Lord Adonis
Main Page: Lord Adonis (Labour - Life peer)Growth and Infrastructure Bill
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Lord James of Blackheath
My Lords, it would be extremely helpful if the clause contained a clearer definition of “profit share” and “equity participation”. That is where the confusion will arise and cause the greatest difficulty. Profit share is relatively clear, straightforward, simple and very motivating. I wholly agree with the noble Baroness who talked about that earlier. That is fine, but profit share does not carry with it any of the risks that go with equity. I disagree with the noble Lord; you do not just buy your shares today and sell them. If you are a locked-in minority, especially in a quoted vehicle, you are stuck, you have no way out, and you never will have.
Further, and worse, I have seen this work to the total detriment of the shareholders. I had a company that had a number of ships—we were opening the North Sea oilfields—that were bought and each put into a separate company. It looked like a good, straightforward, long-term profit opportunity, so we had a lot of participation by Scandinavian banks, which would buy a ship and put it into a purpose-built company. The captain might be offered the opportunity of 20% of the equity in that company, meaning 20% of the ship he was going to sail. If that company did not get the contract work, did not make the money and could not service the debts of that bank, the banks in Scandinavia came at those shareholders and took their homes as a condition of their putting in the extra money.
These hazards are not anticipated in what we have here. There are some fearful risks in inviting people to become locked-in minorities, especially in SMEs where you have nowhere to go if there is a problem. Profit sharing does not have any of those problems, so we should be going down the profit-share path, not the equity-participation route, especially where it is given free into unquoted vehicles.
Lord Adonis
My Lords, first, I congratulate the noble Lord, Lord Flight, on being the first speaker in more than 50 on the Bill so far to defend this shares-for-rights proposal. His reward will no doubt be substantial hereafter.
I also welcome the noble Viscount the Minister to our debates on the Bill. The noble Baroness, Lady Hanham, is looking mightily relieved that she has an afternoon off. Her time will return only too soon. The noble Viscount has the thankless job of defending the indefensible—another practice that, if I may extend the analogy used by the noble Lord, Lord Pannick, goes back to the Book of Genesis, where Adam had to explain why he had misbehaved in the Garden of Eden. We are rather hoping to expel the entire Clause 27 from the Garden of Eden, but we are first debating some mitigating measures and inviting the noble Viscount to respond.
We start with the issue of coercion. The noble Lord, Lord Flight, said that the issue of coercion had been dealt with, but I contend that it has not. One of the reasons why Clause 27 is fundamentally wrong and flawed is that, contrary to the Government’s own statements and assurances, it is coercive in that it in effect requires individuals to accept jobs without fundamental employment rights. The coercion involved in these shares-for-rights jobs comes in two ways. First, individuals will in some cases have no option but to accept such jobs. We will come to that issue in respect of benefits claimants in the next group of amendments.
Secondly, these shares-for-rights jobs are in all cases potentially exploitative, because there is no requirement for independent advice before an individual signs up. It is therefore likely that individuals, particularly the more vulnerable and low paid, will not be properly aware, or even aware at all as they will not be as informed as the noble Lord, Lord Flight, of the rights they are forgoing in return for shares worth as little as £2,000 at the time they are issued. As the noble Baroness, Lady Brinton, said, these shares could be worth even less or nothing at all if the employees want to sell them at a later stage.
A whole succession of noble Lords, starting with the noble Lord, Lord Pannick, have made a compelling case for there to be protections, including independent advice before shares-for-rights contracts are entered into. The amendment in my name and that of the noble Lord, Lord Pannick, proposes that there should be legal advice on the rights forgone and financial advice on the valuation and prospects of the shares it is proposed to offer in lieu of employment rights. Without such advice, the scope for exploitation is considerable. Such advice should be paid for by the employer, and there should be an explicit agreement between employer—
Lord James of Blackheath
Will the noble Lord draw a distinction between the legal advice to be given in the potential sale of a listed company, where the majority shareholders have a separate set of interests and the minority shareholders—the working shareholders possibly have a very different set of interests? Are we to have two separate and parallel sets of lawyers to avoid a conflict of interest between those types of shareholders? That would seem necessary. How is it to be funded?
