Earl of Erroll
Main Page: Earl of Erroll (Crossbench - Excepted Hereditary)Growth and Infrastructure Bill
Earl of Erroll Excerpts
Lord Flight
I am sure the noble Lord is correct. The employees who had shares in the company I built did not give up their employment rights, albeit that at that time they were not quite as discouraging of employing people as they are today. The point I was making was that I believe hugely in employees owning shares in their business. On the other hand, it is blind not to see—I understand where the noble Lord comes from, and very decent it is—that employment law has strayed across the boundary to where it does more to discourage new jobs than to protect people.
The point I was working my way towards and commenting on was that the proposals in Clause 27 are clearly not of interest to or appropriate for a lot of people; they are appropriate for certain categories of people, above all, for people who feel that their contribution to their business is such that they do not need to be gold-plated by the extent of the employment protection laws that we currently have.
We now come to the rub, where I hope to encourage the Government further, albeit that it is Budget day today. The limit of only 2,000 shares on which you do not pay tax is too low. There is complete misthinking by the Treasury. Without this legislation, there would be no additional tax whatever because no one would have any more shares to pay any tax on, so it is not a question of losing tax revenues, but of the potential for forgone tax revenues that would not exist if the scheme did not exist.
On the forgone bit, the issue is that if people have worthwhile equity—£20,000 or £30,000—if they are going to have a tax bill of £10,000 or £15,000 including national insurance, they will not be able to afford to do it. People will not have that sort of money lying about in the bank to pay that sort of tax bill. To borrow money to acquire shares in a relatively high-risk small business is not a particularly wise thing to do because it may not succeed and you may be left with the money you have borrowed and no asset against it. The Government ought to think again about the tax position of shares under the employee shareholder scheme. I repeat that I think the starting point is wrong. It is not a tax cost, but how much tax will be forgone as a result of this scheme. The point is simple: unless there is a larger amount with no tax and national insurance liability, people will not take it up so there will be no tax revenue anyway.
The logic is pretty clear. Imagine working for a smaller business, which might employ 10 to 100 people and may be in a new area. One of the great things about success in this country is the number of businesses growing in new, high-tech areas, but it is a tough, competitive world with American businesses trying to out-compete you and products coming in cheaply from China. Not all these businesses are going to succeed. If you are enthusiastic, you can certainly say, “I really want to make this succeed. I would like to take advantage of this scheme. I candidly think that my existence in this company is not about employment protection law, but is due to my working my butt off to make a success of it”. People will want to take advantage of it. However, if they are going to be given a large tax bill, they will either not be able to afford it or the risk-to-reward ratio will not be right.
I encourage the Government to think again about the tax position as part of my genuine support of the proposal. Dare I say that many in this House have not really thought it through? They have not been entrepreneurial. They have not worked for a small business. It is an attractive opportunity for people. Well may they take the risks, succeed and build up some value in the company for which they are working. I ask the Minister to go back to the Treasury and reconsider a greater degree of fiscal generosity. I beg to move.
The Earl of Erroll
My Lords, I will speak only to this amendment. We will have the debate on whether employees should give up rights for shares when we deal with the next amendment. I restrict myself purely to the tax issue here. It is a serious point, because I have hit this when I have been offered share options. Because you receive the benefit, theoretically, you are meant to pay income tax on it in that year. You do not really have any money to pay it with because you have not yet been paid. If you are rich, you can use these benefits and invest in start-up companies using the SEIS: the Seed Enterprise Investment Scheme. However, you must have some other income against which to offset it, so taking this up is of no interest to the average employee. They have no other outside income. They will have nothing to pay the tax with because of the cash flow: they are being forced to pay a tax when they have not yet received the money. It is therefore complete lunacy, for the logic of this clause, not to accept the amendment of the noble Lord, Lord Flight. It makes this clause work.
Whether it should exist is a separate issue that we are about to discuss in the debate on Amendment 50. I accept that entirely. However, if the clause is to stay in the Bill, the amendment improves it greatly. The clause will then achieve its purpose of trying to get employees involved in the running of the company and the drive to make that company succeed. However, if they cannot afford to take up the shares because of the tax regime, and there is an anomaly in it and it will just fail anyway—in which case, Amendment 50 will be redundant, because no one will bother with the scheme.
Lord King of Bridgwater
My Lords, I am delighted to follow my own Bishop, who represents a city in which for a considerable number of years I had the privilege to work in industry and to have considerable responsibilities for employment and factory management. I have found this experience extremely valuable in addressing some of the issues that are before your Lordships’ House.
