§ Order for Second Reading read.
§ 11.05 a.m.
§ Mr. Julian Ridsdale (Harwich)
I beg to move, That the Bill be now read a Second time.
In the debate on the Queen's Speech I said that I thought there was too much legislation and that I hoped that the Government would curb their appetite for further legislative measures. So, when I found that I had drawn No. 2 in the Ballot, naturally I was determined to create a modest, but what I could call a necessary and urgent, Bill I am sure that the Employee Investment Bill meets those requirements, especially in the present climate after publication of the Bullock Report.
In the House last week the Prime Minister said that one of his requirements for legislation on the Bullock Report was consensus. There may be differences of opinion about Bullock, but the majority will agree that the more the ownership of working capital in industry is spread directly amongst employees and individuals, the more likely is there to be a feeling of participation in industry and, therefore, of co-operation between capital and labour.
It was that type of thought, which crossed party barriers, that enabled me to include among the sponsors of the Bill the right hon. Member for Devon, 926 North (Mr. Thorpe), who, I am glad to see, is with us today and whose party has taken such an initiative in share ownership schemes. I was also pleased to have among the sponsors the hon. Member for Birmingham, Ladywood (Mr. Walden)—who, because of urgent business cannot be here this morning—and the hon. Member for Ilkeston (Mr. Fletcher), who cannot be with us today because of sickness. The hon. Member for Ilkeston has a detailed knowledge of German industry, and from personal experience he knows the wide extent of employee participation there. From reliable information it appears that this is where the consensus ends. It am surprised that the Government are to oppose the measure.
The Bill aims to build on schemes already being carried out in industry. For instance, the Bill follows closely a profit-sharing link scheme that has just been started by Habitat. Details of the scheme were discussed in the Financial Times, in an excellent article by George Copeman, who has taken an initiative and given an excellent lead. The Bill aims to improve this scheme by giving those who hold shares, as employees of a company for five years, a tax advantage and therefore an incentive to save.
The Bill is not concerned with the redistribution of old wealth; it seeks to ensure that when new wealth is created its ownership is widely shared. I want to pull up, not to pull down. I want to see rich employees as well as rich employers. I want to see rich Britons as well as rich foreigners. I want to see that everyone has a share in the working capital of the country.
Do the Government really want to oppose this measure, especially as I am informed by the experts who advise me that the cost of the Bill is negligible and that it deals with new wealth and not existing assets? The final outcome will, I am sure, almost certainly be a net gain in revenue flows arising from a healthier economy.
I am sure that the Bill is an important step forward along the road that we all know is necessary to get a better harmony in relations between capital and labour, between employer and employee. Surely an investment such as this is worth while. If the Treasury says that it is too expensive it should think again, because any investment in this field is 927 extremely important for the prosperity of our country.
The bad relations that have continued for far too long in industry have, I am sure, a much deeper cause, which is gradually now becoming apparent. I refer to the over-centralised control of industry, not just in the nationalised sector but in the private sector. Over the last decade and a half the control of both the State and the private sector in industry has become more and more centralised. Other countries have tried to avert that dangerous trend far more quickly than we have. In France, because of employee share ownership plans, they have been able to give workers in Renault a 12½ per cent. share in the company, although it is still State-owned.
But it is not only the public sector that has become centralised; in the private sector, institutions and insurance companies are investing other people's money not only in industry but in land. As a consequence, decision-making is being concentrated into fewer and fewer hands. It is estimated that at least 95 per cent. of nationalised capital accumulation is institutionalised. Decision-making is being taken more and more out of the hands of individuals who should make decisions about their own money and going to those who use other people's money.
Such people cover a large field. They are directors of companies deciding to invest profits, they are Government Ministers and they are local authority officials. It is not surprising, therefore, to find at election time that 96 per cent. of those who vote have no direct ownership in shares in British industry. It is true that over 50 per cent. of people own their own houses, and that 50 per cent. of farms are owner-occupied, but only 3.8 per cent. of British adults directly own shares in industry in the United Kingdom, and that figure represents a decline from 4.7 per cent., which was the figure for individuals who owned shares in industry in 1966.
It is hardly surprising, therefore, when one takes in what these figures mean, that relations in industry are what they are. No wonder there is a feeling of non-participation in industry. With figures of that kind, there is a real danger of the employee and the individual being con- 928 demned to be a pawn in a vast State and over-centralised machine. I do not want nationalisation or over-centralisation; I want participation. That is why I am introducing the Bill—to attempt to balance ownership far more in favour of the individual.
As I have said, other countries have acted far more quickly than we have against this dangerous trend. In West Germany, twice the percentage of individuals have a direct shareholding in industry compared with the position in the United Kingdom. The figure in France is more than twice what it is here, and the United States figure is five times as much as ours.
Other countries have been ahead of us in trying to prevent over-centralisation of control, which could so easily destroy our industrial democracy—which could so quickly, if we are not careful, become an industrial bureaucracy. With that kind of threat, surely this is not the time for the Government to oppose the Bill.
The United States have not been nearly so complacent as we have been in this matter. Ideas for the promotion of personal capital building through employee stock ownership plans and employee stock ownership trusts are now common there. Senator Russell Long, the Chairman of the Senate Finance Committee, has in the past two years initiated legislation to facilitate work in this field. A great deal of thought is being put into seeing how employees can benefit by such schemes as I am introducing. Many have been looking much more closely at the work of Louis Kelso, who for many years has been a leader of new plans for employee investment, arguing that as so much of this new wealth is produced by machines it is only right that it should be diffused as widely as possible.
The West Germans have a scheme for capital building as well as a number of employee share schemes in individual firms. About 18 million workers already benefit from the scheme. Many other European countries have profit-sharing schemes, but, as I have said, we want all to have a share in the working capital of our country.
§ Mr. Ivor Clemitson (Luton, East)
I think I heard the hon. Gentleman say that much of the wealth is produced by machines—by the capital equipment 929 within a plant, factory or enterprise. If I read his Bill correctly, the dissemination of shares among workers would be in proportion to their remuneration. Have I understood the hon. Gentleman correctly? If I have, does not that somewhat contradict what he said about wealth being produced by machines?
§ Mr. Ridsdale
I do not think so. I think that when I explain the details of the scheme the hon. Gentleman will see that what we are aiming at is not just for management to have shares but for 50 per cent. of those on the shop floor to have shares. The limit that any person can have under the scheme is £1,000 a year.
§ Mr. Clemitson
Am I right in assuming that there will be a dissemination of shares in proportion to the emoluments received by the individual?
§ Mr. Ridsdale
No, not necessarily. To ensure that the scheme is fair we are aiming to limit the participation to £1,000 a year per employee. That will cover all employees. That is why a limitation has been put into the Bill. It is there because the scheme should not be for management alone, which has been the case with many schemes to date. Our objective is to ensure that as many as possible can join in the ownership of new wealth.
Following the hon. Gentleman's intervention, I am glad to be able to say that we are aiming to see that as many as possible can join in the dissemination of new wealth. My intention, and that of my hon. Friends, is to make clear that this is not a Bill for management alone. It is our intention to see that the scheme is spread among those on the shop floor, those creating the wealth of our country.
We do, of course, have to face some problems. The purpose of giving a tax advantage at the end of five years is to counter the selling by employees of their shares immediately they receive them. That was the practice of ICI, and that was one of the dangers of that scheme when it operated on an annual basis. The purpose of my scheme is to make it more worth while for employees to gain the benefit of investing the capital in their machines, so that they become 930 capital owners of the future and have an incentive for doing so.
Some claim that profit-sharing schemes dilute existing equity holding. Technically, if one were to answer that question, one would say "Yes", but studies over long periods indicate that United States companies with such schemes usually show an improved equity performance, leaving existing equity holders better and not worse off. Productivity improves, and it is a means by which capital growth can be accelerated.