Lord Adonis
My Lords, we are talking about individual employees who are seeking to take jobs, which is a different situation from the one that the noble Lord has described. We are not talking about the takeover of companies, which is the issue he raised. However, the noble Lord is right to point out that two different sets of interests are involved. As the noble Lord, Lord Pannick, said, we have these rights purely because of an imbalance of power in the relationship between employers and potential employees. If the noble Lord is saying that we need two lots of lawyers on the job, I understand the point he is making but it makes the proposal even less workable and even more unaffordable.
Lord James of Blackheath
The noble Lord is correct; that is what I am saying—you need two sets of lawyers in any case.
Lord Adonis
The noble Lord therefore proposes a system that is even more complex and onerous than is envisaged. Such advice should be paid for by the employer, and there should be an explicit agreement between employer and employee stipulating the employment rights that are being foregone and the value of the shares being allotted.
When similar amendments were debated in the Commons, the Minister, Michael Fallon, said that they would impose,
“an unnecessary cost and burden to the employer”.—[Official Report, Commons, Growth and Infrastructure Bill Committee, 6/12/12; col. 484.]
However, this is not a new principle. As the noble Lord, Lord Pannick, said, it is, in fact, a principle accepted by previous Conservative Governments. The great noble Lord, Lord Tebbit, was Secretary of State when this principle was enshrined in law. Under the legislation of the previous Conservative Government, there are minimum independent legal advice requirements on the surrender of unfair dismissal rights in what are now called compromise agreements—a key element of which is a written agreement upon which the employee has received advice from an insured independent legal adviser or other specified and qualified person.
The noble Lord, Lord Pannick, also quoted the advice and recommendations of the Equality and Human Rights Commission, which could not be clearer. Let me read the recommendations to the Committee. They state that,
“the mere fact of a choice having to be made on which type of employment status to accept could indirectly discriminate against those less likely to be able to make a properly informed or truly ‘voluntary’ decision. This may include those whose first language is not English, those with learning disabilities, or young workers”.
The commission’s recommendations continue:
“In order for objective justification to be established, it is likely to be necessary for the individual to have a right to receive appropriate advice and for the employer to be required to draw this to his or her attention”.
We agree entirely with the Equality and Human Rights Commission’s recommendation. It is now up to the noble Viscount to say why it is wrong.
The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Viscount Younger of Leckie)
Noble Lords will not be surprised to know that I was expecting a somewhat lively debate on this general issue of shares for rights. I very much appreciate noble Lords’ contributions. Before I turn to the amendments in the group—Amendments 81D, 82A, 82B, 91 and 92—I should take this opportunity to inform the House about the clause. I will have the chance to expand on this during a stand-part debate, but the House might like to understand why the Government are creating the new employment status and what it is aimed to achieve.
The Government are creating a new form of employment contract that companies limited by shares can use. This new status will be known as “employee shareholder”. The employee shareholder will be granted shares in the employing company or the parent company but will not have all the rights of an individual with employee status. The Government are taking this action to offer companies and people more choice, and are giving choice to companies on how they structure their workforce to ensure maximum growth and flexibility, more choice for people in the type of jobs that are on offer to them and new opportunities to benefit from growth and meet their long-term aspirations.
This Government, from the outset, have committed to reforming employment laws, and are doing so through the employment law review. Establishing the employee shareholder status is different. With this change, the Government are creating a new type of employment relationship. It is an employment relationship where both the company and person share the risk and rewards for business more than any other employment type.
I now want to address the amendments tabled by my noble friend Lady Brinton and the noble Lords, Lord Adonis and Lord Pannick. This clause is not about making a new employment status compulsory for all. It is about adding to the employment statuses that already exist. It sits alongside existing employment statuses such as employee and worker.
Employment law does not stipulate that individuals should have legal or financial advice before accepting a job with the employment status of either employee or worker, or taking up share ownership possibilities. It would be anomalous to impose these requirements for the new employee shareholder status. Neither do we want to stipulate that employers must pay for legal advice. Noble Lords will appreciate that legal expenses can be high, which would be a burden both in administrative and cost terms, in particular for the type of fast-growing company to which this is most likely to appeal.
There is nothing in the clause that prevents individuals from seeking independent advice. This is about creating a new voluntary employment status and not about creating additional burdens for employers.
