Growth and Infrastructure Bill

Viscount Younger of Leckie Excerpts

Wednesday 6th February 2013 Lords Chamber

[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.

[Lord Flight]

Just before my noble friend passes over this matter, I would like to raise one issue that is not clear to me. When the grant of shares is given, is the value of them treated as taxable income? If so, I certainly think that it should not be part of the deal as something that is tax attractive.

[Viscount Younger of Leckie]

I thank my noble friend for that question. The shares are treated as taxable income, although they are shares, so there would be tax at whatever level payable on the shares received.

I should now like to answer some questions that have arisen. The noble Lord, Lord Pannick, stated that there was no demand for this new status. I can understand his concern from other comments made this afternoon. This new employment status will not be appropriate for all companies or be taken up across the board. It simply adds to the options and flexibility available to companies and individuals in determining their employment relationships.

My noble friend Lord Flight has eloquently mentioned this particular issue in his speech. The new status will probably appeal mainly to fast-growing and small start-up companies and individuals as this is the level where employment rights are seen to impact the most.

I would like to address directly the points raised by my noble friend Lady Brinton to say clearly that this particular employment shareholder status will not suit the examples that she cited in or near the Cambridge area. My noble friend Lord Strasburger also cited some example and I suspect it would not suit—

[Baroness Brinton]

Does my noble friend accept that this is exactly the group of companies that Ministers in another place were citing were perfect for exactly this sort of scheme?

[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—

[Lord Adonis]

Tax payable at the point of receipt?

[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.

[Baroness Brinton]

My Lords, I apologise for intervening again but this point is absolutely critical to the Government’s intended success of the clause, or otherwise—that is, a carrot needs to be available to the employee at the time of the share issue, as well as later when there might be some fruition in terms of the investment. This seems to remove the only carrot at the time of the initial employment.

[Viscount Younger of Leckie]

As promised, I will revert to the noble Lord, Lord Adonis, as quickly as possible to confirm what I said.

[Lord James of Blackheath]

Will the noble Viscount please also assure the Committee that there will be an absolute bar on companies lending individuals the money to pay that tax? They will be in enough trouble already.

[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 Stoddart of Swindon]

I have to say that the noble Viscount has not made the position clear to me. It may well be that everybody else is clear about it but, as I understand it, he is saying that the £2,000 will be taxable, and he appears to be saying that it will be taxable as income. If that is so, the value of the shares in real terms could very well be reduced by 40%. Is that right?

[Viscount Younger of Leckie]

First, it depends on whether the employee shareholders are 40% taxpayers, but I can confirm that tax is payable on the shares that are given.

My noble friend Lady Brinton expressed concern surrounding the share dilution, particularly when small businesses have additional investment. Additional investment shows that a company has potential and this should benefit the shareholders in the long run. We envisage that it will. Minority shareholders already have some protection under company law, and employee shareholders would be able to make appropriate representations under these rules.

I now turn to a question raised by the noble Baroness, Lady Turner, concerning TUPE. She asked whether TUPE will be affected by employee shareholders. Exactly how TUPE would apply would depend on the precise details of the transfer, but there is nothing in the employee shareholder clause as it stands that would require an interpretation incompatible with TUPE. It is important to realise that any employee transferred under TUPE cannot be forced by the transferee into becoming an employee shareholder. The employee will still have a right not to be unfairly dismissed or suffer a detriment as a result of refusing an employee shareholder contract. There is nothing to stop business arrangements being made in such a way as to provide that a person who is an employee shareholder in one company becomes an employee shareholder in another company. It is also possible to agree that the employee shareholder would no longer have employee shareholder status and become a full employee. I also want to clarify that if an employee has bought shares privately in a company, and he has transferred to that company under TUPE, he is not deemed then to have become an employee shareholder of the company by virtue of holding shares in that company. That is because the shares were not given to him as part of the employee agreement to become an employee shareholder.

