Baroness Brinton
Main Page: Baroness Brinton (Liberal Democrat - Life peer)Growth and Infrastructure Bill
Baroness Brinton Excerpts
Viscount Younger of Leckie
If I may, I am about to address some points that my noble friend made concerning the tax status.
For example, we do not want directors to manipulate the new status by making fake jobs for family members, which may have been in the mind of my noble friend Lord Forsyth when he made his earlier comments. We want this employment status to be attractive to a whole range of people. If we allow that no income tax or national insurance contributions are payable on the first £25,000 of shares, we think this will create only a disproportionate tax benefit for higher earners. This is about a new employment status that is open and attractive to a range of prospective users.
My noble friend Lord Forsyth asked a number of questions relating to how different types of shares would be treated and what this meant in tax terms for individuals in employment. When a person agrees to become an employee shareholder, the employer should be able to tell them what type of shares they will receive. The types of shares an employee shareholder receives may vary, as I think my noble friend indicated. First, they could be non-restricted shares. These are shares awarded without any ongoing conditions, limitations or requirements that affect their market value. If an employee shareholder holds non-restricted shares, they are usually in the same position as an external investor in the company.
Secondly, restricted shares are shares awarded with conditions, limitations or requirements attached that reduce their value. For example, an employee shareholder may not be able to sell their shares for a certain period or, if they leave the company, they may not be able to retain their shares. The employer may agree to buy the shares back from the employee shareholder.
Thirdly, forfeitable shares are restricted shares awarded on the basis that within a certain period of time, or on the occurrence of certain events, the employee shareholder may have to forfeit them and in return will receive less than their market value. When the tax is payable on these shares will depend on the type of shares that are offered. As my noble friend Lord Stewartby said, this is a voluntary arrangement, under which the individual will go into an agreement with the employer, and the type and status of the shares will be decided with their agreement. That will then lead, by agreement, to the point when the tax will be payable.
Baroness Brinton
Does the Minister accept that the flexibility for employees to negotiate the terms of any restrictions in shares will itself be restricted if a number of employees are being offered shares, because the capacity within the company to vary terms will be extremely difficult? In practice, the employee will have no flexibility at all to negotiate.
Viscount Younger of Leckie
My noble friend is taking rather a negative view. We need to look at the opportunities that the whole scheme offers. The employee shareholder could decide not to accept any shares or such a role if the situation that my noble friend mentioned applied. It may not suit them; they need to get advice and go into this scheme with their eyes open.
Lord Pannick
Your Lordships now come to whether Clause 27 should stand part of the Bill. As noble Lords have heard, the clause allows for an agreement by which an employee can receive shares worth £2,000 or more at the date of issue and then lose his or her rights to claim unfair dismissal, statutory redundancy pay and other employment rights.
Clause 27 was very heavily criticised in the debates in Committee. There was—I put it as moderately as I can—very little enthusiasm indeed for it on the government Benches or on other sides of the House, with the conspicuous exception of the noble Lord, Lord Flight, whose main argument in defence of the clause, if I understand him correctly, is that the deal will not be very attractive and therefore not many people will take it up.
There are four main objections to Clause 27 that the Government failed adequately to answer in Committee. One could identify many more objections but I will confine myself to four. The first is that the clause is objectionable because the employment rights were created—and have been protected by all Governments, Conservative and Labour—precisely because of the inequality of bargaining power between the employer and the employee. To allow these basic employment rights to become a commodity that can be traded by agreement frustrates the very purpose of these entitlements as essential protections for the employee, who lacks effective bargaining power.
The second objection concerns the jobseeker. Under the clause, an employer will be able to refuse to offer employment to applicants who decline to enter into a Clause 27 agreement. The irony, of course, is that the worse the job market for employment, the more willing the applicant will be to give up his or her employment rights in order to take the job, and the worse the job market, the greater the employee’s need for these basic protections against unfair dismissal and redundancy.
The application of Clause 27 to the jobseeker is particularly indefensible because the Government have now issued guidance, which was promised at Committee stage but which we did not have, that makes it very clear that a person will lose their jobseeker’s allowance if he or she refuses to take a job offer on Clause 27 terms; that is, they will lose basic employment rights. The guidance says that the terms and conditions under which the job is offered are not a good reason for refusing to apply for the job. There is a very limited exception which refers to the financial implications of receiving the shares, to which I will come in a few moments.
The absence of protection for the job applicant means that Clause 27 does not simply allow for an agreement to give up employment rights. In practice, it imposes on the jobseeker considerable pressure to take employment on Clause 27 terms. Clause 27, read with the guidance, will mean that the jobseeker is being made an offer which he or she cannot refuse—an offer that they must give up their employment rights. That is the second objection.
The third objection to Clause 27 was explained in Committee by a number of Peers from the government Benches—I stress, the government Benches—who have business experience. They said that the provision would be positively damaging to industrial harmony and would not be used by any sensible employer. Since this is Report stage, perhaps I may briefly report to the House what noble Lords from the government Benches said. The noble Lord, Lord Vinson, stated that,
“the whole point of wider industrial shareholding”—
with which we all, I apprehend, agree,
“is to try to create a sense of common purpose”—[Official Report, 6/2/13; col. 269.]
in the workplace. Clause 27 will do precisely the opposite. To deny industrial rights to employees will negate trust rather than enhance it. The noble Lord, Lord Strasburger, made a similar point at col. 272.