As for employment contracts, it is important to leave these to employers and individuals to negotiate, discuss, and agree to, although employees are entitled to receive a written statement of employment particulars within two months of the start of their employment. Government are committed to reducing burdens arising from regulation and therefore wish to keep administration requirements to a minimum.
The status, as we have already said, will be most attractive to fast-growing businesses, which will spend time looking for and investing in the right people to help their business grow, and will be willing to give fully paid up shares to the right candidate. These employers will have to invest in employee shareholders by giving them shares, which is a cost to them. It is likely that they are exactly the type of employers who would then struggle to find the additional cost and time to fulfil the amendments my noble friends and the noble Lords are suggesting.
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.
Lord Adonis
Did I understand the Minister to say in response to the noble Lord, Lord Flight, that these shares, including the first £2,000-worth, would be taxable? That is quite an important change in the policy announced in the other place.
Viscount Younger of Leckie
Yes, indeed, I can confirm that the shares that are received are taxable, so tax would be payable in the first available pay—
Viscount Younger of Leckie
Yes, it would be in the month following receipt of the shares.
Lord Adonis
Is the noble Viscount aware that he has made quite a significant change in government policy in the past few moments?
Viscount Younger of Leckie
I shall come back to the noble Lord very quickly if what I have said is incorrect, but I am pretty certain that it is correct.
Viscount Younger of Leckie
I would like to think that I could say yes to that. However, it is up to the company to decide, and it is something that I cannot stipulate or guarantee.
I should like to address the question raised by the noble Lord, Lord Adonis. I can confirm that the shares are taxable, but the Chancellor is considering making the first £2,000 tax-free.
Lord Adonis
My Lords, with great respect to the noble Viscount, he is trying to say that the shares are and are not taxable. Which is it? Is the first £2,000-worth of shares taxable or not?
Viscount Younger of Leckie
I think that I have made the position very clear. The Chancellor is looking at this but I have said that it is taxable.
Lord Adonis
“( ) Any individual who declines to enter into an agreement under section 27 of the Growth and Infrastructure Act 2013 shall not suffer any consequential reduction or withdrawal of any state benefits to which they are entitled to by virtue of their current employment status.”
Lord Adonis
My Lords, the purpose of Amendment 82 is the same as that of the amendment in the name of the noble Lord, Lord Tope, and the noble Baroness, Lady Brinton. I hope that we can unite across the House on the simple and fundamental proposition that shares-for-rights contracts should be voluntary, and that individuals on benefits should not be forced to accept them for fear of losing their benefits if they do not.
Before getting to the substance of the amendment, I will raise with deep concern a point of procedure fundamental to the issue of what benefit claimants will or will not be required to do, which is the guidance given to DWP decision-makers where appeals are made against the docking of benefits in cases where a claimant has failed to accept an appropriate job or attend an interview. The Government have said repeatedly through the passage of this Bill through the other place and the earlier stages of our debates in this House that they will amend the guidance so that it is fair. This revised guidance is vital to understanding what will or may happen in practice. I have repeatedly asked that noble Lords see the revised guidance or at the very least a draft of it before we consider this clause. We cannot properly consider it without the revised guidance because the issues at stake are so fundamental. For example, will carers be able to decline to take shares-for-rights jobs, or to attend interviews for them, because they may want to request flexible working? Will a youngster with few or no qualifications be able to decline a shares-for-rights job or an interview for one, since under these contracts they will not even have the right to request to undertake study or training?
I wrote to the noble Baroness, Lady Hanham, about the guidance on 9 January. By the time the Committee started I had not even had the courtesy of a reply. I raised this issue on the first day in Committee and the noble Baroness apologised for the absence of a reply—she did so very graciously—and, when I asked whether we would have the guidance by today, she said that she would seek to make sure that we did. We still have not got it. Instead, I have since had a letter from the noble Viscount which is wholly unsatisfactory. He wrote:
“Where necessary, revisions will be made to the guidance. It is important that the guidance is clear and fit for purpose—
it is, indeed, important; it is absolutely vital that it is clear and fit for purpose—
“and this task is ongoing. I will share it with the House when it has been drafted but undertake to keep you informed of progress”.
However, we need the guidance today. I took the noble Baroness to be undertaking that she would at least seek to ensure that we had it today. In view of the fact that we have not had it, I now take the noble Viscount’s letter to me to be intended to resile from the commitment to give us the guidance before we debate this clause.