The noble Baroness, Lady Turner, also raised the issue of Beecroft. I think she said that this was Beecroft by the back door. I reiterate that it is certainly not. The new employee shareholder status is different from the no-fault dismissal proposal because individuals become shareholders of the company at the start of the employee relationship. That is an important benefit conferred by the employee shareholder status. Unlike no-fault dismissal, the employee shareholder status will be freely agreed between employers and individuals in contractual negotiations. Employers will also be free to offer improved contractual terms, such as contractual redundancy payments, as raised earlier, in an employee shareholder contract. After reviewing the evidence, the Government found no compelling reasons to implement the no-fault dismissal proposal.

My noble friend Lord James of Blackheath was concerned that shareholders might be locked in and subsequently would have to pay the debts of the company. The shares must be fully paid up by the company. No financial liabilities are attached to the shares. No personal guarantee can be demanded from an employee shareholder as a condition of the particular status.

[Lord James of Blackheath]

Can the noble Viscount please explain what would happen in the event of a rescue rights issue?

[Viscount Younger of Leckie]

I will certainly have to come back to my noble friend with a full answer to that question.

I shall conclude by agreeing in part with the noble Lord, Lord Pannick, on a particular point. There is indeed a large number of sources of quality legal and financial advice available. The Government do not need to stipulate where people should seek advice, nor would it be appropriate to oblige people to seek such advice when they may not need or want it. The best approach is to provide guidance, which we will do, to ensure that people enter into contracts with their eyes open. That is the approach that we are taking. With those reassurances I hope that the noble Lord will withdraw his amendment.

--- Later in debate ---

[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.

--- Later in debate ---

[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.

--- Later in debate ---

[Viscount Younger of Leckie]

My Lords, Amendments 82 and 90 seek to add protections for jobseekers, should they refuse to apply for a job or accept a job offer that is on an employee shareholder contract. I understand the concerns that my noble friend Lady Brinton and the noble Lords, Lord Adonis and Lord Pannick, have expressed here and at Second Reading, that jobseekers could be coerced into accepting the new employment status and that jobseekers could lose their benefits.

Jobs that will be offered on an employee shareholder basis will not be better or worse than any other job offered on an employee or worker basis. These jobs are as good as any other and should not be treated differently. It follows that the Government do not believe that a blanket ban on mandation is the right way forward. The different terms and conditions on offer for different jobs do not in themselves make it acceptable for a jobseeker to turn a job down. They are still good jobs.

There are circumstances where a job offered under the employee shareholder scheme would not be suitable for an individual because of their particular circumstances or perhaps because of the particular terms and conditions on offer. Please note that the following is a non-exhaustive list, as all reasons cannot be captured and are dependent on the individual case, but I will list a few circumstances where a job might not be suitable for an individual: if a claimant is not capable of doing the job through a lack of suitable qualifications or experience; if a claimant is not physically capable of doing the job due to a physical or mental impairment; if a claimant has an agreed pattern of caring that is not compatible with the job; if a claimant is unable to get to the place of work by their normal mode of transport in time to start work; or if the expenses incurred by working would be an unreasonably excessive proportion of a claimant’s pay. I believe that the noble Lord, Lord Adonis, brought up the issue of carers. If a claimant is a carer or is doing voluntary work they will have good reason for refusal or failure if the job requires them to start within less than one week. If a claimant has caring responsibilities for a child and is permitted to take up employment and been given 28 days’ notice, they will have good reason for refusal or failure if the job requires them to start within 28 days. I could go on.

The Government believe that there are already strong safeguards in place that ensure that a benefit claimant will not be forced into an unsuitable role. The sanction will only be applied if a claimant refuses to apply for or accept an offer of employment, including for an employee shareholder’s position, after that claimant has been mandated to apply for a job by a jobcentre adviser. The decision whether to mandate claimants will be considered on a case-by-case basis by jobcentre advisers. Advisers will seek to ensure that the job is suitable for the claimant; for example, that it fits within the hours a claimant is available, taking into account any caring responsibilities, as mentioned earlier, in particular for young children.