Would the scheme undermine management control? The answer is "No". Full vesting in individual employees after five years would prevent that and, indeed, is vital to the scheme. American experience suggests that, owing to death and retirement, the proportion of a company's shares held by all employees rarely exceeds 25 per cent., so control is not lost to the board.
I should like to make one further technical point. Some hon. Members may ask whether these schemes tie in the finances of the employee too closely with those of the employer. The typical scheme would not be tied up with pension provisions or other essential welfare arrangements. The employee is not being asked to put his retirement prospects at risk. Schemes of this kind offer employees the opportunity to build up extra capital savings. The whole objective of the Bill is to see that employees are able to get a share of the wealth produced by machines.
Hon. Members may also ask whether it is fair to the existing shareholders to give workers more, even in the form of deferred income. The evidence is that schemes of this kind gradually build up a better understanding of the business with better co-operation and profits, more investment and greater prosperity for all.
I should like to say a word abouu the scheme in detail. My proposals are based on improving the tax position of profit-sharing schemes. They build on the existing provisions that companies can set off profit sharing bonuses paid out as emoluments against corporation tax. We propose to substitute for the present charge to income tax a provision that if held for five years shares will be liable for capital gains tax.
931 Surely the Government cannot be opposed to this simple provision and incentive to save. As members of the EEC, why should employees not have the same advantages that France and Germany give to their employees in industry? In France and Germany, share schemes are free if held for five years. That is all that the Bill aims to do, in its simplicity. Why a different law for the Continent and no help for ourselves? If the Government continue to oppose the Bill I hope that the Minister will reply to that point. I cannot see why our employees in industry, who wish to join such a scheme, should be treated differently from those on the Continent.
As a safeguard against excess revenue cost or abuse I propose that companies should not be able to give more than 10 per cent. of their pre-tax profits for share bonus schemes and that no individual should be allowed on his behalf more than £1,000 a year. That covers the point that the hon. Member for Luton, East (Mr. Clemitson) made in his interruption. If the hon. Gentleman is not satisfied, no doubt he will say so on the Floor of the House, when I can interrupt him.
The scheme would be voluntary. Under it, the shares acquired in the company must be held by trustees for a minimum period of five years. At the end of five years, the shares held on behalf of an employee would be his absolutely. He is not tied to the fortunes of his company alone; he can reinvest the money and do exactly what he wishes with it. One hopes that he would be a participator in industry and not someone who just looks around, as so many people are now inclined to do.
It is not possible to calculate the precise Exchequer cost of the relief involved, since that would depend on the take-up of the scheme, but the final outcome must be a net gain to the Revenue arising from an increase in productivity, better labour relations and, indeed, a better economy altogether. That is done in France and Germany. Why can it not be done here?
The Bill is concerned with the creation and ownership of new capital. I believe that employee share ownership is one of several means by which there can be a massive shift of wealth to those at work, 932 not by destroying existing holdings but by building up new ownership in a more widely diffused form. I want all those in industry to have a share in the working capital of our country. For the individual worker it will give a real measure of independence.
A weakness of share schemes in the past is that they have been directed at management only rather than at all levels of workers. Our aim is to see that at least 50 per cent. of the employees in the company can join. Indeed, if it were possible to have more, one would welcome that. I believe that individual independence, which is vital to a free society, is based on three things—the ownership of one's home, the ownership of a pension plan, and having a direct investment in capital in order to create the pensions to make the money to own one's own house. Without that, there can be no free society and none of the freedom that we talk about so glibly when voicing the phrase "industrial democracy".
We must face the reality that 96 per cent. of those who vote at elections do not, as individuals, have any direct shareholding in industry. It is because I want to alter this balance that I am introducing the Bill. I do not want nationalisation or over-centralisation. I want real industrial democracy, not bureaucracy. This is the way to do it, and that is why I commend the Bill to the House.
§ 11.26 a.m.
§ Mr. Peter Hordern (Horsham and Crawley)
I am glad to be able to support my hon. Friend the Member for Harwich (Mr. Ridsdale), who introduced the Bill so eloquently. It is a most important measure, which deserves the support of the House. I know that my right hon. Friend the Member for Farnham (Mr. Macmillan) will be speaking later. With his special knowledge of wider share ownership I am sure that he will have a most useful contribution to make.
I would follow my hon. Friend by underlining some of the advantages to which he has already referred. In the first place, it is not a new Bill in the sense that it breaks new ground. It does not, because it has been closely modelled on similar patterns of legislation in France and West Germany. Of course, in the United States, this scheme is more 933 widespread still. I believe that nearly 200,000 firms in the United States have employee share schemes of this kind.
It seems strange that the Government, who profess to admire so much of the industrial structure in West Germany, are not prepared to look at the actual structure itself. That has been shown in the case of the Bullock Report, where they are not prepared to look at two-tier boards as well as employee share schemes. The schemes in France and West Germany are of very long standing. In West Germany such a scheme has been in existence since 1961 and in France since 1967. The Bill follows exactly the line of legislation in those two countries.
The objectives of the Bill are twofold; first, to create the widest possible diffusion of share ownership and secondly —I believe even more important—to create an identity of interest between all members of the firm or undertaking.
At present we are in the absurd position that very few manufacturing companies pay any form of tax at all. They do not pay corporation tax, because of the operation of the stock appreciation provisions and because of the generous nature of investment allowances. What we have at present is a tax that falls very heavily on shareholders and just as heavily on wage earners in those undertakings. The position is that companies cannot at present raise wages beyond the Pay Code. If wage claims are too high for the company, the inevitable result is unemployment.
If, on the other hand, higher wage claims are granted, a very high rate of tax comes in at a very low level of income. That is a very unsatisfactory situation all round, because there is no identity of interest between a company and its employees. That is a most important fundamental deficiency in our industrial structure at present, and one which the Bill will do much to put right.
It happens that our system is particularly well suited to wider share ownership, since we have the largest and most efficient capital market in Western Europe. It would be even more efficient if the market were able to meet the demands of industry instead of having to 934 deal with the demands of the Government the whole time. The public sector borrowing requirement is at such an inordinately high level that the Government are having to take all capital available in the market. They are also having to pay extortionate interest rates, which is creating even further problems. These very high interest rates are attracting huge sums of money from abroad, which are giving uncovenanted bonuses in the form of overseas aid to Swiss bankers and others abroad. The consequence of the Government's appetite for borrowing is that the free market system is entirely devoted to satisfying the Government's needs, and there is no surplus left over to satisfy the needs of industry.
The Government have set up the Wilson Committee to examine the whole business of the shortage of funds for industry, but from my experience there would be no shortage of funds for industry if only it could compete on level terms with the Government. Of course they are not able to do so. It should be a prime objective of our economic strategy to conduct our affairs so that the Government takes fewer funds from the market and are able to provide a regime of low interest rates, which would satisfy industry. I fear that the Wilson Committee will take a long time to tell us very little, but that is not very different from the speeches of the right hon. Member for Huyton (Sir H. Wilson).
The capital market is there, and it is ready. It is better fitted for genuine employee participation than perhaps any other system in Western Europe. The market cries out for just such a system as that proposed by my hon. Friend the Member for Harwich. He mentioned the fear that the power given to employees by taking shares might detract from the power of present shareholders, but I do not think that that fear is in any way justified. The fact is that private shareholders have not shown themselves interested in management for a very long time. The only time when they show themselves at all interested in management is when the company goes bust, when they become very interested indeed, but by that time it is too late. Private shareholders are interested not so much in what the company does as in the rate of return available.
935 It is said that the institutions, which now control more than 60 per cent. of investment in equities in the Stock Exchange, have a rather more realistic attitude towards management. The situation seems to have changed a good deal in recent years. The institutions now have a small interest in management, but at the end of the day they also have to perform a much more important duty than to be concerned with the better management of the companies in which they are investing. Their primary interest and duty is to secure as high a return as they can for the policyholders and pension fund beneficiaries.