When are we going to see the guidance? Do the Government really intend that we should debate this clause without seeing it? The noble Viscount owes the House an explanation of what is going on and, before I proceed with my speech, I invite him to give us one so that we know the basis on which we are intended to proceed in debating this clause. Is the noble Viscount not intending to explain to us why we have not had the DWP guidance?
Viscount Younger of Leckie
I will be speaking at the usual moment. I would like to hear the speeches of other noble Lords first.
Lord Adonis
My Lords, I note that the noble Viscount is not even defending the fact that the guidance was not sent to us before this debate started. The first issue he needs to address is why we have not had the guidance before us in Committee even though we were given assurances that the Government would seek to get it to us; and we need to know precisely when the guidance will be forthcoming. I give him notice that if we do not have that guidance by Report there will be significant arguments about the way in which the Government have treated the House. I have been on that side of the Dispatch Box and I regard it as wholly unsatisfactory that we should be expected to debate a fundamental change in the way benefits claimants are treated without knowing what it will mean in practice.
Viscount Younger of Leckie
The noble Lord makes a very good point. I stick by the words in my letter that further guidance will be forthcoming. We have some guidance already but we are working hard to improve and expand it. I will come back to the noble Lord as soon as I can to explain when it will be available.
Lord Adonis
My Lords, I am grateful to the noble Viscount, but can he tell us whether that will be before Report, when we will debate and, I suspect, vote on the substance of the matter before us?
Viscount Younger of Leckie
I will obviously need to return to the noble Lord with a clear answer on that. Right now I cannot give him that answer, much as I would like to.
Lord Adonis
My Lords, the House needs to be aware of the situation that we are in at the moment. The defence that the Government make in respect of the proposal that benefits claimants will not be treated unfairly is that the DWP guidance will be redrafted. That is what the Minister, Michael Fallon, said in the other place and what the noble Baroness, Lady Hanham, said at earlier stages of our debate. We are now being told that the Government are not even prepared to undertake to allow your Lordships to see that guidance before we debate amendments which go to the heart of whether or not claimants will be required to take jobs.
Viscount Younger of Leckie
To be fair, I did not precisely say that. I said that I would get back to the noble Lord as soon as possible: I did not say that I would not get the guidance to him before Report. I stick by what I said, both in my letter emphasising that the guidance notes are extremely important and are being worked on at the moment, and, secondly, that I will come back to him as soon as possible—possibly even this afternoon—to give him a time for when the guidance notes will be available. I hope that it will be before Report.
Lord Adonis
My Lords, with each intervention the noble Viscount is more forthcoming. Now it is possibly later this afternoon. I know the Box is working hard and I hope that “possibly” later this afternoon becomes “definitely” later this afternoon.
Viscount Younger of Leckie
That is not a guarantee. I am saying that I am hopeful that the information will be available this afternoon.
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.
Viscount Younger of Leckie
I have not seen the guidance but I do not believe that it will say that.
There are two further safeguards for jobseeker allowance claimants. Should a claimant refuse to apply for a job after mandation, a sanction will be imposed only if the claimant does not have good reason. A decision-maker within DWP will be responsible for making that determination. In reaching a determination, they will take into account the claimant’s circumstances, the specific job and the terms and conditions on offer. Again, the Government will supplement the DWP decision-makers’ guidance around any particular issues with the employee shareholder scheme that need to be considered.
Lord Adonis
Several times the Minister has said that the guidance would be updated with regard to any particular issues that arise from employee shareholder contracts. The particular issue that arises is precisely the issue raised by the noble Lord, Lord Pannick, which is that these rights are being withdrawn. If that is not the issue that arises, could the Minister tell the Committee what the issue is that arises which the Government are going to seek to address in the revised guidance?
Viscount Younger of Leckie
As I explained earlier, I am not in a position to give the Committee that information just at the moment. The issues will be outlined when the guidance is available. That is the only answer that I can give at this stage.
Lord Adonis
My Lords, the Minister has come to the Committee to tell us that he cannot begin to tell us the basis on which the guidance is going to be revised, which is his own defence in response to the arguments that the guidance itself will not be reasonable in the circumstances.
Viscount Younger of Leckie
I can only reply to the noble Lord that I am not in a position to explain the guidance because I have not seen it because it is being revised. That is the only answer that I can give at the moment.