As my noble friend may know, and as the noble Lord, Lord McKenzie, will know, I was very robust yesterday in supporting the Government’s main programme to restore our economic strength. Today, however, I have to say that I regret the approach which the Government are taking. I am a very strong supporter of employee share ownership. Indeed, the great company in which I worked in Bristol was exactly like John Lewis, and every single employee enjoyed substantial bonus arrangements at the end of the year in a profit share. It is a valuable way of building up employee relations throughout any workplace.
I recognise the real challenges for employers at the current time, the complexity of legislation as it has increased and the need to try to make sure that the legislation that we pass, often with the best of intentions, does not become a substantial block to employment. For example, I welcome the fact that the exemption period for the unfair dismissal arrangements has been changed from one year to two years. However, that is where my support stops. My noble friend will know my views on this because I made them very clear to him. I express my appreciation for the very courteous and diligent way in which he sought to respond to a number of the points that I and others have made. I am sorry, for reasons which I will give, that the Government have got us into this position.
I think that it was Field Marshal Lord Alanbrooke who said that Winston Churchill used to have some wonderful ideas and some very stupid ones as well, and that his job was to determine which was which and make sure that the former were pursued and the latter quickly dropped. When I had some responsibility for the reform of employment law under the noble Baroness, Lady Thatcher, a number of people came to me who fitted exactly into that category of having some very good ideas and some pretty stupid ones as well, and one had to try to distinguish between them.
As soon as I heard the announcement of this proposal and of the brief period of consultation which would take place on it—and I understand that 92% of those who responded to the consultation were against the proposal—I carried out my own consultation. I have not found anybody yet who is in favour of the proposal or who says that they think that they will use the provision. I accept that the noble Lord, Lord Flight, has a good point, because he has huge experience of the City of London. I can see that very bright people, anxious to be successful and to enjoy good financial reward, and who are confident in their own judgment, might be prepared to embark on this course. However, if one then looks at the generality of SMEs and at the range of industry and employees up and down the country, one sees that the balance is completely wrong.
The power is with the employer at a time when many young people are finding it hard to get jobs. In no way is it a fair balance to say, “You have an impartial opportunity to decide”. I just wonder what will happen to the poor job applicant who, when he is told what the terms are, says, “I will now go and consult my adviser”. In relation to the earlier amendment we discussed the complexity of the tax arrangements which might apply and the complexity around the type of stock being offered—whether it is stock that cannot subsequently be sold. Given the overall complexity of this, is it a fair arrangement that an applicant for a job can be told that he can either take the job on this basis or not take it? I know exactly what the employer will say—“Well, do you want the job or don’t you?”. With a queue of 25 waiting outside, nobody can be happy.
I am trying to say as forcefully as I can that I am a strong supporter of the Government. I hate standing up here in the presence of all your Lordships to criticise something, but I have a greater duty to the Government—to prevent them going down a track which would lead to some really unhappy consequences. The opportunity provided by Clause 27 could be used by some very dubious employers indeed, and a large number of their employees could be deprived of their employment rights. If that happens there will be a feast for lawyers. With the greatest of respect to the noble Lord, Lord Pannick, he will do himself out of some work if this clause is omitted, because lawyers would have a field day.
With the opprobrium that could return to the Government as a result of this proposal, my duty is to give to my noble friend and the Government the best advice that I can from my own experience. I cannot support this clause. It is not at all the right way to go forward. I strongly support any sensible measures to help employers, and I welcome and congratulate the Government on the significant increase in private sector employment, but I say to them: do not pursue this route; it is the wrong way to go.
The Earl of Erroll
My Lords, I will make a couple of quick points on this. I keep hearing this tale about how power lies with the employers. Noble Lords talk about large companies that have expensive and well staffed HR departments and lawyers who work on this full time. I am afraid that the SME world that I live in a lot of the time is not like that. There, you cannot afford it. When you employ one, two, three, four or even up to 25 people, you cannot afford expensive HR advice every time you twitch, move, open your mouth or anything. That is what we have got down to because people say that the power lies with the employer. It does not.
We are seeing more and more vexatious demands over discrimination. In employment law, cases of sex, race, disability and age discrimination immediately mean unlimited liability. That means that your house and everything goes. If you are not a company—you may be a sole trader as a small employer—you will lose everything and be out in the street. Everything will be taken from you. If you incorporate, you are now told you are doing it for tax avoidance or evasion purposes and the press have a go at you for that instead. So in what way are you supposed to protect yourself?