There is now guidance for advisers that is publicly available—and I will revert to this issue in a moment. We will supplement that guidance to cover any particular issues that may arise with employee shareholder jobs. I am able to update the Committee on the guidance. First, the guidance document is 3,000 pages long, so it is not a light piece of work. The noble Lord, Lord Adonis, is aware that I have already written to him on the issue of the guidance and he has cited parts of my letter. The guidance is for decision-makers and we have made it clear that the Government are reviewing the existing guidance to ascertain where it needs revisions. This must be done thoroughly and cannot be rushed, and I hope that the noble Lord will understand, despite the fact that it is not ready today, that this will take time, given the size of the document and the important decisions that need to be taken.

[Baroness Brinton]

Does the Minister accept that even if the Government say that it is likely that very few companies will be offering this type of employee share ownership, having a couple of points of guidance buried in 3,000 pages, or even 300, would mean that the average member of staff at a Jobcentre Plus would probably be unlikely to find the relevant information straight away? Does this not argue for the need to put this very special interest in the Bill?

[Viscount Younger of Leckie]

I would like to pick up only one of the points made by my noble friend. It is important, and I am sure that the officials are working hard on this, to ensure that the guidance that is offered is simple, and that there is a way that those involved who need to go to the guidance can do so quickly and effectively, despite the fact that it is 3,000 pages long.

[Lord Pannick]

Does the Minister agree that the simplest way for the guidance to address the matter would be for it to state in one sentence that it was reasonable for the prospective employee to refuse to accept a job because he or she did not wish to give up statutory employment protection rights? Is that what the guidance is going to say or is it not?

[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.

[Lord Pannick]

I am grateful to the Minister for his patience in giving way. Will he deal with this point? If the guidance does not make it clear that the prospective employee is entitled to refuse a job offer because that offer involves sacrificing employment protection rights, the prospective employee does not have a choice. The defence that the Minister has put forward to Clause 27 is therefore simply inapplicable.

[Viscount Younger of Leckie]

On that particular point, it is important again to emphasise that each case involving an employee shareholder or a would-be employee shareholder will be looked at on a case-by-case basis. I hope that I have set out the process by which that will be undertaken by the jobcentre in negotiation and discussion with the potential employee shareholder. That is where we are at the moment. However, the guidance—which, I repeat, is coming—will go much further towards setting out the details and indeed the guidance for that process to work.

The Government do not believe that the right way of providing the protection sought by the noble Baroness, Lady Brinton, and the noble Lords, Lord Adonis and Lord Pannick, is through amending this clause. As I mentioned earlier, the jobseeker’s allowance system works on a case-by-case basis, with all decisions made on the merit of the case. The system is sufficiently flexible and robust, and jobseeker allowance decision-makers, with the support and guidance which we have committed to providing, will be able to understand the new employment status. With these reassurances, I hope that the noble Baroness, Lady Brinton, and the noble Lords, Lord Adonis and Lord Pannick, will not press their amendments.

[Baroness Warnock]

I wish to raise one question. How can a case-by-case examination of a claimant’s refusal determine whether or not it is reasonable for an employee to be asked to give up his employment rights? This is nothing to do with a case-by-case basis, but an absolutely universal principle that would apply to everybody. If a would-be employee decides that he does not want to give up his rights, this is nothing to do with his particular case, but a general principle. Can the noble Viscount respond?

[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.

[Baroness Brinton]

My Lords, I apologise for intervening on an intervention, but I just wanted clarification on this. The noble Viscount just said that the document was 3,000 words long, but I understood that we had been told earlier that it was 3,000 pages. There is some difference.

[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.

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[Baroness Brinton]

Clause 27 requires employees to give up a range of rights. Many of these rights are ones that the Beecroft report recommended should be removed from employees more generally. The Secretary of State, Vince Cable, hit out at Beecroft’s unfair proposals. He said:

“One of Mr Beecroft’s recommendations was a suggestion to bring in no-fault dismissal. In my daily conversations with businesses, this has very rarely been raised with me as a barrier to growth. Businesses are much more concerned about access to finance or weak demand than they are about this issue”.