Viscount Younger of Leckie
I can only re-emphasise that when a case is taken on a case-by-case basis, this means that, if an individual is seeking a job and an employee shareholder position comes up, the Jobcentre Plus and the officials within the system will be looking at the individual’s case. It is their job to determine the way forward in relation to the employee shareholder position that has arisen.
Lord Adonis
My Lords, the noble Viscount ended by saying that he hoped that I would withdraw the amendment in light of the reassurances that he had given. With great respect to the noble Viscount, he gave no reassurances whatever. Though I am not intending to press the matter today, the Committee will have to draw its own conclusions from the total absence of reassurance which the Government have provided so far. Not only have they not provided any reassurance, but they have not even given the Committee the basic information that we need to be able to make a judgment as to whether there is any validity in the statements that the Government have made to the effect that issues relating to the new employee shareholder status will be taken account of by DWP decision-makers.
The noble Viscount has a disarming manner, and we commiserate with him for having to defend this proposal to the Committee—I would not wish to have to do so myself. However, when he says that we need to be sympathetic to the Government’s position because this guidance is 3,000 pages long, I feel bound to point out that it is the Government who are seeking to change the law; it is not Members of your Lordships’ House who are seeking to do so. The fact that the guidance is 3,000 pages long is not a defence for the Government not having prepared for changes which they are proposing to inflict on the country and declaring them to Parliament before we change the law. They say that changing 3,000 pages of guidance is a laborious job. I am sure that it is: I spent a good part of this morning trying to read the guidance and to make sense of it. Goodness, even legal eminences of the height of the noble Lord, Lord Pannick, would struggle with the complexity of the guidance which the DWP issues. If the Government are saying that they need more time, your Lordships would be very happy to give it to them if they wish to withdraw Clause 27 from the Bill and then bring it back when they have got their guidance in order so that we can then look at it with the clause to which it refers. There would be a generally warm reception to such a proposal from the noble Viscount.
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.
Viscount Younger of Leckie
I stand corrected—it is indeed 3,000 pages long.
Lord Adonis
My Lords, I repeat: it is the Government’s responsibility to prepare the changes to the law and the guidance that they wish to make and to present them to the House before we change the law. The fundamental point is the one that the noble Lord, Lord Pannick, made—the difference in respect of these contracts is that employment rights are being withdrawn. The fundamental question, on which we need to see the guidance, is whether the withdrawal of these rights is itself a reason why unemployed people are permitted to decline to attend interviews or accept jobs. If it is not a reason then nothing has changed. This clause therefore flatly contradicts the assurances that have been given to Parliament that the new employee shareholder status is voluntary. I think that that is a very significant point which your Lordships will wish to take into account when we get to Report. I beg leave to withdraw the amendment.
Lord Adonis
Lord Adonis
My Lords, I shall speak very briefly at the beginning of this debate because I want to comment on the noble Viscount’s contribution. In the amendments in my name in the group, I simply specify all the rights that it is proposed should be withdrawn through the new employee shareholder status so that the Government will have an opportunity to defend their decision to withdraw them in each case and to provide a longer notice period for early return from maternity and adoption leave. As the noble Viscount knows, we are opposed to each of the withdrawals of rights in Clause 27. The Government have not had the opportunity before your Lordships to explain their justification for the withdrawal of each of these rights. By putting these amendments down, I am giving the Government the opportunity to do so. I beg to move.
Lord Strasburger
My Lords, when I spoke to the first group of amendments I declared my interests as an entrepreneur. I forgot also to declare that in a former life I used to play cricket with Mr Adrian Beecroft, who is a very charming man and a very fine opening bat and cover fielder. However, to my knowledge he has no personal experience of starting or running a business. It strikes me that the authors of this clause have about the same amount of experience as Mr Beecroft in that area but are probably not as good batsmen.
I have two specific questions to address to the Minister. First, which of the rights that this clause requires employees to forfeit is going to enhance their business’s chances of success? Secondly, which of those forfeited rights do the Government think will improve the motivation and commitment of these second-class employees?