The power may lie with the large employers. I do not know. I am not in that rich and rarefied world of some of the Silks who sit here and can afford that. As a small businessman I, and people like me, cannot afford the noble Lord, Lord Pannick. It would be wonderful if we could because we might get some protection as employers. For once, he might not represent the employee. I fear that it would normally be the other way round and we know who would win when someone was confronted with his incisive way of thinking.
All I want to tell noble Lords is that the world is not how some people see it. There are everyday problems out there and they limit employment. At the moment, half the people in the country are employed by microbusinesses and small and medium-sized enterprises of up to 250 people—there are very few in the bracket above 25 to 40 and below 250. Those are the people who need protection from a lot of this and we are not giving that in employment law as it stands today. Whatever noble Lords say, it is not there.
The charity world is another case. I know a charity that needed to rejig some things and wanted to bring in someone with greater expertise. It therefore needed another someone to move on to something else. It thought that it had reached a compromise agreement with him but then this chap did not sign it. When it came to the point of the tenth or eleventh month, when the charity thought it was all about to happen, he said, “I have not signed it yet and I have just gone to see some lawyers”. He is now trying to plead all the discriminations. I cannot see how he can, and nor can anyone else, but the cost of fighting that will be phenomenal. The fear of everyone, particularly the trustees of the charity—who are terrified—is their exposed position if he wins because the case can be proceeded against them. That is the bit that noble Lords forget about. They live in a dream world where we have a fair legal system, tribunals think fairly and lawyers always act in the best interests of law and not of these people. It is not like that. Therefore, I would like to see Clause 27 come in so that at least some people might negotiate a different arrangement. It is there for small businesses not large ones.
Lord Forsyth of Drumlean
The noble Earl made a speech about employment protection being excessive. I am not sure I understand how Clause 27 would alter any of the things that he complained about, with the one exception of the request for flexible working, unfair dismissal and redundancy payments. All the issues that he referred to would still apply if Clause 27 went ahead.
The Earl of Erroll
Even better. Passing it does not matter then, but at least it would send the right signal and some people may relax. If, as the noble Lord says, it will not change the unfair dismissals process, we can all proceed happy that that continues. Why object? At the moment, I know that the law is biased in favour of the employee, not the other way round. With that, I will sit down. I would love to see other things tried. At the SME end, we need signals sent by the Government, and this is one.
Lord Lea of Crondall
My Lords, I think that it is fair to say that the noble Lord, Lord King of Bridgwater, has some of the best political antennae in the business. I therefore think that we can look forward with some interest to the response of the noble Viscount, Lord Younger of Leckie. In debate in Committee, precisely the proposition made by the noble Lord, Lord King—that in effect people could say, “You can only get this job if you sign up to the scheme”—was made. The Minister said:
“I have not seen the guidance”—
the 3,000-page guidance—
“but I do not believe that it will say that”.—[Official Report, 6/2/13; col. 289.]
Two questions arise. First, can the Minister tell us definitively this afternoon, before we vote, whether the noble Lords, Lord King of Bridgwater and Lord Pannick, are correct or incorrect: yes or no? I will not detain the House, but what baffles me, picking up the point made by the right reverend Prelate the Bishop of Bristol, is how on earth the Government got the idea that this was convincingly presentable as part of the moral platform for modernising capitalism. As I think that the right reverend Prelate said, straight out of the Bible we have the precept, which is probably in the Koran as well, that you do not sell your birthright for a mess of pottage—that was Esau, I recall. Let me dub this Esau’s clause. It is incumbent on the Minister to give us a brief reply on that question.
Lord Adonis
I am sorry that the noble Lord has difficulty in seeing the argument. This is creating a completely new branch of the tax avoidance industry. If that is not obvious, not many obvious statements have been made in the House this afternoon.
The Earl of Erroll
Excuse me, but I cannot let the noble Lord get away with that. It is the same as any other employee shareholding scheme; to suggest that it will create new tax avoidance, when the Government are trying to introduce tax-efficient schemes for investment purposes, is hammering people ridiculously.
Lord Adonis
My Lords, a new scheme is being introduced by this Bill. It is not an existing scheme. If that were the case, we would not be here debating it. It is the new opportunities that the scheme creates for efficient tax planning, if I may put it that way, that has led the Office for Budget Responsibility to say that it will lead to the Treasury forgoing up to £1 billion.
At this point, we enter the world of the surreal because we are debating a tax loophole that will add £1 billion a year to the deficit. The proposals are from a Chancellor of the Exchequer who tells us day in and day out—indeed, only a few hours ago in the Budget—that reducing the deficit is the nation’s overriding priority.