Perhaps I may quote the noble Lord, Lord Deben, who has considerable experience in small businesses. His words are so important and I could not possibly improve on them. He said:
“I cannot imagine any circumstances whatever in which this would be of any use to any business that I have ever come across in my entire life”.—[Official Report, 6/2/13; col. 293.]
I hope that it is appropriate for me to say that I have spoken to a number of noble Lords on the government Benches since Committee. Many of them share the sentiments of the noble Lord, Lord Deben—some of them in language even stronger than his, and even stronger than the helpful language that we have heard this afternoon from the noble Lord, Lord Forsyth of Drumlean.
As the Minister well knows, there is not simply a lack of enthusiasm for Clause 27 but a degree of opposition to it on the Minister’s own Benches that makes the Government’s commitment to it incomprehensible. To use the word of the noble Lord, Lord Deben, in Committee at col. 294, the Government’s approach is “mystifying”. In Committee, at cols. 298-300, the Minister told the House that the Government calculated that 6,000 companies would be interested in Clause 27. The noble Lord promised the Committee that he would provide the evidence that supported that statement, but I have received no such evidence and I do not believe that any other noble Lord has seen it. Therefore, I ask the Minister: does the evidence exist? If so, why has it not been provided? If it does not exist, will he please withdraw the statement that 6,000 companies are interested in acting under Clause 27?
My fourth and final objection to Clause 27 is that the employee and the prospective employee will not be given the minimum necessary protection to understand what they are being asked to give up. The Government have refused to accept that statutory rights should be lost only if the agreement is in writing and if the individual has received legal advice on the consequences of the agreement from an independent adviser. Parliament has specified such conditions in Section 288 of the Trade Union and Labour Relations (Consolidation) Act 1992 in the context of a compromise agreement to settle particular employment disputes and tribunals. However, no such protection will apply here.
I recognise that the Government have published general advice to employees, but that is really a poor substitute for specific advice to employees from an independent adviser in their particular circumstances. The need for advice is particularly important when the value of the shares when issued may well be higher than their value later on and when there are tax implications for the employee of receiving the shares if they are worth more than £2,000. As I understand it, the employee or prospective employee who enters into an agreement to give up his employment rights for shares with, say, a nominal value of £3,000, will get a nasty surprise when he or she receives their next month’s pay packet. In the real world, the jobseeker and the employee need to know the implications.
The noble Lord, Lord Flight, said that Clause 27 may not be appropriate for all types of employee. The problem of course is that Clause 27 applies to all types of employee, with all the detriments I have mentioned. For all those reasons, I ask the House to reject Clause 27 and I very much look forward to the debate on this issue. I beg to move.
Baroness Brinton
My Lords, I am grateful to the noble Lord, Lord Pannick, for so eloquently outlining the case against the proposals in Clause 27 and I was happy to add my name to the amendment, which your Lordships' House has discussed at considerable length at earlier stages of the Bill’s passage.
I remain bemused with the basic philosophy behind the clause. We are told that the scheme is aimed at small businesses that want to grow fast and motivate their workforces. We have heard that employees will take a significant reduction in their employment rights and face tax and NI demands on the free shares that they have been given over £2,000 as they receive them.
I assume that the minimum of £2,000 is for ordinary shares, but given the interchange on the previous amendment I am not convinced that they would necessarily be ordinary shares. In a number of years, possibly with a following wind, they might increase in value, although the House should note that the majority of micro and small companies do not make large returns for their shareholders in the early years. That rarely takes less than eight years or a decade. Worse than that, while the employee currently in a firm can choose not to take part, the applicant on jobseeker's allowance would have no such luxury—a point clarified in the letter from the Minister on 13 March. Either a scheme is voluntary or it is not. It is clearly not for those on jobseeker's allowance. This provision is supposed to encourage growth. We need to go back a step to the coalition agreement’s commitment to growth. With such a key strategy in mind to help SMEs, we should do all that is within our power to assist them. Clause 27 would do the opposite. If an employee has the choice between a company that offers the usual employee benefits and another that exchanges these rights for shares in the company, the evidence suggests that employees would rather maintain their benefits, especially in the current recessionary climate. That was corroborated by my own experience speaking with employees working for high-tech SMEs, who are bemused that they would want to demotivate their staff during the very difficult early days of a company when it is developing products and just beginning to enter the marketplace and unlikely to be making a profit, let alone anything that they could distribute to shareholders.
Baroness Brinton
The guidance notes that we saw were quite explicit that the prospective employee shareholder applicant should be treated exactly the same as any other applicant, with the one exception of their financial resources being such that they could not pay the tax bill right at the start. If that is the case, the argument made by the noble Lord, Lord Pannick, myself and others is that, first, that penalises those who are concerned about losing their rights. Secondly—and this is the core question—is it voluntary? The Minister has emphasised right the way through the debates on the Bill that the scheme is utterly voluntary.
Viscount Younger of Leckie
It is indeed voluntary, but I would like to clarify that when it comes to a jobseeker seeking a job, they are treated in exactly the same way as other statuses. That is because we believe it is important to move jobseekers into work as quickly as possible, just like other statuses. Periods of unemployment, as we know, can have a most damaging effect on individuals’ long-term employment prospects and indeed earnings. That is why the jobseeker allowance regime focuses on moving claimants into any work as quickly as possible. This remains the case for the employee shareholder should they be mandated and reach the point when they are offered this particular position. We think it is right that they should not be treated any differently in this particular respect.