Lord De Mauley
Main Page: Lord De Mauley (Conservative - Excepted Hereditary)Postal Services Bill
Lord De Mauley Excerpts
Baroness Kramer
My Lords, I will make a couple of comments. I very much support the employee ownership proposed in this Bill, which is a great improvement on the Bill that did not complete its progress through the previous Parliament, because it includes employee ownership and because the amount of ownership proposed is very substantial. The Government have more details on that than I do. For people working in Royal Mail, there are two issues of great concern. One is that they should be part-owners in a way that this share ownership will allow them to be, in order both to have a voice and to benefit from the profits that will flow from their efforts and from the future success of the company. It is also very important that there should be the maximum possible investment in the future of Royal Mail. Those two issues have to be balanced.
By expanding the number of shares that will be distributed to employees, the ownership potential for a private partner is reduced, which will reduce his, her or their willingness to put additional money into Royal Mail. I caution that there is a balance to be achieved here. Ten per cent is enough to provide a real voice and real reward, but potentially up to 90 per cent going out in some form to the private market is a real guarantee that the purchaser, whoever they are, will have to put in serious and large investment to make sure that this the company is very successful in future. That is surely what employees want, too.
The noble Lords, Lord Clarke and Lord Tunnicliffe, raised many issues that underscored the complexities of trying to set up share ownership for employees in an effective way. The more I heard about all those complexities, such as how shares should be distributed between employees, the more it struck me that the Bill is not the place to set up a structure such as that. It is good to have a discussion in this House, but with so many tax and legal issues there is a need for consultation and much greater involvement by many parties, including potential private partners as well as employees. We would be trying to make the Bill do too much by accepting these amendments, as well as some of those that we will debate later.
Lord De Mauley
My Lords, I thank the noble Lords, Lord Tunnicliffe and Lord Clarke, for tabling their amendments, and also thank my noble friends for their contributions. I should perhaps declare an interest; my wife owns and jointly runs a web-based mail order company that uses Royal Mail to deliver its products.
I am delighted that the noble Lords, Lord Tunnicliffe and Lord Clarke, agree with the Government about the attractions of the establishment of an employee share scheme. I say that in the most welcoming and genuine sense. We all agree that this key feature of the Bill will help to improve employee engagement and the culture of the company. We should not lose sight of the fact that the overriding purpose of the Bill is to safeguard the universal service and to secure the future of Royal Mail. A key means of doing that will be by introducing private capital. In deciding on the size of the stake that should go to employees, as my noble friend Lady Kramer said, the Government have had to balance giving a meaningful stake to employees with the imperative of ensuring the private sector investment that the company needs. This is a matter of judgment.
I will put in context the commitment that we are making through Clause 3. The minimum 10 per cent share requirement in the Bill is the largest statutory employee share scheme of any major privatisation. The share is unprecedented, and there is no doubt that it is meaningful. Most major privatisations did not even refer to employee shares in their respective Bills. Furthermore, the share schemes that eventuated offered smaller stakes: 5 per cent in the case of BT and British Gas, and less than that for the other utilities of electricity and water. Only Rolls Royce and BA came close, at 10 per cent and 9.5 per cent respectively. However, we are committed to at least 10 per cent.
I share with my noble friend Lady Kramer experience of advising companies in similar situations. I did that for nearly 20 years, and my experience convinced me that a requirement that employees should own at least 20 per cent, or even 25 per cent, of the shares in the company, as the amendments suggest, would jeopardise getting the investment that the company needs simply by virtue of the substantial size of that stake. We therefore unfortunately cannot accept the increases to the size of the employee share scheme proposed by these amendments. I hope that noble Lords will accept that what is offered is offered in good faith, and that to commit to more would prejudice our ability to achieve a sale.
The requirement to pay equal dividends to all participants of the scheme certainly has attractions. However, Clause 3 is designed to maintain as much flexibility as possible to design the right scheme. We would be ill advised to set in stone the form of an employee share scheme until we have more certainty on the form of the private sector investment. Furthermore, there are other equally sensible methods for determining the allocation of shares and therefore dividend payments. An example of another equally sensible method is length of service, for example. I therefore urge noble Lords not to restrict options at this stage.