Given that the clause is in the Growth and Infrastructure Bill and that the Secretary of State does not believe that giving up the right to claim unfair dismissal is a barrier to growth, why should we ask workers to give it up under this new status? In fact, Mr Cable went even further and stated that it would be counterproductive. He said:

“At a time when workers are proving to be flexible in difficult economic conditions it would almost certainly be counterproductive to increase fear of dismissal”.

I never thought that I would support Mr Beecroft, but he recommended a compensated no-fault dismissal. The Government are going one step further and do not even provide compensation for no-fault dismissal under the employee shareholder status. Given how controversial Mr Beecroft’s proposals were in the first place, and the Secretary of State’s protest, does this not give us further reason for the removal of subsections (2)(c) and (d)? Beecroft also recommended the removal of the right to request flexible working—another of his recommendations that the Government are trying, perhaps, to sneak in by the back door through this status for certain employees. However, I have to say that this directly contradicts the coalition agreement and the mid-term review, which states that the Government will extend,

“the right to flexible working to all employees”.

How can the Government fulfil that pledge when they will be removing the right from employee shareholders?

[Viscount Younger of Leckie]

My Lords, Clause 27 is about providing further choice to the range of employment statuses that employers can consider and choose. I want to take this opportunity to explain to the House the difference between “employee shareholder”, “employee” and “worker”. This will help us understand the context of the noble Lords’ amendments.

People and companies already have a choice in how they wish to work and how they structure their workforce. The choice is usually between hiring someone as a worker, an employee or on a self-employed basis. The difference between these employment statuses is the level of obligation and mutuality to provide and carry out work, and the rights associated with the statuses. I hope that the following explanation goes a little way to answering some questions that my noble friend Lord Deben raised.

Workers have limited rights such as the right to be paid the national minimum wage, protections against unlawful deductions from their pay, paid annual leave and rest breaks, and protection against discrimination, which includes on the ground that they work part time. Employees who meet the relevant conditions have the following additional rights: a general right not to be unfairly dismissed after two years working with the same employer; automatically unfair dismissal rights; statutory redundancy pay; statutory minimum notice period; statutory collective redundancy notice period; TUPE, which was mentioned earlier by the noble Baroness, Lady Turner; the statutory right to request flexible working; and, finally, if they work in a large business of more than 250 employees, they have the statutory right to request training.

The self-employed have limited employment rights linked to discrimination and health and safety. The new employee shareholders will have more rights than someone taken on as a worker, but not all those of an employee. They will not have: first, the right to unfair dismissal except for automatically unfair reasons or on discriminatory grounds; secondly, the statutory right to request flexible working or certain statutory rights to request training; and, thirdly, statutory redundancy pay.

I turn to employee shareholders wishing to return to work earlier than originally planned from maternity, additional paternity or adoption leave. When returning early from these types of leave, employee shareholders will need to give 16 weeks’ notice, compared to six weeks for employees returning from additional paternity leave or eight weeks for employees returning from maternity leave or adoption leave. The noble Lord, Lord Pannick, proposes with Amendments 83 to 89 to take out the employment law references in Clause 27, where it states what rights the employee shareholder will have that are different from those of an employee. This includes removing the distinguishing features of the clause and therefore it will remove choice from the options that employers can consider when taking on staff. The amendments would create an employment status that is essentially the same as that of “employee”, but where the employee shareholder would be given fully paid-up shares. In effect, we would be regulating for an additional employment status that essentially already exists in that of “employee” in order for the individual to be given shares. As the noble Lord, Lord Pannick, knows—he is supported in this by the noble Lord, Lord Adonis—employee ownership, either through direct employee share holdings or shares held in trust on behalf of and for the benefit of employees, is already a well known concept that is in use in the labour market. Companies are already free to offer shares to their employees.