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, we are full of admiration for the way the noble Viscount seeks to defend these proposals before the House. However, I am afraid that I find myself with the noble Lord, Lord Deben, who said that this was a mystifying moment in a mystifying Bill. The mystification gets greater the longer the Government seek to defend the proposal, and does so in three respects. The first is the figure of 6,000, which is in the impact assessment and which the Minister has undertaken to write to noble Lords to defend. However, I have read the impact assessment and the figure appears to be simply plucked out of the air. There seems to be no justification whatever for a figure of 6,000, as opposed to—
Viscount Younger of Leckie
I apologise for interrupting and thank the noble Lord for giving way. I made it absolutely clear that this was a guesstimate. When pressed by the noble Lord, Lord Pannick, on the figure, I felt it appropriate to give a figure to the House, and I am quite prepared to come back to the House on it. That figure may indeed change, but I reiterate it and suggest that it is not worth going further on this particular issue.
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, I note what the noble Baroness has said. I strongly support the extension of the right to request flexible working. I think what the Deputy Prime Minister said in that respect was a very positive step forward. I am seeking to reconcile what the Deputy Prime Minister said from the Benches 45 degrees away from me from what the noble Viscount has said, as I understand it, representing the same Government. This is about how we put together the different parts of the Government and understand what position is being presented to the House.
Finally, I will comment on what the noble Viscount did not say. He did not respond to the point about the Beecroft report. The Beecroft report is of some significance and has been referred to by other noble Lords. My understanding of the genesis of this employee shareholder proposal is that, having sought to implement the Beecroft report and having been stopped from doing so by our colleagues on the Lib Dem Benches, in particular by the Secretary of State for Business, Innovation and Skills, the Chancellor of the Exchequer then sought to bring back the proposals in a watered-down form in return for the award of shares valued between £2,000 and £50,000. Vince Cable probably now regrets having done that deal, but he did so because he believed it would be niche and insignificant, although 6,000 is on the large side, if that is the figure the Government are now putting forward. He thought that if nobody took it up, this was a deal he could just about live with.
However, the acute irony of the proposal before the House is the one which the noble Baroness, Lady Brinton, identified: that in respect of one of the fundamental rights being withdrawn—the right not to be unfairly dismissed—the Beecroft proposal for almost all employees who are likely to suffer under this scheme is significantly more generous than the shares for rights proposals encompassed in the Bill. The Beecroft proposal, as she said, required a tax-free payment related to the employee’s salary up to a maximum of £12,000. I took Beecroft to be proposing that that would be the figure for the no fault dismissal fee: £12,000. The offer that employers who are seeking to recruit employees with minimal rights need to make is £2,000. That is, £2,000 in shares, the value of which may be significantly less when they come to trade them in.
Given the choice between a firm contractual requirement to offer £12,000 for no fault dismissal, and £2,000 worth of shares that may be worthless by the time an employee comes to exercise them, Beecroft might actually turn out to be preferable. I beg leave to withdraw the amendment.
Lord Adonis
“(7) This section shall only come into operation after an independent assessment of the revenue implications for HMRC, conducted by the Office for Budget Responsibility, in respect of each financial year from 2014 to 2030, is laid before both Houses of Parliament.”
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.
Viscount Younger of Leckie
My Lords, first, I am most grateful to my noble friend Lord Deben for extolling the virtues of employee ownership, which is very much part of the debate today.
This amendment stipulates that the clause should come into effect only once an independent assessment, conducted by the Office for Budget Responsibility, is laid before both Houses setting out the impact on the Exchequer for each financial year between 2014 and 2030.
The OBR’s role is to provide independent scrutiny and certification of the Government’s policy costings ahead of the Budget and the Autumn Statement. The OBR certified the costing of this measure submitted by HMRC using the methodology set out in the policy costings document published at the Autumn Statement, which is available on the HM Treasury website.
The main duty of the OBR is to examine and report on the sustainability of the public finances. The OBR performs this duty independently, with complete discretion to determine the content of its publications and its work programme of research and analysis.
The Government do not publish annual breakdowns of the cost of operating specific tax measures beyond the end of the forecast period, and this has been the case for some time. This will apply to the employee shareholder status in the same way as it applies to the cost of operating any other specific tax measures.
