords, Lord Adonis and Lord Pannick. I will not repeat the detail but there are three or four brief points that I would like to make.
I remain concerned about the clause in principle. After our debate today I am even more concerned about the confusion surrounding jobseeker’s allowance recipients going for job interviews and about some of the details of the eligible tax benefits. It is also clear that employers do not want it: the estimate of 6,000—given the response to the consultation to which the noble Lord, Lord Adonis, referred—really says it all. Very few employers want it.
The noble Viscount referred to the balance of the risk and reward but there is another “r” in the equation that he did not mention. He omitted reduction—the reduction of rights for employees certainly seems to counterbalance the risk/reward of a long-term holding of shares. That remains one of the most worrying elements of this clause.
Finally, I want to reiterate the point about breaching the coalition agreement specifically in relation to flexible working. I believe that the coalition agreement talks about flexible working for all employees, not excluding one particular small cohort who may have shares that may be of value at some point in the future, but also in relation to any compensation for unfair dismissal where the proposals of the Government are worse than Beecroft.
I hope the Minister will take on board the comments that were made this afternoon. I would prefer the clause to be removed, but it will certainly need substantial amendment at Report if it is to be anywhere near fit for purpose.
Baroness Donaghy
My Lords, I have not spoken to the other amendments to the Bill although I did refer to this issue on Second Reading. Rather than repeat what has already been said extremely eloquently by previous speakers, I just want to remind the House what the Employee Ownership Association has said about this clause. They are the people who are most close to this subject and have the most interest in making sure that this area flourishes, which I think we would all want to happen. The association said:
“Our Members have three main concerns on this matter.
Firstly, proposed legislation has appeared in a Bill before the Government consultation on the possibility of deploying this model of employee ownership has finished. Indeed it has only just started.
Secondly, our Members are very aware that there is no need to reduce the rights of workers in order to grow employee ownership and no data to suggest that doing so would significantly boost the number of employee owners. Indeed all of the evidence is that employee ownership in the UK is growing and the businesses concerned thriving, because they enhance not dilute the working conditions and entitlements of employee owners.
Thirdly, the appearance of this measure in the Growth and Infrastructure Bill appears to our Members to be completely disconnected”—
as my noble friend Lord Adonis has said—
“to the recommendations in the Nuttall Review. That Review contained a series of recommendations on how to grow employee ownership and none of those recommendations suggested the dilution of worker rights”.
I think that that says it all.
Viscount Younger of Leckie
My Lords, in Amendment 95 my noble friend Lord Flight proposes a new clause relating to the publication of guidance on the new employment status. He makes a good point on the need for guidance. The Government agree that guidance should be available to help companies and employee shareholders fully understand all the implications of offering or accepting these contracts. It has always been our intention to publish guidance on the new status. The issue of guidance is an important one. Good, clear and accessible guidance will be vital to both companies and employee shareholders. We want to ensure that people enter into these contracts with their eyes open.
I will outline what the Government propose to publish by way of guidance and explain what that guidance will cover. The .gov.uk website is the new centralised place for publication of government services and information. The website already has a number of pages that provide an overview of the different types of employment status—such as worker and employee—and list the rights that are attached to them. We will provide an equivalent page on the new employee shareholder status.
Within these overview pages there are links to more detailed information on each individual employment right, and these pages will also be updated to take account of the new employment status. People who look for information on employee shareholder contracts will be very clear which rights they are entitled to and which rights do not apply to the status. This will help them to decide if an employee shareholder position is suitable for them.
Changes to these pages are being revised at the moment and we will be in a position to share draft copies with you before this clause is debated on Report. The Government will also update guidance on the tax treatment of shares and capital gains tax to make it clear to employee shareholders what their obligations are and to set out how the associated capital gains tax exemption and other relevant tax treatments will work.
Any contract of employment is an agreement between an employer and employee and is the basis of the employment relationship. We believe that contracts work best when people and companies are free to decide the terms that best suit their business needs, and to attract the right people to their companies. We will provide guidance for companies to enable them to understand the new status. Companies would do well to take note of the comments of my noble friend Lord Flight on the importance of drawing up good employment contracts that apply equally to the statuses of employees and workers.
While I understand my noble friend’s intention behind this amendment, we believe it is not necessary to legislate on this matter. To state this in the Bill would just introduce more legislation, which in turn would create more red tape for businesses. As the Government have already committed to publish guidance, I hope that with these assurances my noble friend will be willing to withdraw his amendment.
Baroness Brinton
I apologise for intervening. I am grateful for many of the points the Minister raised about guidance and other things that will come forward to us, I hope, before rather than on Report. On a technical point, I wonder whether those who raised issues in this debate could be copied into any correspondence rather than it just going to the single noble Lord who raised the point.
Viscount Younger of Leckie
My noble friend makes a very fair point. Of course I will copy in all noble Lords who should or would like to be copied in.