Small Companies (Micro-Entities’ Accounts) Regulations 2013
Debate between Baroness Donaghy and Viscount Younger of Leckie
Viscount Younger of Leckie
I suspected that that answer might disappoint the noble Earl. I will be delighted to recheck with officials on that specific question and write to him to clarify.
The noble Baroness, Lady Hayter, later asked about charities and what they feel about the exclusion of charitable companies. There were no responses to the public consultation from individual charities, but we worked closely with the Charity Commission throughout, as I said in my speech, and we continue to work with it to consider how burdens can be removed for this group. We will consult again. I hope the noble Baroness will be pleased when I say that that will be done as soon as 2014.
The noble Baroness, Lady Donaghy, asked how the updating of balances will take place and about the definitions of the criteria on how turnover, for example, will be met. The regulations are subject to review by the Commission on a regular basis. I have just checked what precisely that means, and it means on a five-yearly basis. As the directive updates the thresholds, the Government will reflect them in UK legislation to allow the greatest possible number to take advantage of the exemption.
The noble Baroness, Lady Hayter, asked about the Charity Finance Group, which has asked the FRC to consider the needs of small charities. This is another charities-focused question. The FRC will work with the commissioners and BIS to address their concerns. A new SORP—statement of recommended practice—for the preparation of accounts is being prepared to update the guidance.
The noble Baroness, Lady Hayter, also raised the issue of small trade unions and why other measures increasing the accounting regulations on them are being introduced. In fact, she alluded to Part 3 of the Transparency of Lobbying etc. Bill which, as she said, I take the lead on. I do not want to be drawn into that on this particular issue but it is important that we consider each policy carefully and on its own merits. The Government are working to reduce the burdens across a range of areas and will do so wherever possible. Micro-entity regulations, on which we are focused today, are an example of that.
Finally, I draw the attention of noble Lords to the important element of choice for businesses. Micro-entities will be able to choose whether to adopt micro-entity, small company or full accounts. The Government conclude that the regulation meets the requirements of the Act and I commend this regulation to the Committee.
Baroness Donaghy
I apologise for coming in again and thank the noble Viscount for clarifying the issue about a five-year review. I will just make the point that that could be quite a long period if inflation starts to increase by any substantial amount. That could have unintended consequences for the expansion of micro-businesses if they get to one or two of the magic limits set in the instruments, in particular where they refer to,
“a company in a year in which it satisfies two or more of the following requirements”.
One could read into that that as long as they stick within the turnover and balance sheet, they could employ more than 10 people, or other variations. It might mean that companies look more to those qualifying things than to simply expanding their business. If we cannot do anything about that today, can we make the point to the European Commission that a five-year review might be totally unsatisfactory?
Viscount Younger of Leckie
The noble Baroness raises an interesting point. As I said, I rechecked that the review period is five years. I quite accept what she said about things changing during the five years. That includes companies growing. That is of course a good thing for companies, but it might mean that the definition of the company changed from being a micro-entity to a small company—perhaps it is a bit much to hope that it might become a medium-sized company. I should, and would like to, write to the noble Baroness to not only reiterate what I have said today about the review period but also give her some greater reassurance about the definitions we have included, how they relate to the five-year period, and how they will be treated. That would be very sensible. I am on a learning curve, to that extent.
Transparency of Lobbying, Non-Party Campaigning and Trade Union Administration Bill
Debate between Baroness Donaghy and Viscount Younger of Leckie
Baroness Donaghy (Lab)
I shall speak briefly to the amendment. As the Committee will know, I was chair of ACAS from 2000 to 2007. To that extent, I suppose I have an interest in attracting work to my former organisation. If the Minister is correct in saying that the Government are not looking for confrontation in Part 3 of the Bill—some of us still need convincing of that—they will be looking for ways of avoiding the ultimate sanctions that are contained in Part 3. I think this offers a way out of an impasse. It might help the parties, particularly if there are difficulties in agreeing factual statements, if ACAS were to be invited to intervene. The Minister will know that, if this is not specified, ACAS will not be able to intervene. There needs to be a statutory requirement before it can become involved. It is important that this is written into the Bill. I support my noble friend Lord Monks on this amendment.