My honourable friend Jo Swinson, the Minister for Employment Relations and Consumer Affairs, is chair of the implementation group taking forward the recommendations of the Nuttall review which is promoting the employee ownership agenda. The Government do not want to create an additional burden by regulating for something that can already take place in the labour market and that an employer can already offer. Such action would not help growth.

I should like to answer some questions that were raised by noble Lords. First, my noble friend Lord Deben stated that, as he saw it, there was no support from business. I have listened very carefully today to the comments made by other noble Lords. It might be helpful for noble Lords to know that Neil Clifford, the chief executive of Kurt Geiger, the shoe retailer, has stated that this measure would,

“provide a massive boost to innovation and enterprise”.

Becky McKinlay, who runs Ambition, a marketing communications company, is cited as saying that,

“she would have welcomed such a scheme when she started her marketing communications company, Ambition, six years ago because she could not afford to outbid her peers on wages”.

I could go on.

The noble Lord, Lord Pannick, raised the issue of why we think there is a statutory right to request flexible working and why it is unnecessary for employee shareholders. The statutory right to request flexible working creates a structure for conversations between employees and employers about changes to ways of working that will be mutually beneficial. Employee shareholders will have a greater interest in the performance of their employer as it is linked to the value of their shares. We consider that employee shareholders are more likely to request flexible working if they think it will help them and the company and do not need the statutory right to request. Employee shareholders can still make non-statutory requests for flexible working.

My noble friend Lord Strasburger raised the issue of which rights will increase motivation. As we see it, this new employment status will increase motivation as the employee shareholder will own shares from the outset and capital gains on these shares of up to £50,000 will not attract capital gains tax.

[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.

[Baroness Brinton]

I was slightly confused by some of the Minister’s earlier response on the employee status for employee shareholders. I would welcome clarification on whether they are actually regarded as employees, generally, or whether the only respect in which they are not employees is where those rights have been specifically removed by the Bill.

[Viscount Younger of Leckie]

I can confirm that it is an entirely new status, so the individual who agrees with their employer to a contract to be an employee shareholder is not the same as an employee.

[Lord Deben]

Could my noble friend help the House, before we come to Report, by giving some estimate of how many businesses the Government think will take up this proposition? Given that many of us feel there will be few, it would be helpful to know why we need this big piece of legislation if we do not think many people will take it up. How many employee shareholders of this kind do the Government expect to have in two years’ time?

[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.

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[Viscount Younger of Leckie]

I believe that I have answered my noble friend’s questions, and it is possible that I would not satisfy him, even if I gave him the same answer.

[Baroness Turner of Camden]

The Minister has just said that it is not clear whether an employee shareholder is an employee. I remind him of the advice that we have received from the Equality and Human Rights Commission, which looked at this situation in some detail. It came to the view that an individual who is an employee shareholder was nevertheless a worker, so workers’ rights would normally be applied to that individual. The Government have tried to get over that by saying that because this is all voluntary, the employee voluntarily gives up their rights. During the course of our recent discussion, it has become clear that that is certainly not voluntary. In a situation in which people face either unemployment or the possibility of loss of employment support from the state, it is not really very voluntary, is it?

[Viscount Younger of Leckie]

It may help the noble Baroness if I state again that the employee shareholder agreement between the employer and employee is a specific new contract for a new employment status. However, if, for example, the employer has not fulfilled the basic criteria for ensuring that the employee is properly included and for meeting the criteria for that employee to be an employee shareholder, there is a default position whereby the employee shareholder would revert to being an employee or worker, whatever is applicable. There is a safeguard in place for them.

[Lord Pannick]

The noble Viscount said a few moments ago that it is the Government’s estimate that up to 6,000 companies might wish to take advantage of Clause 27. Would he kindly undertake to publish before Report the evidence upon which that assessment has been made?