The noble Lord, Lord Adonis, is understandably concerned about the need to support the Government’s agenda for fiscal sustainability. I emphasise that we believe that investment in policies such as this one—aimed at reducing costs on business and increasing productivity —is exactly what is needed at this time. Strong, sustainable and balanced growth is the key to long-term fiscal sustainability. However, I assure the noble Lord that if further provisions are needed to limit its overall costs, we will have the opportunity to include these at a later date.
At this stage, I think it is worth picking up some points that the noble Lord, Lord Adonis, raised concerning the OBR. The OBR, with its responsibility, is right to note that predicting the take-up of new policies such as this one is very difficult. We recognise that, but its comments need clarification. First, the OBR refers to tax planning and not avoidance. Encouraging take-up of this targeted employment policy should not be misconstrued as encouraging avoidance. Secondly, any rise towards £1 billion is estimated to occur well beyond the end of the forecast period—in fact, beyond the 2020s, when national income is likely to be more than twice as high in today’s money. Finally, the draft legislation published on 11 December includes a number of anti-avoidance provisions. If further provisions are needed to address particular avoidance risks, we will have the opportunity to include them at a later date with a view to ensuring that this policy does not become disproportionately costly to the taxpayer.
Lord Adonis
Could I ask a specific question? The OBR said that it expected the cost of this policy to rise towards £1 billion beyond the end of the forecast horizon. Is that a figure that the Government accept?
Viscount Younger of Leckie
It gives me the opportunity to answer the noble Lord’s question by saying that the OBR has stated that in the long term this policy could cost up to £1 billion. That figure relates to the future period beyond the 2020s. However, there are uncertainties associated with costs so far into the future and I am sure that the noble Lord will appreciate that. The Government expect that the new employee shareholder status should help to stimulate business and entrepreneurial activity by affording businesses greater choice on the contract that they can offer to individuals while ensuring that appropriate levels of protection are maintained. If the policy achieves this aim, the cost, which is expected to reach £8 million in 2017-18, is proportionate. The draft legislation published on 11 December sets out a number of anti-avoidance provisions to prevent the manipulation of the capital gains tax exemption on shares received under the status. If further provisions are needed to address particular avoidance issues, as mentioned earlier, the Government will have the opportunity to include these at a later date with a view to ensuring that this policy does not continue.
My noble friend Lady Brinton raised the issue of whether the tax incentives were in effect a tax avoidance scam, if I can put it somewhat indelicately. She did not put it in that indelicate way. The Government have already included provisions to deal with various types of possible abuse in the draft legislation on capital gains tax exemption. If other forms of abuse come to light, the Government will make the necessary changes to combat that with a view to ensuring that the policy does not become disproportionately costly to the taxpayer.
Some concern has been raised, notably by my noble friend Lady Brinton about the capital gains tax exemption. This relates particularly to people taking up this new employment status, and although I touched on it slightly earlier, I shall address it directly. We believe that employee ownership is a good thing. We want people to become employee shareholders and to benefit from the exemption provided. Where it is used properly it should be seen as a measure of success and people should take advantage of this particular exemption. However, the draft Finance Bill published on 11 December takes a robust line on the potential misuse of the exemption and provides several measures that would prevent the misuse of employee shareholder employment status. There are rules to prevent those who control a company, such as company directors, holding exempt employee shareholder shares if they control 25% or more of the voting power in the company. Similarly, rules will prevent people connected to those who control the company, such as spouses or children, benefiting from the exemption. We will prohibit employees from benefiting from multiple £50,000 limits by entering into multiple consecutive employee shareholder contracts with related companies. Instead when related companies are involved, an employee will have a single £50,000 limit applying to all shares received by related companies. We will also ensure that those looking to get around the limit by using company liquidations to dispose of and then receive new exempt shares cannot do so. We will require two years to pass between the liquidation of the company and the employee receiving further exempt shares. This treatment strikes the right balance between preventing abuse and ensuring that genuine entrepreneurs are not unfairly hit.
Finally, the legislation will prevent the manipulation of share values, for example, by placing restrictions on them so that an employee can receive shares that are in fact worth more than £50,000. For the purposes of the capital gains tax exemption the value of shares will be based on an unrestricted market share. Taken together the measures and the safeguards outlined in the draft legislation will ensure that the tax benefits of a new employment status can be misused. I hope that that goes some way to satisfying the noble Baroness, Lady Brinton.