Labour Members seldom appreciate that the benefits of pension funds and other institutions are concerned with the workers in those industries which they represent. Of course, in the last few years, the benefits to those workers have been considerably decreased by the decision of the present and previous Governments to have dividend restraint. This had harmed the interests of those workers who have subscribed their money and their future earnings in their pensions. This policy would have to be changed, especially if my hon. Friend's Bill were passed. It must be a very powerful attraction to employees to be able to take a share in the companies in which they work and to be able to share in higher rates of return.
I believe that the institutions have shown rather more interest in management recently than they have done previously, but their duty is to their policyholders, to get the best rate of interest that they can. The share price of a company expressed on the Stock Exchange results from the function of the market itself, and it also indicates the quality of the management. There is no better short summary of the quality of management in any company than its share price. That is in itself an eloquent commentary.
I think that my hon. Friend's Bill should apply to private companies as well. I know that there would be difficulties, but many private companies would very much like to institute a system on the lines proposed in the Bill. It would have a profound effect on the development of more private companies if they felt that they could have a scheme for genuine employee participation.
936 I heard of a case only yesterday of someone who started his own comany five years ago and who is now achieving a turnover of £2 million a year, who wanted to be able to keep his employees and to give them some stake in the company but was unable to do so because of the present fiscal regulations. Any shares given to employees are taxed at the employees' rate of tax, and it is impossible to give loans to employees for the same reason. My friend found that some of his chief executives and workers were leaving the company because of the high rate of taxation. This is a great pity.
We should evolve a system in which a worker in any company could build up a sufficient stake in the company—as he can in the United States—and then sell it and start his own enterprise. The ability of the market to function in this way would give the best prospect of a genuine industrial revival in this country.
Furthermore, such a scheme ought not to be confined to private companies. It ought also to apply to nationalised industries. Nor do I think that the Bullock Report should be applied only to the private sector; it ought to be applied to nationalised industries, too. When we look at the nationalised industries and their present functions, we see a large nominal amount of assets tied up in those industries, producing very little return. The Labour Party believes that there should be a fundamental shift of ownership of resources to the workers. I believe in that system, too, but I think that the Labour Party is wrong in concluding that there is a large store of wealth in private ownership that the workers can obtain.
There is no such large store of wealth and there has not been for many years past. But there is a considerable stock of assets controlled by the nationalised industries and by the State in the name of the people, and very large bureaucracies have grown up in the nationalised industries. I agree with the concept of the Labour Party, a fundamental shift of wealth from the rich to the poor, if, as I believe, that means handing over the assets to the workers in the nationalised industries. At present there is very little return from some of our nationalised industries.
As an example, what does the taxpayer get out of the coal industry? He 937 gets no return, but he is asked to provide more and more money each year. How could the taxpayer be in any worse position if the assets of the coal mines were handed over to the miners? The value of the assets is what anyone is prepared to pay in a free market. The assets of the nationalised industries should be offered to the general public and if they have no value they should be given to the miners and other nationalised industry workers. If that it not done, the workers in those industries should be able to achieve ownership by other means. My hon. Friend's Bill would be a great help in that direction.
In conclusion, I am not surprised that the Government have decided to oppose the Bill. They are not in favour of wider share ownership. In fact, they are not really in favour of share ownership at all. They are in favour of State ownership. That is the difference between us. In every direction one looks—whether at Bullock, whether at the amount of money the Government take from the market, whether at the present level of interest rates—one sees that the system is geared, under Socialism, towards a greater and greater dependence upon the State.
It is that concept that we in the Conservative Party totally oppose. We are the ones who are genuinely interested in the wider diffusion of ownership amongst the people. It is we who hold out hopes of genuine industrial democracy. We do not believe in State power and State control, but, the Government strongly believe in that. That is the difference between us.
This is an opportunity, which my hon. Friend has presented in a most important way, to follow the example set by other countries in diffusing share ownership amongst the people, and—much more importantly—diffusing share ownership amongst the workers in industry. That creates an identity of feeling between the people who work in an establishment and its managers. There should be no difference between the two. There should be a complete identity—that of ownership.
I do not believe that outside shareholders could possibly suffer from such a move, because they are interested primarily in the rate of return they receive. 938 If a close identity can be achieved between the worker in an industry and the management, which should be there anyway, significant changes could come about in our production and productivity.
I often think that the course of production and productivity goes in reverse proportion to the degree of confabulation and consideration by the top brass of industry and trade unions. The more talks there are in the NEDC—the greater the industrial strategy—the lower the rate of production and productivity.
The point of the Bill is that we can do without these great confabulations, to a large degree. We want to restore the power of decision making to the people, in so far as we can do so, and to the plants. If we can do that, we shall achieve not just a higher rate of return in industry, greater productivity and a greater feeling that we can earn more and keep more of what we earn, but also what is greatly required in this country—a genuine degree of industrial democracy.
§ 11.43 a.m.
§ Mr. Maurice Macmillan (Farnham)
May I first thank my hon. Friend the Member for Harwich (Mr. Ridsdale) for introducing the Bill. I owe him a personal debt of gratitude in that he has so ably introduced a Bill which reflects a very long-standing interest of my own.
My hon. Friend the Member for Horsham and Crawley (Mr. Hordern) mentioned in his admirable speech the need to extend to the nationalised industries provisions of the type put forward in the Bill. In doing so my hon. Freind took my memory back almost longer than I care to go when he referred to the coal mining industry. I well remember the General Election of 1945, in which I contested a mining constituency whose then sitting Member is, I am happy to say, still with us in the House of Lords. I put forward a concept, as an alternative to nationalisation, that one-third of the shares in the collieries should go to the National Union of Mineworkers, and one-third to the State and that one-third should remain with the existing shareholders. That was an early form of tripartitism which has since become slightly more fashionable.
I am glad that in introducing the Bill my hon. Friend the Member for Harwich 939 paid a tribute to the work of Dr George Copeman, who has been the Honorary Secretary of the Wider Share Ownership Council for many years—in fact, since its inception.
If I may digress for a moment, I wish to pay a tribute to the present Lord Aldington, who started a great deal of work on this subject—on behalf of the Tory Party, admittedly—in producing a pamphlet entitled "Every Man a Capitalist". It was when he joined the Government of the day that I took over from him and turned what had been a small Conservative committee into an all-party movement—the Wider Share Ownership Council—which worked over the years with some degree of success.
I am not altogether surprised that the Government oppose the ideas behind the Bill. When we in the Wider Share Ownership Council were putting forward amendments to various Finance Bills, although we had the support of many members of the Liberal Party, many members of the Labour Party and of the trade unions, including the late Lord Feather, nevertheless our ideas were firmly rejected by successive occupants of the Treasury Bench, largely on the ground that any tax encouragement on saving or investment could not be properly monitored and that it was therefore possible for an individual to receive tax encouragement for saving and investment, on the one hand, and yet be engaging in capital dissaving or spending capital from other sources, on the other hand. That is an objection which I do not think can be made to the bill.
Before coming to the detail of the Bill, I want to say a little about the general principles underlying the wider concepts of share ownership and the spreading of the ownership of the ordinary shares in industrial and commercial concerns about which my hon. Friend the Member for Horsham and Crawley spoke. My hon. Friend referred to the dangers of locking in—that is, employees holding shares in a company and, when things go wrong, being unable to get out and, therefore, losing their savings and capital as well as, alas, their employment in many cases.
We saw that over the Rolls-Royce affair, where the employee shareholders, because of the official nature of their shareholding were unable to get out and, 940 therefore, lost their savings as well as their jobs.