[Viscount Younger of Leckie]

I would be delighted to furnish the noble Lord with whatever information I can find, but I remind him—he may well know the statistic—that the total estimated number of businesses in the UK is 4,794,000. Therefore, breaking down the figure to 6,000 perhaps re-emphasises that this employee shareholder status is not for every company. It is aimed at a particular type of company, and it is important to round off this debate by emphasising that this is not as big a deal as some noble Lords are making it out to be.

[Baroness Brinton]

I apologise for intervening again. Can the noble Viscount explain what niche group of companies this provision would interest, given that in our discussion on the first group of amendments, when I outlined the problems facing high-tech, leading-edge companies going through rapid growth—which Ministers have told us was exactly the audience the clause was aimed at—the Minister said that it was probably not appropriate for them? Perhaps he could cite the type of company it is appropriate for.

[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?

--- Later in debate ---

[Lord Deben]

I do not disagree with that. However, I think that this proposal is going to be so unattractive to so many companies that that particular problem will not arise.

[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.

[Lord Deben]

Is not the fact that if this works, arguing about how much it costs the Treasury is not sensible? If it works, it will create jobs and make wealth, and the cost to the Treasury will be nil. If it does not work, nobody will take it up and the cost to the Treasury will be nil. It seems to me that this is not a necessary discussion. The only thing that we do not want is for it to be misused. The noble Viscount has explained how the Government intend to do that. No doubt they will do their usual thing of bringing in some more measures to stop it if that were to happen. The real fact is that this is one part of the argument that really does not hold water. We have to accept that if it does not work we have wasted a bit of time, which is not terrible, but if it does work we will have been proved wrong and I will be happy about it. The Treasury will not lose out because there will be jobs, people employed and money being made, which is really worth while.

[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.

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[Baroness Donaghy]

My Lords, I have not spoken to the other amendments to the Bill although I did refer to this issue on Second Reading. Rather than repeat what has already been said extremely eloquently by previous speakers, I just want to remind the House what the Employee Ownership Association has said about this clause. They are the people who are most close to this subject and have the most interest in making sure that this area flourishes, which I think we would all want to happen. The association said:

“Our Members have three main concerns on this matter.

Firstly, proposed legislation has appeared in a Bill before the Government consultation on the possibility of deploying this model of employee ownership has finished. Indeed it has only just started.

Secondly, our Members are very aware that there is no need to reduce the rights of workers in order to grow employee ownership and no data to suggest that doing so would significantly boost the number of employee owners. Indeed all of the evidence is that employee ownership in the UK is growing and the businesses concerned thriving, because they enhance not dilute the working conditions and entitlements of employee owners.

Thirdly, the appearance of this measure in the Growth and Infrastructure Bill appears to our Members to be completely disconnected”—

as my noble friend Lord Adonis has said—

“to the recommendations in the Nuttall Review. That Review contained a series of recommendations on how to grow employee ownership and none of those recommendations suggested the dilution of worker rights”.

I think that that says it all.

[Viscount Younger of Leckie]

My Lords, we have heard many opinions about this clause. The Government are taking this action to offer flexibility and choice for both companies and people, and this is the right thing to do. The Government know from their engagement with employer organisations and business that there is concern about facing weak or vexatious claims in employment tribunals. This new employment status will address some of these concerns especially in new and fast-growing companies. Importantly, this new status gives people the opportunity to own part of their company and benefit from any growth with favourable tax treatment, which was mentioned earlier in our debate today. Employee shareholders will receive at least £2,000 of shares in the employing company or its parent company. Gains on the first £50,000-worth of these shares will not be subject to capital gains tax. Employee shareholders will have different employment rights compared to employees and workers.

Before a company offers a person an employee shareholder contract, they will need to think carefully about the implications of offering equity in their company. There are many possible implications, but the current owners will first need to be comfortable with diluting their shareholding, an issue which was raised by my noble friend Lady Brinton earlier. If the shares being offered are part of a fresh issue of shares, this will result in each existing shareholder holding a smaller share in the company. This may not be something that the existing shareholders would be willing to do, particularly if they worked hard to build the company up and invested time, money and know-how in that company.