The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Viscount Younger of Leckie) (Con)
My Lords, it is not entirely clear why this amendment is being proposed. I imagine that there could be concerns in relation to vexatious allegations or allegations by an employer seeking to undermine a trade union’s ability to take industrial action. In practice, where an inspector conducts an investigation, there is no complainant or respondent with respect to that investigation. It is not clear why ACAS conciliation between a union under investigation and a potential witness would ever be appropriate in the context of an investigation to establish whether a union was in breach of its duties under Section 24. Therefore, I hope that the noble Lord will feel able to withdraw his amendment.
Employment: Zero-hour Contracts
Debate between Baroness Donaghy and Viscount Younger of Leckie(11 years, 2 months ago)
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Baroness Donaghy (Lab)
On behalf of my noble friend Lady Royall, I beg leave to ask the Question standing in her name on the Order Paper.
The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Viscount Younger of Leckie) (Con)
Zero-hours contracts are not new, but since 2005 there has been an increase in their use. More recently, government has been made aware of anecdotal evidence that has highlighted instances of abuse. As a result, the Business Secretary of State announced that his officials would undertake a fact-finding exercise to explore how these contracts work and what the issues are. This was undertaken over the summer. On 16 September, the Business Secretary said that he would publish a consultation seeking views on zero-hours contracts and on how to address the concerns raised in the summer fact-finding exercise. The consultation will be published in mid-November.
Baroness Donaghy
I thank the Minister for his reply. He has confirmed the very belated inquiry into this subject. Will he confirm that it will cover cases where employees work regular hours but have zero-hours contracts, their pay levels and a code of conduct? How wide will the scope of the inquiry be?
Viscount Younger of Leckie
Certainly, the noble Baroness has hit on a number of the issues that will be covered. They will include exclusivity; a lack of transparency within the contracts; a lack of information, advice and guidance; and a lack of certainty of earnings. However, any response that comes through as a result of the consultation needs to be proportionate and well considered.
Growth and Infrastructure Bill
Debate between Baroness Donaghy and Viscount Younger of Leckie(11 years, 10 months ago)
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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, we have heard many opinions about this clause. The Government are taking this action to offer flexibility and choice for both companies and people, and this is the right thing to do. The Government know from their engagement with employer organisations and business that there is concern about facing weak or vexatious claims in employment tribunals. This new employment status will address some of these concerns especially in new and fast-growing companies. Importantly, this new status gives people the opportunity to own part of their company and benefit from any growth with favourable tax treatment, which was mentioned earlier in our debate today. Employee shareholders will receive at least £2,000 of shares in the employing company or its parent company. Gains on the first £50,000-worth of these shares will not be subject to capital gains tax. Employee shareholders will have different employment rights compared to employees and workers.
Before a company offers a person an employee shareholder contract, they will need to think carefully about the implications of offering equity in their company. There are many possible implications, but the current owners will first need to be comfortable with diluting their shareholding, an issue which was raised by my noble friend Lady Brinton earlier. If the shares being offered are part of a fresh issue of shares, this will result in each existing shareholder holding a smaller share in the company. This may not be something that the existing shareholders would be willing to do, particularly if they worked hard to build the company up and invested time, money and know-how in that company.
It is important to recognise that an owner of a company, when giving shares to an employee shareholder, is giving away not only the value of the shares issued but possibly a share in the future profits and some of the control. Offering shares to employee shareholders could in some circumstances lead to a shift in the balance of power in the company. Companies will also need to consider if they can afford to issue shares to potential employee shareholders. If they can, it could impact on the dividends of existing shareholders or entail reserves being reduced.
The rewards for both parties could be significant. Let us remember that companies will have completed an extensive recruitment and selection process, ensuring that any new personnel have the right mix of skills and knowledge. Therefore they will not offer this new status of employee shareholder lightly. A growing company may consider that by offering this new status it is demonstrating a long-term commitment to that person. In turn, the employee shareholder will be able to reap the rewards of a successful company.