Again, my hon. Friend's Bill does not carry that danger because, as I understand it, the shares concerned would be held in trust for the employees for the qualifying period to avoid income tax and attract capital gains tax instead, and at the end of that period they would then be wholly disposable in the hands of individuals and it would be up to their personal judgment whether it was worth continuing to invest in the company which employed them or whether they preferred to spread their risk and invest their savings other than in the company in which they worked. That is a very important point.
We in the wider share ownership movement were very careful in our earlier days to point out that it was necessary for many people to have some form of savings which could be easily realisable before they started thinking in terms of investment which, should they need the money quickly, they might have to realise on disadvantageous terms.
§ Mrs. Audrey Wise (Coventry, South-West)
Can the right hon. Gentleman help on a pure point of information relating to the period when shares are held by true trustees? In whom are the voting rights vested during that period?
§ Mr. Macmillan
If the hon. Lady will wait, I shall come to that in more detail when I discuss the various types of scheme.
It is therefore important to realise that behind the Bill lies a concept of individual ownership of wealth by as many of our citizens as possible. Over 20 per cent. of the United States population own shares and capital in one form or another in addition to their houses. In France the figure is over 9 per cent. and in West Germany over 7½ per cent. In this country only about 3.8 per cent. of individuals actually own shares.
An enormous number of people in this country are owners of ordinary shares which are outside their control—they are owned second-hand through the institutions. An example of this is participation in unit trusts, investment trust companies and so on. This is wealth owned for people. In introducing his Bill my hon. Friend the Member for Harwich is trying 941 to see that any increase in new wealth is owned not only for people by institutions but by people individually, and particularly by those who have helped to create the new wealth by working in the company concerned.
It is very relevant to remember that the Diamond Commission in one of its interim reports analysed the total holding of wealth in this country and discovered that 52 per cent. of it was owned by pension funds. This gives emphasis to the remarks made by both my hon. Friends in their speeches this morning.
The Bill is a start, and only a start. Something else is needed to go with it. My hon. Friend the Member for Harwich referred to this when he talked of spreading the concept to unincorporated businesses and unquoted companies. I quite agree with him. In fact, I take this opportunity to put down a marker for the next Budget debate and suggest that further exemptions could be made for the provision of discretionary trusts as far as capital transfer tax is concerned. At the moment, discretionary trusts on behalf of employees are exempt from the normal periodic charges levied on such trusts held for individuals or groups of individuals. But capital transfer tax is levied on any moneys put into such a trust by the existing shareholders.
It is a severe inhibition on the ability of the proprietor to set up a trust on behalf of his employees if such a trust has to pay capital transfer tax and if it has to pay double taxation through paying capital gains tax which the capital transfer tax contribution attracts. If the objective of exempting discretionary trusts from periodic payments is to be made effective, moneys paid into such trusts should be, with proper safeguard, also exempt. This is particularly important in order to enable unquoted companies and incorporated businesses to match the tax concessions already obtained by the ability of quoted companies to transfer bonuses, whether in cash or shares, to employees free of corporation tax. This is not something which is open to close companies without altering their nature, and this is hardly the time to expect private companies to go public.
Under the Bill any scheme proposed is wholly voluntary. It builds on 942 existing corporation tax relief for companies and it adds a simple provision for income tax relief for shares held over a five-year period with capital gains tax on appreciation at the end of that period, as shares are allocated to the individuals concerned. There are various methods used in different schemes for clogging the shares as various targets for growth are reached, partially to safeguard the interests of the shareholders, and partially to ensure that the growth of the company concerned is matched by the allocation of shares to employees.
During the period of trusteeship the shares concerned are, for the protection of the employee, in trust and, therefore, cannot cause him to suffer from "locking in" if things go wrong as I described previously. But voting rights would normally be exercised on the employees' behalf by the trustees. The trusts can be drawn in various ways, and, as with pension funds, the employees can elect some or all the trustees who are looking after the funds on their behalf. It is not possible to generalise about this, but in the large number of schemes of which I have had experience it was essential that they were practicable and worked out in conjunction with representatives of both the employees and management to suit the circumstances of the individual firm. Also, there must be safeguards from the point of view of the Exchequer—in this case 10 per cent. of pre-tax profits and a limit of £1,000 a year for each individual employee.
With employee share schemes, there are three separate methods of getting the funds required to finance ownership to the employees concerned. First, there are bonuses which are issued either in cash or in shares, and these are covered wholly by the Bill. Secondly, there are voluntary deductions from pay, and I stress the word "voluntary":
I asked the Chancellor of the Exchequer some time ago for a list of the concessions against income tax allowed in France and Germany to help employees to purchase shares in such a way. I received the following reply:In France deductions from employees' wages and salaries, together with similar amounts contributed by the company on the employees' behalf, for the purchase of shares issued solely for subscription by the employees are, subject to certain limits, exempt from income tax.943In Germay amounts set aside from wages and salaries under approved schemes for buying shares in the employing company are, subject to certain limits which vary according to the employees' family circumstances, exempt from income tax."—[Official Report, 6th August, 1976; Vol. 916, c. 1064.]That is assuming that countries such as the Federal Republic of Germany operate schemes similar to that which my hon. Friend seeks to put into action. This is a valuable addition to the ability of such schemes to work—namely, that loans may be permitted on these terms to employees who wish to purchase shares: in other words, deductions from pay may be allowed for the purchase of shares.
The third broad method concerns loans. Again, I asked the Chancellor of the Exchequer on 6th August 1976 in the form of a Written Question what were the different arrangements in the various EEC countries for giving tax concessions on interest on loans to facilitate the purchase of shares in a company which employed the taxpayer who was paying the interest which was allowed as a deduction. I was told on that occasion that in this countryinterest is allowed on a loan used by an individual to acquire ordinary shares of a close trading or estate company in which he has an interest of 5 per cent. or more, and for which he works full-time in a managerial capacity".—[Official Report, 6th August 1976; Vol. 916, c. 1065]That is a curious limitation, especially when we bear in mind that in other European countries interest is normally deductible if the loan is contracted to acquire or conserve income. In Denmark all forms of interest on loans are deducted, and there is not this curious limitation for a person who works in a managerial capacity for a close company in which he already has a 5 per cent. interest.
I am not saying that that is wrong, and there are good reasons, which we have discussed on various Finance Bills, why that should be done, but I find it somewhat odd that we do not extend that idea. For example, in Germany interest on loans to employees to acquire shares is deductible and any deduction is limited to the income derived from shares acquired with the loan in the year in which the interest was paid. In other words, the person concerned must set all the dividend from the shares against the interest on the loan and no more of his income is deductible.
944 There are various other arrangements which I shall not go into in detail but, broadly speaking, other countries within the Community allow voluntary deductions from pay, and interest on loans made to employees for the purpose of acquiring shares in the company in which they work is deductible for tax purposes.
These provisions apply to schemes that seek to spread existing capital assets as well as new capital. My hon. Friend's proposal is wisely limited to methods of distributing more widely new capital of a growing concern. This is of particular importance economically and politically. My hon. Friend the Member for Horsham and Crawley pointed to the thinness and difficulty of operating a capital market in equities since it was wholly taken up with the financing of Government expenditure. This means that many expanding companies, both unquoted and quoted, rely on the merchant banks and the joint stock banks for loans for the purpose of expanding their business. This Bill is a method of channelling such loans through a trust fund set up on behalf of employees for the purpose of turning what would otherwise be loan capital into equity capital, but only in the hands of employees.
I admit that this has the effect of watering the capital of existing shareholders, which could be an important consideration when so many pension funds are involved, but I do not think it is a valid consideration because the whole concept depends on the growth of the company concerned. It means for an existing shareholder a slightly smaller proportion of the total cake, but it will be a means of ensuring that the cake is expanded enough to make it large enough for all concerned, because the extra piece will have gone to those who helped to achieve it. It is a great encouragement to the growth of small companies in that it can be shared more widely between all concerned.