It is important to recognise that an owner of a company, when giving shares to an employee shareholder, is giving away not only the value of the shares issued but possibly a share in the future profits and some of the control. Offering shares to employee shareholders could in some circumstances lead to a shift in the balance of power in the company. Companies will also need to consider if they can afford to issue shares to potential employee shareholders. If they can, it could impact on the dividends of existing shareholders or entail reserves being reduced.

The rewards for both parties could be significant. Let us remember that companies will have completed an extensive recruitment and selection process, ensuring that any new personnel have the right mix of skills and knowledge. Therefore they will not offer this new status of employee shareholder lightly. A growing company may consider that by offering this new status it is demonstrating a long-term commitment to that person. In turn, the employee shareholder will be able to reap the rewards of a successful company.

I reiterate that this status will not be suitable for all, just those where it makes commercial sense for both parties. We envisage such companies to be those that want to encourage a culture of engagement and shared ownership and—this is the most crucial point—where they expect significant growth and want to use this incentive to attract and retain high-calibre individuals.

Similarly, a person being offered an employee shareholder contract will need to consider the implications of being an employee shareholder. This is a most important point to emphasise. They will need to consider carefully the terms and conditions of the employment on offer and decide whether it is suitable for them in both the long and short term, as we all know that the value of shares can go both up and down. Some potential employee shareholders may not disclose at interview their long-term career plans. Perhaps they expect to stay in the role for only a short time. It may be that they are moving abroad in the future or expect to undertake further studies—that is their own business—and they may not want to invest their time in a company to realise long-term rewards. Equally, someone looking only for short-term work may consider that this is exactly the right kind of contract as they could benefit from any short-term growth in the share value.

To ensure that this new employment status is suitable for both the company and employee shareholder, both will need to be confident that the status is right for them. This means that the company may have to sell its growth prospects to the potential employee shareholder as both a viable investment as well as a potential employer.

It is important that we take time to understand how this new status will work in practice and I am sure that doing so will allay some concerns that have already been raised. Clause 27 establishes three clear qualifying criteria, all of which must be fulfilled before a person can be considered an employee shareholder. The first criterion is that the person must agree to become an employee shareholder—it is their choice. Secondly, the person must receive at least £2,000-worth of shares in the employing or parent company that are fully paid up at the commencement of the employment. This means that these shares will have no debts attached to them. Finally, the individual must not make any payment, in money or in other form, for the shares given. If any of these criteria are not fulfilled and the person is still taken on by the company, they are likely to be legally considered an employee. This, again, addresses the question raised by the noble Baroness, Lady Turner, earlier. This means that they will have all the employment rights of an employee.

I recognise that there have been some concerns that existing employees will be coerced into accepting a change to their employment contract that would make them employee shareholders rather than employees. The Government do not want people to be coerced into the new employment status. This is why Clause 27 establishes clear protections for existing employees. The clause creates two new employment rights—the right not to be unfairly dismissed and the right not to be subjected to a detriment if an employee turns down an employee shareholder contract. This means that if an employee chooses not to sign an employee shareholder contract and is then overlooked for promotion or disadvantaged in any other way, that person could present a claim to an employment tribunal. Secondly, if an employee does not sign an employee shareholder contract and is dismissed for refusing to do so, it would be automatically unfair.

It is clear that all parties will need to consider carefully whether this status is right for the company. Giving away equity is not to be done lightly and many will not think that this is the right course of action for them. Potential employee shareholders will need to consider whether they want to have shares in the company. To help both parties, the Government will be offering guidance on what both individuals and companies will need to consider before entering into a contract of this type. The House will not need any reminder that we discussed guidance earlier today.

Clause 27 stipulates that the minimum value of shares is £2,000 in the employing or parent company. The clause does not stipulate the type of shares that a company can issue, nor does it stipulate the type of shares issued. We believe that this is best decided by the companies in order to suit their commercial situation. The shares may have varying rights, but it is up to them to decide what is right for both parties. Some companies may want to offer significantly more than the £2,000 minimum value of shares. In some companies, new employee shareholders will want to be fully involved as the company grows and take an active role in the progress of the company.