Viscount Younger of Leckie
I am grateful to my noble friend for clarifying that and, of course, he is absolutely right. I felt that it would be helpful to the House to outline the safeguards and to reiterate that the Government have thought very carefully about these issues. Taking up some of the comments made by my noble friend Lord Deben, I emphasise again that it is a risk-reward status as the employee shareholder. The award is: yes, the opportunity is there to be given from between £2,000 and £50,000 and to be aware that if it is £20,000, £30,000, or whatever the figure might be, and the share price happened to double, the total amount, including the doubling would be free from capital gains tax. That is the reward bit, but equally, I am also realistic enough to say that it is possible that the shares might indeed be worth nothing. That is the risk, and it is best to be quite straight and open about that particular issue. With that in mind I hope that the noble Lord is willing to withdraw the amendment.
Lord Adonis
My Lords, I do not intend to press the issue today. Let me be brief in response to the noble Viscount. We face a straightforward case of schizophrenia here. One part of the Government tells us that the biggest problem facing the country is debt and another part of the Government produces a proposal, which we are debating today, for a new tax break for substantial shareholders that the Office for Budget Responsibility estimates will ultimately cost up to £1 billion a year. When we debate the entirety of Clause 27 on Report, this latest example of schizophrenia will be one of the reasons why we will seek to delete it. I beg leave to withdraw the amendment.
Lord Adonis
My Lords, I have put down a Motion that Clause 27 should not stand part of the Bill to stimulate a last, wider debate on the issue. I note that the noble Viscount has gone over the same ground several times and I feel for him at having to do it yet again. Perhaps our remarks before he speaks will encourage him to make some new points that will help inform the Committee.
There are three essential points to be made on Clause 27, the first of which relates to the extension of employee share ownership. This is an objective that noble Lords in all parts of the House support. Indeed the Government had an official review—the Nuttall review—which reported last year on the extension of employee share ownership. That review made some 30 recommendations. I have the report here. Most of them were excellent recommendations, some of which the Government accepted and some of which they were unable to accept. I simply note that not one of those recommendations of the review that the Government set up specifically to promote wider share ownership related to the creation of an employee ownership scheme akin to the one that we are debating today, involved issuing shares in return for the giving up of employment rights.
The question I want to ask the noble Viscount is: if this is such a good idea, why was it not recommended by Nuttall? Secondly, I want to reiterate all the specific problems relating to the scheme, which have become very clear in our debates this afternoon. There is the problem of compulsion in respect of benefit claimants and the opening to discrimination claims, which the noble Lord, Lord Pannick, highlighted. That could mean that there will be an explosion of very expensive and difficult cases before employment tribunals because of the removal of essential rights that will leave employees with no other recourse than discrimination when they believe that they have been badly treated. There is the problem of cost which we have just debated in the previous group of amendments, and a whole set of issues that we have not debated but which were debated in the House of Commons about the status of the shares themselves, such as the voting nature of the shares and how the shares will be tradable, given that most of them are intended to be among the 6,000 companies that the noble Viscount has highlighted. There are start-up companies whose shares will not be listed, so we must ensure that there is a market in which they can sell shares and terms under which they sell them, given that they may have to sell them back to their own companies when those companies are under some stress. There is a whole set of issues relating to the working of the scheme which makes it highly problematic and which may leave small shareholders, in particular, who do have not much money themselves without resources to take independent financial and legal advice. They could be very seriously exposed.
The noble Lord, Lord Flight, told the Committee earlier that if he was 40 years younger, he would relish the opportunity to take advantage of the status and that it would have spurred him to the creation of new companies and new employment. If they were the groups we are talking about, that would be one case. But, as legislators, we are concerned that substantial numbers of employees who do not have access to financial and legal advice will be straightforwardly exploited by these provisions.
The third point I make on the clause as a whole is that almost nobody to whom this proposal is targeted welcomes it. The Government’s own consultation showed that an overwhelming majority of those who responded, including those who responded from within the business community, either thought that this proposal was irrelevant or were actively hostile to it. The noble Viscount cited a few instances earlier of individuals who support it. However, of the 219 consultation responses, only five welcomed the proposal. Five out of 219 is about the same ratio of supporters to opponents as we have seen in your Lordships’ House as this proposal has been debated. That seems to me a compelling reason why the Government would be wise to withdraw the proposal before we debate it again at Report. I beg to move.