There is one great problem in making our present system work more effectively. When businesses prosper, enlarge and expand markets and do better, there is little problem in distributing the income they earn between those who work in them and those who provide capital. Apart from Government restrictions on pay, in more normal circumstances by and large the wage and salary earners 945 have received in the form of income as much as, if not more than, the shareholders have received in the form of dividends. Certainly the shareholder is more heavily taxed on investment income than are wage and salary earners on earnings. But this has now been distorted by high rates of taxation on low investment incomes and on relatively low earned incomes. Nobody involved is receiving net the due reward for his or her contribution to the growth of the company in income terms. Such people may be achieving these rewards gross, but the company is nevertheless paying out of income, through wages and salaries, a greater share of its increased earnings to workpeople and management than it pays to its shareholders. The company has to retain a higher proportion of profits to finance growth, but because of taxation it is not getting as much as it should.
Apart from that factor, when taxes were lower and wage restraint was still a gleam in the Chancellor's eye, we never successfully distributed capital gains. However successful a company might be, capital gains were reflected only by the increased value of existing shares either spread among other people or spread among existing shareholders through rights issues.
One of the great attractions of this scheme is that it is a method of enabling people who help to create a capital gain to share in it to a considerable extent. Therefore, it does not matter whether at the end of a five-year period the employees concerned decide to retain their investment in the company in which they work or decide to invest it elsewhere. Over the period, they will visably and consciously share in the capital gain which they have helped to create. They may be a little cross at the amount which they have to pay in capital gains tax, but we can do nothing about that. At least, they will have a share in the capital gain. That is important in the wider context of employee consultation, employee participation and industrial democracy.
A year or so ago I went to a conference run by the Anglo-German Foundation for the Study of Industrial Society on the subject of employee participation. Somewhat to the surprise of the British participants at the conference, much time 946 was devoted by our German friends to problems, difficulties and schemes concerned with participation through ownership. Some of the Minister's hon. Friend's were a little startled to hear a passionate speech from a reputedly rather Left-wing trade union leader in favour of the sort of scheme put forward in the Bill. There was a consensus among the Germans—industrialists, Government members, employees, employers, trade unionists, Social Democrats, Socialists and people of every political persuasion represented at the conference—that a modern industrial society required positive action to ensure wider personal ownership of wealth-creating assets.
It was rightly argued that those assets should not be held only by institutions or others, such as Governments and pension funds on behalf of other people but that it was necessary that the assets should be held by individuals themselves. Only in that way could the dignity and freedom of the individual in a machine dominated industrial society be successfully maintained. Otherwise all of us, highly-paid managers and low-paid workers alike, would tend to become mere parts of the industrial machine, its servants—even if well-rewarded servants—but not its masters.
Over the years we have seen evidence of this in the divorce between management and ownership. A board of directors is nominally elected by shareholders, but in practice it is often a self-elected committee of top management not really representing the shareholders and not discharging on their behalf the responsibilities that I, as a sharing proprietor of an unquoted company, would regard as the responsibilities of ownership. Such boards are often unable to do that and are sometimes prevented from doing it by law. That was seen in the case of the News Chronicle, the newspaper which foundered when the fiduciary duties of the directors to the minority shareholders were held by the courts to prevent them doing what the majority of shareholders wished them to do.
In the light of the Bill, we should consider the importance of the general extension of responsibility of ownership. Institutions are beginning to take a greater share of ownership and are beginning to accept the need for directors to represent their interests, overlooking the working of management. As a result, 947 in this country—more than in the rest of Europe and certainly more than in the United States—wealth is being owned on behalf of people. It is being organised by others for them. There is mounting bureaucracy within industry itself as well as in the Government. The result is the taking away of individual freedom and responsibility even though the bureaucracy may be doing well and is honourably doing its best.
The Bill seeks, even if initially in a small way, to redress the balance. We are moving into a world where more real wealth is being produced by machines. There is a problem of how that wealth should be distributed and how to ensure that it goes to people other than those who merely look after the machines. There is a tendency in a wage structure, even under free collective bargaining, for disproportionate reward to be given to those who work the machines and to those who create the wealth most quickly. We should move to a society in which investment income is a significant part of every person's income. It should be normal for most people to have a significant investment income as well as the income they earn.
I accept that the scheme in the Bill does not achieve that or even seek to do so, but it is a step in that direction. It is a step we must take, because the conflict is not, as is often believed, between a capitalist and a Socialist State. The only Socialist States that I know are Marxist ones. The conflict is between those who believe that the State should be the capitalist and those who believe passionately, as most Conservatives do, that the people should be the capitalists—not just a few of them, but as many as possible. I should like to see more people owning shares producing significant investment income. The Bill does not achieve that, but it makes a start and it deserves to be given a Second Reading.
§ 12.18 p.m.
§ Mr. Ivor Clemitson (Luton, East)
The hon. Member for Harwich (Mr. Ridsdale) has enabled a debate to take place on an important subject—ownership in modern industrial society. As he rightly said, the subject is related and complementary to industrial democracy, which is now, with the publication of the Bul- 948 lock Report, on the agenda for political discussion.
I start by looking at the whole concept of shares as a form of ownership of capital, because that seems to be behind all the discussion and the interesting and important contributions so far made to the debate. As I understand it, the original idea of shares was that relatively small packets of money could be brought together to form a much larger packet in order that a scale of enterprise could be conducted that would not have been possible had it been left to the vast majority of individuals, because their capital resources would not have been sufficient.
With the introduction of legislation concerned with limited liability in the middle of the last century, the concept of share ownership enabled the expansion of industry during the heyday of the Industrial Revolution. I do not wish to knock that, or to criticise it. It is a historical fact that the concept of shares, particularly with limited liability, enabled the tremendous development of industry during the nineteenth century.
There are two basic questions which must be asked when we are considering the relevance of shares in present circumstances. Are shares an appropriate form of raising funds and of ownership of capital in the latter days of the twentieth century and, presumably, into the twenty-first century? Are shares an appropriate form for the control of an enterprise? These are the basic questions.
On the first point, the evidence seems to be that this proposition has been overtaken by the facts. The Bullock Committee considered briefly the ownership of capital and the raising of funds and said:since 1950 larger quoted British companies in manufacturing, distribution and other services have depended for funds primarily on internal sources—retained profits and provisions for depreciation. The next most important source of funds were bank and other borrowings. The role played by the issue of new equity appears to be comparatively modest.It questioned the report of the Diamond Commission, which noted:Over the period we studied (1950–72) internal funds accounted on average for 76 per cent. of the total funds raised, about 40 per 949 cent. being retained profits and 36 per cent. provisions for depreciation. Equity capital raised for cash accounted for 6.5 per cent. of total funds during the period 1950–72, this figure falling from an average of 10.4 per cent. in 1950–61 to 4.6 per cent. over the period 1962–72.The hon. Member for Harwich emphasised that the Bill was concerned with the ownership of newly-created wealth rather than the injection of new capital from outside, but I hope that he will forgive me if I broaden the discussion a little to consider the concept of shares as a whole.
If we consider the gathering together of small packets of capital into larger packets—which was one of the basic ideas behind shares—we find that this process is now largely carried out by insurance and pension funds. The Bullock Committee noted:that the shares owned by persons, executors and trustees resident in the United Kingdom account for a decreasing, though still substantial proportion of the total: 59 per cent. in 1963, 42 per cent. in 1973. By contrast the shares owned by British financial institutions (insurance companies, pension funds, banks, unit and investment trusts, etc.) account for a smaller but increasing proportion: 28 per cent. in 1963, 42 per cent. in 1973.Parity between the two forms of ownership had been reached by 1973.