The Government have considered what happens to the shares when an employee shareholder leaves the company they work for. We expect that employers and employee shareholders will agree sensible terms for the disposal and buyback of shares. These terms should normally be part of the contract that the employee shareholder signs. However, many different scenarios might result from an employee shareholder holding shares. The shares’ value may change; the shares may have been traded; in other cases, the employee shareholder may want to keep hold of the shares on leaving the employment and the company may agree to this. The Government do not want to make rules that tie the employers’ hands; they want to give them flexibility in what they and the employee shareholder decide is the best way to dispose of shares at the end of the employment relationship.

However, the Government recognise people’s concerns that employee shareholders could be at a financial disadvantage if companies decide not to offer a fair way of realising the value of their shares. The Government amended the clause in the other place to include a provision to provide power to regulate buyback where the company has undertaken to buy back shares.

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[Lord Flight]

My Lords, the amendment was intended to be part of the debate on Clause 27. Given that the employee shareholder status is new and that there are still differences of view about its structure, it is obvious that there will be a need for guidance and, in particular, a need for a model employee shareholder contract for early-stage companies. I beg to move.

[Viscount Younger of Leckie]

My Lords, in Amendment 95 my noble friend Lord Flight proposes a new clause relating to the publication of guidance on the new employment status. He makes a good point on the need for guidance. The Government agree that guidance should be available to help companies and employee shareholders fully understand all the implications of offering or accepting these contracts. It has always been our intention to publish guidance on the new status. The issue of guidance is an important one. Good, clear and accessible guidance will be vital to both companies and employee shareholders. We want to ensure that people enter into these contracts with their eyes open.

I will outline what the Government propose to publish by way of guidance and explain what that guidance will cover. The .gov.uk website is the new centralised place for publication of government services and information. The website already has a number of pages that provide an overview of the different types of employment status—such as worker and employee—and list the rights that are attached to them. We will provide an equivalent page on the new employee shareholder status.

Within these overview pages there are links to more detailed information on each individual employment right, and these pages will also be updated to take account of the new employment status. People who look for information on employee shareholder contracts will be very clear which rights they are entitled to and which rights do not apply to the status. This will help them to decide if an employee shareholder position is suitable for them.

Changes to these pages are being revised at the moment and we will be in a position to share draft copies with you before this clause is debated on Report. The Government will also update guidance on the tax treatment of shares and capital gains tax to make it clear to employee shareholders what their obligations are and to set out how the associated capital gains tax exemption and other relevant tax treatments will work.

Any contract of employment is an agreement between an employer and employee and is the basis of the employment relationship. We believe that contracts work best when people and companies are free to decide the terms that best suit their business needs, and to attract the right people to their companies. We will provide guidance for companies to enable them to understand the new status. Companies would do well to take note of the comments of my noble friend Lord Flight on the importance of drawing up good employment contracts that apply equally to the statuses of employees and workers.

While I understand my noble friend’s intention behind this amendment, we believe it is not necessary to legislate on this matter. To state this in the Bill would just introduce more legislation, which in turn would create more red tape for businesses. As the Government have already committed to publish guidance, I hope that with these assurances my noble friend will be willing to withdraw his amendment.

[Baroness Brinton]

I apologise for intervening. I am grateful for many of the points the Minister raised about guidance and other things that will come forward to us, I hope, before rather than on Report. On a technical point, I wonder whether those who raised issues in this debate could be copied into any correspondence rather than it just going to the single noble Lord who raised the point.

[Viscount Younger of Leckie]

My noble friend makes a very fair point. Of course I will copy in all noble Lords who should or would like to be copied in.

[Lord Flight]

I thank the Minister for his response. I am pleased to find that the matter is in hand. I therefore beg leave to withdraw the amendment.