The noble Lords, Lord Tunnicliffe and Lord Clarke, asked about the specific route to be followed. The noble Lord, Lord Tunnicliffe, helpfully compared, for example, share trusts against individual ownership. This subject will come up again in subsequent debates on amendments. In brief, some of the benefits of share trusts are that they can be structured to last indefinitely. Depending on their design, they would always keep the capital value of the shares within the trust. Against that, this may not be the appropriate form of scheme to motivate individuals, and we will assess the merits of a share trust and other designs at the appropriate time. Individual ownership clearly offers individuals the opportunity to build up a share pot while they are employed in the business, which they can benefit from when they retire or move on. Individual shares can also be better for employees, in that they offer a greater sense of ownership and can be more tax efficient. The noble Lord, Lord Tunnicliffe, suggested other options, which I found very helpful. This emphasises why it is important at this stage that we keep our options open.
The noble Lord, Lord Tunnicliffe, specifically pointed out some risks of going down the route of issuing shares to employees. As I have said, the exact form of the scheme is still being developed and will be likely to be dependent on the form of the private sector investment. If the share scheme allows for individual ownership of shares by employees, we will obviously explore the most appropriate way of encouraging employees to keep their shares for the long term. Many of the tax efficiencies associated with those schemes relate to a certain holding period, which could be incorporated into the scheme rules. Noble Lords should not assume that employees will automatically sell their shares. In its written evidence to the other place, ifs ProShare noted that two-thirds of BT employees retained their shares rather than selling them off.
The noble Lord, Lord Tunnicliffe, was concerned that there is no guarantee in the Bill that employees will get any shares until the Government have sold their entire holding. Employee shares are an integral part of our policy for Royal Mail, and we have committed to ensuring that there are shares within the scheme at the same time as private capital is introduced. This is the strongest legislative commitment of any major privatisation. The exact sequence of events in such a large and complex sale is difficult to predict at this stage. This means that we need to maintain a degree of flexibility about precisely when during the process the scheme is set up, so as not to complicate that process even further.
The noble Lord, Lord Tunnicliffe, quoted Employee Ownership Association evidence to the Commons Public Bill Committee, saying that 10 per cent was not enough. I might give another quote from evidence to that committee. Alexy Armitage of ifs ProShare said:
“Although they might not hold as much as 10 per cent, or more than that, they like the fact that they own shares in their company and they see that as a benefit and a worthwhile thing to do”.—[Official Report, Commons, Postal Services Bill Committee; 9/11/10; col. 71.]
That is at all levels, not just executives; it goes right through those organisations.
The noble Lord, Lord Clarke, was concerned about how to ensure that management does not get all the shares. I think that was the nub of his concern. He makes a very important point. As I have said, it is too early to get into the specifics, but we imagine that management will be able to benefit from the share scheme as well as other employees. However, the point is to incentivise employees and to give most of the shares to management would simply destroy that purpose; that is absolutely not the intent.
The future ownership of Royal Mail, by both private investors and its employees, will be inextricably linked. Within the important boundaries set by Clause 3, the exact size and form of the scheme will, therefore, be informed by the type and detail of the transaction. It is very important that we keep our options open, for the reasons mentioned by the noble Lord, Lord Tunnicliffe, among other things. I assure noble Lords who have taken part in this debate that their suggestions will be taken into account. I, therefore, ask the noble Lord to withdraw the amendment.
Lord Tunnicliffe
My Lords, I thank all those who have taken part in this important debate and the noble Lord, Lord Cotter, for his general support. I hope that his influence will be, as I think I heard him say, that as many shares as possible go to employees. I accept that this debate is about balance and we are obviously putting our finger on a particular balance. I certainly hope that the eventual situation is closer to our position than the minimum.
I thank my noble friend Lord Clarke of Hampstead for his contribution. I hope that the Government will look back at previous privatisations because they have not been universally successful in properly engaging employees through share ownership schemes. His other point, which supplements my own point, is important: that this must not be seen as in place of a proper relationship between employees, trade unions and the new company but must complement it and make the whole relationship stronger and more meaningful. He referred to the trust solution, and the closer we are to a trust solution than an individual-ownership solution the more comfortable we would be. We hope that the Government are thinking in that way.