Looking back to what some would call the halcyon days of the Industrial Revolution, the concept of shareholder control had, within its pretty narrow lights, a smack of democracy about it. If a number of people got together to put their relatively small packets of capital into a business, they had the right to elect directors, and so on. However, the managerial revolution has meant that control has passed out of the hands of the shareholders and, to a large extent, into the hands of self-perpetuating obligarchies of senior management.
§ Mr. Keith Stainton (Sudbury and Woodbridge)
I entirely subscribe to the hon. Gentleman's analysis, but in so far as it arises from defaults or deficiencies in legislation, will he address himself to methods of correcting it?
§ Mr. Clemitson
I know that the standard answer to an intervention is for an hon. Member to say that he was coming to the point raised by the hon. Gentleman who intervened, but in this case it is true. The nub of my argument, which 950 I shall be coming to in a moment, is that we have been presented with the alternatives of a wider diffusion of share ownership—the resurrection of the power of the shareholder—or a totally centralised system in which ownership is vested in the State. I wish to suggest that there are other possibilities.
§ Mr. Maurice Macmillan
I am not quarrelling with what the hon. Gentleman is saying, but it is as well for us to remember that about 40 per cent. of our GDP is produced by firms employing 500 people or fewer, and with relatively small shareholdings. My remarks were addressed primarily to a relatively small number of very large companies.
§ Mr. Clemitson
The possibility to which I shall refer later is particularly appropriate to small and medium-sized companies, about which hon. Members opposite are particularly concerned, as are many hon. Members on the Government side. Such companies are important not only in terms of the employment they provide but because of the great significance of smaller units in a world which is, sadly, increasingly dominated by remote control, whether by States or by supranational companies. Employment in my constituency is dominated by General Motors, Chrysler, SKF of Sweden, and so on. I am conscious of the remoteness of power, not only of the State but of supranational companies, and I fully subscribe to the recognition of the importance of smaller units.
To a considerable extent, certainly in the larger units, we tend to have self-perpetuating oligarchies of senior and top management. Whether it be by default, or for some other reason, the element of democracy—perhaps it was a limited element because it was rather onesided—represented by shareholder power has withered away to a large degree. That is probably common ground on both sides of the Chamber.
As far as there is still control in the hands of the shareholders, it is control, as the hon. Member for Horsham and Crawley (Mr. Hordern) said, that is in the hands of institutions rather than individuals. It is in the hands of insurance companies, pension funds or parent companies rather than in the hands of individual shareholders. From the point of view of control, it seems that we have 951 a situation in which in many ways we have the worst of all possible worlds. We do not have the sort of shareholder control that at least in theory and to quite an extent in practice was true in the nineteenth century, and we are in a period in which self-perpetuating oligarchies seem to be pretty much the order of the day.
What do we do to improve the present situation in directions that many of us agree should be taken—directions that are more democratic and more responsive, and involve many more people? How do we do that? It seems that the basic idea behind the Bill is that we should achieve those objectives by reversing the tide of history and widening individual share ownership. I take it that that is the basic purpose of the Bill.
As I understand it, shareholders can adopt a scheme by which not more than 10 per cent. of the profits in one year will be set aside and that that fund will be used to buy shares on behalf of the employees up to a limit of £1,000 per individual. I return to the point that I raised in an intervention. I am not trying to score points; I am genuinely seeking an interpretation. I find the Bill inevitably a little difficult to grasp, especially as I do not dabble in this area of finance. In paragraph 4(c) of the schedule, when dealing with the participants, it is stated thatthe amounts advanced by a company to the trustees under the scheme in respect of any employee are contributed in proportion (as nearly as may be) to the respective emoluments of employment of the participants with the company or member of the group of companies.I accept that the hon. Member for Harwich is concerned to widen share ownership not merely among management but among all those who work within an enterprise. I take that as being his purpose. I also take it from the paragraph of the schedule to which I have referred that that would be done in proportion to the wages, the emoluments, or the salaries of the people in the enterprise. Will he confirm that that is true?
§ Mr. Ridsdale
I confirm that that is true. Perhaps I led the hon. Gentleman slightly astray when I replied to his intervention.
§ Mr. Clemitson
I thank the hon. Gentleman. That is obviously something that I shall wish to take up and offer criticism upon.
By seeking to widen individual share ownership and thus, in my view, seeking in a sense to go backwards to an earlier concept of share ownership, presumably by that process the hon. Gentleman's argument is that there will be some resurrection of the power of shareholders. We have seen the withering away of the power of shareholders, but if individual ownership is increased and widened, especially among those who work for the company the hon. Gentleman argues, that shareholder power has a much better chance of being revived.
The second point presumably, is the democratic argument. Indeed, the hon. Gentleman spelled that out extremely eloquently with his argument about democracy and participation—matters in which we are very much engaged at the moment with the publication of the Bullock Report. The hon. Gentleman said that those concepts will be met by involving workers in share ownership, the workers becoming shareholders and the power of the shareholder being revived. He argued that there will be increasing participation and democracy by that route.
That is obviously a consistent and arguable proposition. However, it is open to objection on a number of grounds, which I shall briefly spell out. My first objection has been touched on already, namely, that it appears to be essentially a backward-looking proposition. It seems, as it were, to be trying to sweep the Atlantic back with a broom. Secondly, it seems to be based on what I might call a Cromwellian view of voting rights. To use the analogies of industrial democracy and political democracy, I am reminded of the Putney debates when the Levellers were advancing a form of the "one-man, one-vote" argument and Cromwell was saying "Not on your life. Not one-man, one-vote. Only those who have a stake in the country shall have a vote."
In industrial terms the share ownership and share control argument is very much in line with the premise that only those who have a share or stake in a company shall have voting rights. Indeed, they will 953 have them in proportion to their stake. As the hon. Member for Harwich has kindly confirmed, under his proposal the stakes will vary according to the remuneration that the individual receives from the company.
§ Mr. David Howell (Guildford)
The hon. Gentleman is thinking about annual distributions, but if he applies his mind to the concept of the five-year period, or to an employee who has been a long time with the company, that will provide a major variation in the holdings of employees. It may be that an employee on low remuneration will accumulate a higher stake than an employee on higher remuneration who has served a shorter time.
§ Mr. Clemitson
That may be some mitigation, but the hon. Member for Harwich confirmed that it is specifically stated in the schedule that amounts advanced by the company to the trustees under such a scheme as is outlined in the schedule will be contributed in proportion as nearly as may be to the respective emoluments of employment.
Even if that were not so, it must be borne in mind that the hon. Gentleman said that it is the machines that create the wealth. To the extent that that is a shorthand form and a graphic form, it is true. It is also true that the people who work for a company, whether we are talking of the managing director, the person who cleans the toilets, the person who sweeps up, the semi-skilled worker on a machine, the worker who works on a track, a member of middle management or senior management, whoever he may be—all those people contribute to the creation of wealth that is generated by the company. They certainly contribute to the surplus which the company creates.
Industry these days is to a large extent dependent for its sources of new capital on such surplus. My argument is that the workpeople produce that wealth as a corporate body; as a whole. Their functions are so interrelated with one another that to distribute that created wealth in individual terms—particularly in terms of the relative remuneration of the people within the company, however mitigated by the point made by the hon. Member for Guildford (Mr. Howell)—would seem to run counter to the reality that the wealth 954 is created by the corporate body of all those who work in the enterprise.
If we are not to pursue the line described by the hon. Gentleman this morning for the reasons on which I have touched briefly—it is an arguable line and it has its attractions—what do we do? If the tide is flowing in a particular direction, it is generally wise to go with it. That does not mean that we should be swept along by events and give ourselves up to forces which are totally outside our control. I suggest that the tide which is flowing in certain directions should be harnessed and controlled in particular ways.
