Growth and Infrastructure Bill

Lord Strasburger Excerpts

Wednesday 6th February 2013 Lords Chamber

[Baroness Afshar]

My Lords, I have worked for a long time with minority groups who employ their women in a system that is very similar to what is proposed. They have an interest in the business, they are committed to the business, they have kinship ties, and they have absolutely no rights. They work right through the day, and they share the losses and the gains.

In my long experience, the children of these minorities, who are some of the best educated children because the families use education, grow up and wish to use their education to get out of the informal sector into the formal sector. They wish for a different experience from that of their parents. They want to be workers with rights, entitlements and the possibility of progress. In fact, many of them would work in these new companies without realising that by doing so they were returning to where their parents were. That is not because they are not educated but because of the complexity of the contract. They are happy to have a contract. They sign it, which means it is formal and official. They do not have a lawyer at their side to warn them of every point. It would be a matter of great regret to lose these intelligent people, who, I think, are footloose and fancy free. They may well move on to other countries where they are better paid for having poor contracts. We are losing the confidence of our minorities and possibly the prospect of some very well-educated young people.

[Lord Strasburger]

My Lords, I declare an interest. Before I joined this House I was a serial entrepreneur. I have started many businesses from scratch. The most recent one employed 200 staff after being in business for four years. I am a big fan of giving employees a stake in the success of the business so that their goals are aligned with those of the founders. It never crossed my mind that my staff should need to forfeit their employment rights in exchange. Snatching these rights is hardly the best way to win their hearts and minds. Managers who feel they need to diminish the rights of their staff to get their full commitment to the success of the business are bad managers and will almost certainly fail. This idea is complete nonsense.

[Lord Flight]

My Lords, when these proposals were announced, I was somewhat lukewarm towards them, for some of the reasons that other noble Lords have spoken about today. However, as I thought about the proposals rather more, it seemed to me that there is some sense to them. They are not proposals for everybody. They are not for individuals who work for the public sector or for large companies; they are relevant to individuals who are by nature high risk-reward in their approach. They are willing to be high-risk takers to build up capital for themselves and their families. The proposals are, as has been articulated, for small and medium businesses, and are certainly not appropriate for larger businesses.

The proposals at present are really rather simple and straightforward and may be capable of improvement but not, I hope, of too much embellishment or the whole point of the principle would be undermined. People have the option whether to participate. If you wish to be an employee entrepreneur, here is the chance to benefit with equity on an extremely tax-attractive basis, but you are going to be taking risks just like the entrepreneur himself. One of the problems with small-company share schemes, as I have experienced in my own career, is that they are very limited. Where options have to be used they end up being taxed at nearly 60% and are not particularly attractive. The carrot of tax-free capital gains is attractive.

The subsequent amendment that I will address shortly suggests a template for and guidance on the new scheme. Particularly as it is new and untried, that is needed. The principle of requiring advice I can go along with to some extent, although requiring barristers seems perhaps to be jobs for the boys. The principle of the scheme seems pretty straightforward. It does not require anyone of huge intelligence to understand the quid pro quo.

Moreover, some of the potential problems have already been addressed via amendments in the other place. There are measures intended to stop any form of coercion. Employees also retain the great majority of their employment rights. Partly paid issued shares cannot be used, so people would not be left with a liability if a company went bust. If shares are inappropriately valued, the deal returns employees to their normal employment status. I am not sure how far one should really go to spoon-feed the principles. If someone is not a natural risk taker, this is clearly not for them, and they should not look to accept a job with this sort of deal.

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[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?

[Lord Deben]

First, I apologise for the fact that I have been abroad and therefore not able to follow that part of the Bill that has gone through since I last spent time on it.

On these amendments, I also declare an interest as the founder of a successful small business and as having worked in other successful small businesses. I have to say to my noble friend that I cannot imagine any circumstances whatever in which this would be of any use to any business that I have ever come across in my entire life. One of the problems with government is that not many people who run businesses are in it. I can genuinely say that in 16 years as a Minister, I was one of the few people who had run a big business. Since ceasing to be a Minister, I have run a number of small businesses which are happily getting larger. That is the right way round.

I hope that the Government will take this opportunity to explain in detail why these changes, which are now open to businesses, will be of help. I have not found any businesses that thought that they would be of help. Having explained that, perhaps my noble friend would be kind enough to explain why, if the changes are good in these circumstances, they are not done for everybody. If there really is a huge advantage that would make lots more new jobs, perhaps the proposal is rather limited. I do not think the Government think that, otherwise they would not have limited it in this way.

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[Lord Strasburger]

I thank the noble Viscount for giving way. That was not my question. My question was: which of the removed rights is going to increase the motivation of the employees and therefore improve the performance of the business?

[Viscount Younger of Leckie]

The overall package of the employee shareholder, with the extra risk as well as the extra reward, is designed to ally the employee with the employer more readily. The motivation will be there because the employee will feel more aligned to the objectives of the company and will help more towards building and growing the company. That is one of the clear objectives behind this scheme.

The noble Lord, Lord Pannick, raised the issue of the legal consequences of selling rights. A full equality impact assessment has been done and no significant discrimination issues were identified. On the European law issues, I can reassure him that no European guaranteed rights have been affected.

My noble friend Lady Brinton asked whether we can ensure that an employee shareholder is treated fairly and not sacked just because their employer does not like them or has argued with them. An employee shareholder would still retain the majority of protections such as, as I mentioned earlier, automatically unfair dismissal rights and rights underpinned by EU law and discrimination legislation. If an employee shareholder was dismissed in any other circumstances, they would not be able to claim unfair dismissal at an employment tribunal, which we understand. Employees do not get the general right to protection against unfair dismissal or to statutory redundancy pay until they have been with their employer for two years, so there are already employees who currently do not have these rights.

In conclusion, Clause 27 creates a new employment status that gives companies and people more choice. This new status is a creative scheme for companies and people who wish to use it. It gives them a new opportunity to better share the risks and rewards of the business. I hope noble Lords realise that this new, innovative status is a force for good in the labour market, and that they will withdraw their amendments so that companies and people can benefit from this additional choice.

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[Viscount Younger of Leckie]

I thank my noble friend for that question. It is extraordinarily difficult to ascertain a precise figure. It can be only a guesstimate, and I hope that the House will respect that. However, from the figures that we have ascertained, we think that around 6,000 companies will look at this seriously and take up this issue. However, that is, as I say, a guesstimate.

[Lord Strasburger]

I am sorry to keep jumping up and down, but I still have not heard from the Minister how the withdrawal of all or any of the rights will improve the performance of any business.