I reiterate that this status will not be suitable for all, just those where it makes commercial sense for both parties. We envisage such companies to be those that want to encourage a culture of engagement and shared ownership and—this is the most crucial point—where they expect significant growth and want to use this incentive to attract and retain high-calibre individuals.
Similarly, a person being offered an employee shareholder contract will need to consider the implications of being an employee shareholder. This is a most important point to emphasise. They will need to consider carefully the terms and conditions of the employment on offer and decide whether it is suitable for them in both the long and short term, as we all know that the value of shares can go both up and down. Some potential employee shareholders may not disclose at interview their long-term career plans. Perhaps they expect to stay in the role for only a short time. It may be that they are moving abroad in the future or expect to undertake further studies—that is their own business—and they may not want to invest their time in a company to realise long-term rewards. Equally, someone looking only for short-term work may consider that this is exactly the right kind of contract as they could benefit from any short-term growth in the share value.
To ensure that this new employment status is suitable for both the company and employee shareholder, both will need to be confident that the status is right for them. This means that the company may have to sell its growth prospects to the potential employee shareholder as both a viable investment as well as a potential employer.
It is important that we take time to understand how this new status will work in practice and I am sure that doing so will allay some concerns that have already been raised. Clause 27 establishes three clear qualifying criteria, all of which must be fulfilled before a person can be considered an employee shareholder. The first criterion is that the person must agree to become an employee shareholder—it is their choice. Secondly, the person must receive at least £2,000-worth of shares in the employing or parent company that are fully paid up at the commencement of the employment. This means that these shares will have no debts attached to them. Finally, the individual must not make any payment, in money or in other form, for the shares given. If any of these criteria are not fulfilled and the person is still taken on by the company, they are likely to be legally considered an employee. This, again, addresses the question raised by the noble Baroness, Lady Turner, earlier. This means that they will have all the employment rights of an employee.
I recognise that there have been some concerns that existing employees will be coerced into accepting a change to their employment contract that would make them employee shareholders rather than employees. The Government do not want people to be coerced into the new employment status. This is why Clause 27 establishes clear protections for existing employees. The clause creates two new employment rights—the right not to be unfairly dismissed and the right not to be subjected to a detriment if an employee turns down an employee shareholder contract. This means that if an employee chooses not to sign an employee shareholder contract and is then overlooked for promotion or disadvantaged in any other way, that person could present a claim to an employment tribunal. Secondly, if an employee does not sign an employee shareholder contract and is dismissed for refusing to do so, it would be automatically unfair.
It is clear that all parties will need to consider carefully whether this status is right for the company. Giving away equity is not to be done lightly and many will not think that this is the right course of action for them. Potential employee shareholders will need to consider whether they want to have shares in the company. To help both parties, the Government will be offering guidance on what both individuals and companies will need to consider before entering into a contract of this type. The House will not need any reminder that we discussed guidance earlier today.
Clause 27 stipulates that the minimum value of shares is £2,000 in the employing or parent company. The clause does not stipulate the type of shares that a company can issue, nor does it stipulate the type of shares issued. We believe that this is best decided by the companies in order to suit their commercial situation. The shares may have varying rights, but it is up to them to decide what is right for both parties. Some companies may want to offer significantly more than the £2,000 minimum value of shares. In some companies, new employee shareholders will want to be fully involved as the company grows and take an active role in the progress of the company.
The Government have considered what happens to the shares when an employee shareholder leaves the company they work for. We expect that employers and employee shareholders will agree sensible terms for the disposal and buyback of shares. These terms should normally be part of the contract that the employee shareholder signs. However, many different scenarios might result from an employee shareholder holding shares. The shares’ value may change; the shares may have been traded; in other cases, the employee shareholder may want to keep hold of the shares on leaving the employment and the company may agree to this. The Government do not want to make rules that tie the employers’ hands; they want to give them flexibility in what they and the employee shareholder decide is the best way to dispose of shares at the end of the employment relationship.
However, the Government recognise people’s concerns that employee shareholders could be at a financial disadvantage if companies decide not to offer a fair way of realising the value of their shares. The Government amended the clause in the other place to include a provision to provide power to regulate buyback where the company has undertaken to buy back shares.