I should like to touch on one or two of the ways in which I think we might move. The concept of share ownership has become increasingly irrelevant as time has gone on. It is far less relevant now than it was in the middle of the nineteenth century when it had a valuable function to perform. I concede that there may be an argument that some risk capital, in the proper sense, is still needed, but in most large companies the element of risk in capital has to a great extent been taken away.
§ Mr. Clemitson
There are always exceptions which prove the rule. Over the vast bulk of large companies, national or international, the element of risk is small. After all, one of the purposes of becoming so large is to eliminate risk and competition as far as possible.
§ Mr. Stainton
I suspect that the hon. Gentleman is being too facile on this matter. Would he aver with absolute certainty, for example, that ICI as we know it will be blazing the same trail of glory in 50 years' time? On the contrary, I suggest that as an institution it will change substantially and may not be recognisable in present-day terms 50 years hence.
§ Mr. Clemitson
That may be. My point is that the adjective "risk" when applied to capital, whether new or self-generated capital, is much less applicable now than it was in the early or mid-nineteenth century.
Further, it has always seemed to me to be a strange proposition that, 955 if one put money into a company in the form of shares, one should have the right in perpetuity, as long as one holds those shares, to a return on it. Of course, hon. Gentlemen will say that there is the risk that in some years there will be no return, and I accept that argument, but it seems patently questionable that no time limit should be put upon ordinary shares. I think that there is a strong argument for considering moving away from the concept of shares towards, for example, the concept of loans which have a time limit for repayment. Perhaps one of the greatest reforms would be the conversion of shares over a period into loan stock.
§ Mr. Maurice Macmillan
I think the hon. Gentleman must accept that that would be going back in time as a large amount of nineteenth century development was financed by 30-day loan capital.
§ Mr. Clemitson
I have already said that the larger proportion of capital is self-generated in any case. That was not so in the nineteenth century. Therefore, we are talking about a basically different situation.
As regards control, I think that we must develop industrial democracy. I am not confining that term to workers in the board room. It would be a pity if our debates on industrial democracy were concerned only with workers in the board room, much as I support that proposition. However, we do not want to get into a debate on industrial democracy in the narrow sense this morning. Industrial democracy must operate and function at all levels and in all corners of an organisation, including the board room.
If we are to develop industrial democracy in terms of the board room level, it should be on the basis of the political franchise and not what I called the Cromwellian basis of a stake in the country or, in this case, a stake in the company.
I believe that we should encourage the vesting of the ownership of a company in the collective body of its employees. Basically, that is the concept behind the common ownership movement. That recognises the reality that wealth is created by a body as a corporate entity. That proposal is particularly appropriate 956 to the point made by the right hon. Member for Farnham (Mr. Macmillan) about small and medium-sized businesses. I believe that it offers a third way, as it were, between, on the one hand, the wider share ownership which has been described and, on the other hand, complete State ownership and control which has been suggested as the only other alternative.
§ Mr. Ridsdale
Does the hon. Gentleman agree that in other countries this has been successfully done? He is saying that we are putting back the clock. The fact is that countries with successful economies are doing the very thing that I am advocating.
§ Mr. Clemitson
I do not want to get into the thorny field of international comparisons, although we can talk about America—where Sears Roebuck is a classic case of this—and Germany. There is not a necessary correlation between wider share ownership and what the hon. Gentleman describes as the prosperity of those countries, but it opens up an enormous argument.
§ Mr. Clemitson
Twenty per cent. is still a small minority.
In the concepts that are contained in the common ownership idea, we may have a way in which, over a period, much of our business, industry and enterprise can be owned and controlled by and on behalf of the people in that enterprise. That offers a genuine third way.
I agree totally with Opposition Members that the idea of some remote, all-controlling, all-powerful State is ghastly, and I hope that we can agree that this is totally abhorrent and unacceptable. I see that the hon. Member for Guildford smiles. I am saying that I believe Opposition Members when they express their abhorrence at this. I am not 957 doubting that they do so. It is an abhorrent prospect. I ask the hon. Member to extend the same courtesy to us that we find it equally abhorrent. What we conceive to be Socialism does not lead to that kind of conclusion.
§ Mr. Stainton
I plead not guilty to the abhorrence that the hon. Gentleman attributes to me. I am prepared to consider any device along those lines. I put it to the hon. Gentleman that under the Bill the trustees—we have no clear definition of who constitute the trustees—will be holding blocks of shares for five years. If we take the company and the value of the shares, a five-times multiple of annual earnings predicates that at the maximum period the trustees will be holding 10 per cent. of the voting rights in the company. Furthermore, a simple amendment to leave those shares in the hands of the trustees in perpetuity, constantly growing, will achieve the hon. Gentleman's object-tive.
§ Mr. Clemitson
I take the point that the hon. Gentleman is making. After the five years in which the shares are in the hands of the trustees, the Bill clearly provides that they will then be transferred to the individuals, who will have complete rights in those shares, which they can dispose of, cash in, and put their money in another company. I am concerned that there should be collective ownership by the people in the enterprise.
I return to a point made by the right hon. Member for Farnham. As I remember, in the Finance Act 1976, there was one section dealing with capital gains tax and another dealing with capital transfer tax which provided that where a person makes over his business to the employees through a trust under the Companies Act 1948 this transfer would be free of capital gains and capital transfer tax.
§ Mr. Maurice Macmillan
That applies to a complete transfer of the entire business and not to a transfer of a block of shares in it.
§ Mr. Clemitson
I believe that to be so, although I am not an expert on the Finance Acts.
We should see the question of the provision of capital in a new light, recognising what is increasingly happening about the creation of capital. We should 958 begin to move beyond the concept of ownership. The idea of common ownership, which I was describing earlier, is in a sense, moving almost beyond the concept of ownership, certainly ownership as vested in individuals or in the State. Increasingly, we should move towards the democratic control of companies and enterprises. I believe that to be common ground among us. We all want that end. The question is: how do we achieve it?
This morning I have tried to put a case against the proposals. I believe that the motives of the hon. Member for Harwich are extremely worthy, as are the ends, but I repeat that I find the proposition one that fails to come to grips with the realities of what has increasingly been happening or with the basic problems of control. Because I find the philosophy behind it wrong—although I find the ends towards which it is directed thoroughly worthy—and because I find the solution wrong, I cannot support the Second Reading.
§ 12.58 p.m.
§ Mr. John MacGregor (Norfolk, South)
The hon. Member for Luton, East (Mr. Clemitson) has ranged widely from the narrow purposes of the Bill. He will forgive me if I do not devote too much of my speech to following his main argument, which was devoted to the wider issue of how we should organise a mixed economy or whether we should have it at all. I shall, however, follow some of his points because he made a thoughtful speech.
Fundamentally, it all rests on the question that the hon. Gentleman asked at the beginning: is the holding of shares an appropriate concept of ownership? He looked at two areas in which he suggested that it was no longer an appropriate concept—namely, the raising of funds and the concept of who controls the business.
It is correct to say that of all the finance flowing into companies, the proportion now devoted to equities has reduced over the years. This is not very surprising given all the obstacles which have been put in the way of capital markets and the raising of new money in equities over the past few years. It is also true that there must be changes in methods of financing business. The whole system of bank finance has changed in the past four 959 years. We have seen a greater proportion of medium-term loans rather than an extension of the overdraft principle. There are bound to be these changes.
Quite apart from the fact that the concept of the equity share is still vital to the way in which the whole structure of British industry and commerce operates, it is still an important way of raising new finance. The hon. Member for Luton, East gave figures over a 13-year period, but it is worth remembering that last year—I speak from memory—about £2,000 million worth of new equities was raised through the capital markets for British industry and commerce. That is a significant figure. This is still an important way of raising funds. If some of the obstacles were removed from the equity concept, we would see it reassume a significance which it now has in other countries, which, as my hon. Friend the Member for Harwich (Mr. Ridsdale) pointed out, are in most cases the countries with the greatest record of industrial growth in recent years.