The noble Baroness, Lady Kramer, said that this was a great improvement on the previous Government’s contribution. I am sorry that the noble Lord, Lord Hunt of Wirral, is not here to assure me that my recollection and research are correct, but my understanding of our debate is that we took the point on employee share ownership but because our Bill did not have a 100 per cent sale, it left within our discretion an ability to award shares—fairly late in the Bill we were persuaded of that situation—and therefore our advice was that we could bring that forward without the need for a specific clause.
The noble Baroness made the point that there must be a balance between the new owners and the employees, which I take on board—I think it is the same point as the Minister made. However, she said that it would be wrong to introduce too much complexity into the Bill. My reading of the situation is that this will be quite a lengthy process, and we are seeking as much clarity as possible in this area, because we want to create confidence in the workforce. The more that can be done to create that confidence, the better the outcome.
Lord De Mauley
If it helps the noble Lord, I can say that that is a helpful suggestion.
Baroness Howe of Idlicote
Having listened to all the debate on this issue, I must admit that I have a great deal of sympathy with what is behind the amendment. I also think that times have changed considerably. The atmosphere for putting workers of both sexes on a board was rather different and there was total hostility. I understand the Government’s difficulty about putting this in the Bill, but it would be helpful if the Minister would go away and think about a possible wording that would reassure everyone on this matter. For the well-being of those who are involved, it is important that they are represented—whatever the form, or in whosever hands, the Royal Mail ends up in.
Lord De Mauley
My Lords, I thank the noble Lord, Lord Tunnicliffe, for moving his amendment and all noble Lords who have contributed to this debate. While the idea of an employee share scheme representative on the board may well have merits, it is for Royal Mail and its shareholders to decide how it will structure its board, just like any other company would. Thanks to this Bill, Royal Mail’s shareholders will include its employees in the future.
The noble Lord, Lord Clarke, spoke from his experience of the vital importance of effective employee engagement and communication. The Government wholeheartedly agree with him on that. The employee’s shareholding is not the only way to create that engagement. I understand that there are a number of initiatives that Royal Mail is following at the moment which also contribute helpfully to that—for example, the world class mail initiative.
As we have already discussed, in the debate on Amendment 4 on Monday, we ask noble Lords to accept that it is not appropriate to impose the composition of a company’s board through legislation. In fact, I am not aware of a single precedent where such an imposition has been made by statute. Furthermore, if this amendment were passed, it would mean that in the future a fully independent Royal Mail, which had no government shareholding, would be obliged to request new legislation if the company or the employee share scheme were ever to want to change the way its views were represented to the board.
I am grateful to the noble Baroness, Lady Donaghy, for her recognition that the scheme will enhance the modernisation agreement concepts regarding fostering better relations between the company and its employees. She raised the fact of employee representation on the boards of some European companies. Of course, my noble friend Lady Kramer is absolutely right that their corporate structures are very different to the typical United Kingdom board structure. The noble Baroness also gently questioned the Government’s commitment to the concept. Perhaps I may tactfully say to her that, as the noble Lord, Lord Tunnicliffe, admitted in the debate on the previous amendment, the previous Government had to be pushed quite hard even to agree to contemplate an employee share scheme in the 2009 Bill; we are embracing this concept wholeheartedly.
Richard Hooper’s reports for both this and the previous Government stated clearly that Royal Mail must be freed of the “spectre of political intervention”. I ask noble Lords to accept that specifying the composition of the board in statute will not help with achieving this objective. I would therefore ask the noble Lord to withdraw his amendment.
Lord Tunnicliffe
My Lords, I thank all noble Lords who have participated in this debate, and I thank my noble friend Lady Turner for reminding us how modest this amendment is in providing for only “at least one representative”.
As so often happens, the noble Viscount, Lord Eccles, probably lighted upon the essence of the debate, which is the extent to which such a provision should be on the face of the Bill. It is about whether there is uncertainty for the new owner or not. We disagree on that point. We want the new owner to know that there is going to be at least one employee representative on the board—I have to admit that we want to discourage an owner who would have difficulty with that. We want to take away the uncertainty so that, when Government are negotiating for either a trade sale or some other form of disposal, the new owner cannot resile from this provision. We believe that any owner who would have difficulty with it would not be good for the interests of the Royal Mail in the long term.
My noble friend Lady Donaghy, whose chairmanship of ACAS was so important to a period of change in that direction, pointed out that, while the European structures are different, nevertheless the acceptance of significant board-level presence is part of their legal structure. There is significant employee representation, and large, successful European companies manage with that. Under the structure of our company law, the only way we can sensibly introduce such a requirement into the new structure is by including a provision about who should be on the board. It is a change of attitude, but we are living in a changing world.
I concur with my noble friend Lord Clarke of Hampstead that there was an important initiative in the 1970s on moving towards industrial democracy. I was involved in that on one side of the fence, many of my noble friends were on the other side, and we were starting to make some progress. In many ways I wish we had built on this so that we might not be having this debate now. We would probably be taking the involvement of the workforce for granted in the management of major companies, whether in the private or public sector, because we would have had years of experience of it working. I think that this is the time to set this down.
When I was on the government Benches, I always got a sense from my civil servants that, when they had run out of ideas, they scribbled on a piece of paper “Not appropriate”. Another one that they would come up with was, “It is unprecedented”. Of course, all law is about setting precedents, and we think that this is an occasion when this chance should be seized.
Clearly, I am not going to press the amendment today. We will read the Minister’s words with great care, but we may come back to the issue because I think it is an important marker of the style and the character of company that we hope Royal Mail will become. With that, I beg leave to withdraw the amendment.
Lord Tunnicliffe
My Lords, this repeats an amendment already discussed in the Public Bill Committee of the other place, because we still do not really understand why the Bill is drafted as it is, so in that sense this is essentially a probing amendment. The current draft gives rise to concerns that the employee share scheme could be designed for people other than employees of Royal Mail. Do that on a wide scale and all the benefits of introducing such a scheme, which we have been through in previous discussions, will be dissipated. Of course we accept the narrow definition in the Bill of the employees of Royal Mail only, which could exclude former employees, but who else do the Government have in mind by the use of the term “or include”? Could it be other public servants, customers or competitors? Surely the scheme has to be centred on and be for the benefit of the employees of Royal Mail, whoever it is owned by.
The fault-line here, as in so many issues raised by this side of the Committee—some with the support of other Benches—is that the answer is, “It will be all right on the night. Royal Mail is going to be sold to a wonderful company with all the virtues and none of the faults of big business”. I hope I will be forgiven for saying that, at the end of the day, it will be an average company because in the long term we are all average. We feel that this is the time for the Government to give a more specific response to this probing amendment in order to allay our fears. I look forward to hearing what the Minister has to say and I beg to move.
Lord De Mauley
My Lords, as the noble Lord, Lord Tunnicliffe, has explained, Amendment 21 relates to the scope of the employee share scheme. The words “or include”, which through his amendment he seeks to remove, allow the employee share scheme to encompass those employees of Royal Mail who work for its subsidiaries, even if those subsidiaries do not fall strictly within the definition of a Royal Mail company in Clause 2. Royal Mail has a number of subsidiaries that do not themselves directly provide the universal service, but would nevertheless be considered to be part of the overall company infrastructure and play an essential role. An example would be Royal Mail Estates Ltd, which oversees Royal Mail’s property portfolio. It is clearly our intent that those who work for any Royal Mail company be able to be part of the employee share scheme, but without the words “or include” in subsection (4), there would be significant legal doubt over whether the Government could extend employee shares to the employees of other group companies not strictly falling within the definition of a Royal Mail company.
We do not wish to create a situation where some staff in the group are barred by statute from being members of the employee share scheme. It would mean that they would not have the same incentives to engage with the business they work for and share in its future success. I do not believe that that is what the noble Lord, Lord Tunnicliffe, wants, and I therefore ask him to withdraw his amendment.
Lord Tunnicliffe
My Lords, it would be unprecedented for someone to rise from these Benches and say that they were wholly satisfied with the answer, and therefore I will not set that dangerous precedent. I will say that I like what I have heard, and I will study the noble Lord’s words with great care, but in the mean time I beg leave to withdraw the amendment.
Viscount Eccles
My Lords, both the possibilities outlined by the noble Lord, Lord Christopher, could indeed happen. Again, that reinforces the difficulty of Parliament setting down conditions that will need to be thought through in circumstances that may be very different from those that we in this Committee envisage.
Lord De Mauley
My Lords, Amendments 21ZA and 21ZB relate essentially to the design of the employee share scheme. As the noble Lord, Lord Brooke of Alverthorpe, explained, their broad thrust would be to ensure that shares are placed within an employee share trust. His proposal is helpful and constructive. I thank him and, in her absence, the noble Baroness, Lady Dean, for raising the issue. I know that they both have a wealth of experience in this area.
As the noble Lord explained, an employee share trust certainly has attractions, particularly for its ability to deliver the Government’s objective to ensure a long-standing employee stake in Royal Mail. The Minister for Postal Services has been clear in the other place that he sees these attractions; certainly, he does not discount the matter. However, like my noble friend Lord Razzall, we believe that it is important to keep options open on the design of the scheme until we have reached a firm decision on the form of the transaction. After all, individual share ownership has its own merits, giving the employees a very real sense of ownership.
As I have said, the design of the scheme will in part depend on the type of sale we undertake. For example, individual share ownership could be more appropriate if Royal Mail were floated. In that case, the question of the noble Lord, Lord Christopher, is answered because there would be a public market in the shares. It could also make sense—I think that the noble Lord, Lord Tunnicliffe, touched on this earlier—to have some combination of a trust and individually held shares. I spoke about this area more generally at some length in the debate on Amendments 18 and 19, as I did about the risks of recipients cashing in their shares early, and I am sure that noble Lords would prefer me not to repeat myself.
As I said when we discussed Amendments 18 and 19, paying equal dividends to each employee is a laudable objective. However, there are other sensible methods of allocating shares, and therefore dividends, to employees. I mentioned that in some schemes shares are allocated depending on length of service.
As regards restricting the sale of shares to anyone but an employee share trust, I can again understand the noble Lord’s concerns to ensure that the employees’ stake cannot be diluted by shares being sold to third parties. However, again this would place an undesirable restriction on the design of the scheme and would prevent us allocating shares to individual employees, if we thought that was appropriate at the time.
As I said earlier, it is in fact very unusual for a Government to commit themselves to an employee share scheme on the face of legislation. For example, I believe that—the noble Lord, Lord Brooke, will correct me if I am wrong—there is no similar commitment in the Transport Act 2000 to create the NATS employee share trust. I hope that all noble Lords welcome this upfront commitment to employee shares at Royal Mail but accept that it would not make sense to go even further and prescribe the particular detail of the scheme in legislation. For these reasons, I ask the noble Lord to withdraw the amendment.
Lord Brooke of Alverthorpe
My Lords, I am grateful to all who have contributed to the debate. I am grateful to the noble Lord, Lord Razzall, for contributing but not for what he said. I am grateful to the noble Lord, Lord Young, for his support. I say to the noble Lord, Lord Christopher, and the noble Viscount, Lord Eccles, that I accept the Minister’s view that in many respects the form of the transaction will determine the structure of the offering to employees. However, as I said, I do not think that we will get an IPO. I believe that in earlier debates, the noble Viscount, Lord Eccles, said that he would be very surprised if we did, in which case we are talking about a different kind of structure whereby we sell direct to a company or group of companies, which in turn could create the trust advocated in these amendments. In the event that no market could be used as the yardstick for determining what the dividend or the annual growth in the value of shares should be—although one hopes that they will grow in value—we could turn to a mechanism based on the experience of using independent valuations of what NATS shares would fetch if they were put on the open market.
I recognise that there are problems with being too precise in advance, but, as I have said previously, the more that could be put in the Bill, the more encouraging and supportive it will be to staff who will go into this with disquiet and anxieties. It would also be better for prospective purchasers to know what they are buying into and plan accordingly. However, the Minister’s response has provided more comfort than I perhaps anticipated, given his earlier response to Amendment 19. I beg leave to withdraw the amendment.