§ Mr. Peter Emery (Honiton)
Does my hon. Friend agree that the figure of £2,000 million which he has mentioned was raised in the private sector, which is frequently described by Labour Members and leading trade unionists as typifying the absolute failure of capitalism? Would he not further agree that when Labour Members begin attacking that structure they ought to realise that, if their views were carried to their logical conclusion, someone other than those in the private sector would have to find the money—namely, the taxpayer?
§ Mr. MacGregor
I am grateful to my hon. Friend for making that point.
The second area of interest in the speech of the hon. Member for Luton, East concerned the concept of shareholders as controllers of businesses. I agree with him to a large extent. The practice in British industry and commerce is now quite different from the theoretical and legal framework in that the interests of employees, customers and middle and senior management are just as important as those of the shareholders and are recognised to be so by virute of the way in which British industry operates. It appears that this is a matter for company law and could easily be put right through changes in the law—Bullock touched on 960 this—rather than by attacking the whole concept of the shareholder and equities. That is not a strong argument against the idea of the share being an appropriate concept of ownership.
In terms of the Bill, what the hon. Member for Luton, East failed to look at was the proposition which all Conservative Members have put forward—namely, that this is a means of giving employees a share of the built-up capital, of the new wealth created in the company by their own efforts, as well as the rewards they receive in wages. It is true that shares remain a vital way of organising the capital of the participants in new growth firms and of motivating those working in them, quite apart from the original shareholders. The concept of the share is still the best way of achieving these purposes. I do not think that anything the hon. Gentleman has said—although I recognise that he wants to see a quite different type of structure in British industry—has destroyed the Bill's objectives.
Like my right hon. Friend the Member for Farnham (Mr. Macmillan), I have for many years been actively involved in the Wider Share Ownership Council and have been on its executive. I am, therefore, delighted to be able to take part in the debate and congratulate my hon. Friend the Member for Harwich not only on introducing the Bill but on the excellent speech which he made. I do not intend to follow him in dealing with the details of the Bill since he covered them admirably as well as dealing with the various objections that might be raised to the concept embodied in the Bill. I wish instead to turn to the wider reasons why I am so strongly in support of the Bill.
First, in common with all those who have spoken on the Conservative side of the House, I am a passionate believer in the wider spread of ownership. This is one of the main motivations which has brought me into politics—the desire to see ownership spread throughout the community as widely as possible. Such a spread of ownership enables people to have at least some independence from the State. They do not need to be so dependent on others if they can build up capital in one form or another. This concept gives people the incentive, 961 through their own efforts, to help to provide a better future for themselves and their families.
That approach is in many ways the big philosophical divide between Conservative Members and, certainly, Left-wing elements of the Labour Party. What was interesting was that the hon. Member for Luton, East did not once refer to the question of savings, the ownership of capital and the opportunity to spread independence to a wider group of people. That is the basic purpose of the Bill.
§ Mr. Clemitson
I thought I had spent a great part of my speech on that issue. What I was trying to argue was that, particularly in terms of the Bill, which is concerned with the capital generated within a company, the capital is created by a corporate entity of people and should, therefore, be vested in that entity —in terms of the company and not in individual terms.
§ Mr. MacGregor
But the question that arises is how the individuals within the company would derive their share of the ownership. Employees of British Rail, for example, are in theory part owners of that undertaking but they get nothing more than their wages from British Rail. I want to see people building up longer-term capital within the company.
Over the past 25 years we have seen an enormous expansion of ownership through owner-occupation of houses, through the property-owning democracy. I greatly welcome this development. I would like to see it spread much further, which is why I have no hesitation in supporting policies which give extra incentives to owner-occupation over and above the need for a person to provide a roof over his head but which deliberately turn the housing market in favour of encouraging and helping people to own their own homes. This is why I supported the proposals put forward in the 1974 General Election by the Conservative Party and why I strongly support the sale of council houses. Action of that nature spreads ownership over a wider area.
Through the operation of pension funds and life policies there is the opportunity to have a further spread of capital and 962 savings. The difficulty about pension funds and life policies is twofold. The first is that participation gives no direct interest in a company's performance. Most people in pension funds are quite happy if they know, when they come to retire, that their pension will be paid. They do not understand the process by which the pension is created for them. Secondly, there is a long-term risk, which we have seen from time to time in this House, of political interference with the funds of the institutions. The more they are concentrated, the greater is the danger. While I greatly welcome the spread of pension funds and life policies, they are not the total answer.
There is a need to spread further the concept of ownership in terms of capital and savings. We are discussing the Bill at a time when it has become difficult, if not impossible, for anyone without capital or savings at the start of his working life to acquire such capital during his working life, except through home ownership and ownership of part of a pension fund. We have seen direct tax rates bite even more onerously, almost month by month, into the earnings of our people. Particularly for those earning larger salaries, on which there is perhaps more opportunity for people to save, the failure to index the starting point for the higher rates of taxation is becoming a scandal. The present level is £5,000 a year. It was £5,000 in 1974. If that figure were properly indexed to take account of inflation, the starting point today would be £8,000. With that type of change it would be less difficult for people to acquire savings.
We have seen a savage attack on investment incomes mainly because of the investment income surcharge. We have seen capital gains tax become fraudulent because capital has been eroded by inflation. Dividend control is another means of making it more and more difficult to look in the direction of shares as a method of acquiring capital. That is because over the last 12 years, while there has been a real growth of 50 per cent. in salaries and wages, there has been a real decline in the return on dividends as a result of dividend controls and other measures. Wider capital ownership has been actively discouraged. It is time that this trend was reversed. My hon. Friend's Bill is a small step in that 963 direction. My first major reason for supporting his Bill is that I am a passionate believer in the wider spread of ownership.
My second reason for supporting the Bill is that it enables employees to share in the prosperity of their firms. Participation is discussed in the Bullock Report. I do not wish to add much to that argument except to say that I believe that in no sense can increasing financial participation be a replacement for more direct participation. I believe in greater employee participation in management decisions, particularly in decisions which affect the immediate working environment. Financial participation cannot replace that but it is complementary to it.
The Bill gives the employee the incentive to put more effort into his company. One of the vital elements in the Bill is that the funds for financing participation come out of profits. If the company does not make a profit, it is not possible to offer those extra bonuses and benefits to employees, and they can therefore see the advantage to them of a growing profit situation in their own company.
My third reason for supporting the Bill is that it brings home to a growing number of people the importance of the rôle of capital in the firm and the need to make profits. It brings home the importance to the individual of savings and investment. One of the vital elements in the Bill is contained in the schedule, which provides for a five-year build-up. The difference between this scheme and the ICI scheme is that under this one the employee sees the advantage to himself of profits and savings over a gradual period. In the ICI scheme he does not do so because many employees cash their shares immediately and they become a form of bonus on wages. There are merits from an educational point of view in the Bill.
My fourth reason for supporting the Bill is that it will give people in industry—I put the emphasis on the manufacturing industry—the chance to build up capital. I accept that some people have made large capital gains and savings for themselves in recent years through their operations in the share market and by asset-stripping and so on. They are the get-rich-quick merchants.
§ Mr. Stainton
Should not my hon. Friend also refer to the gilt-edged 964 market and the Government's own manipulation of interest rates?
§ Mr. MacGregor
That situation also exists. I do not deny that some people started out with few assets and ended up with a lot of built-up capital for themselves. What worries me is that it does not take place in industry where incentives are needed. The great advantage of the Bill is that it enables capital to be built up in industry.
My final reason for supporting the Bill is less important. I am concerned about the rundown in individual shareholdings and about the proportion in capital markets that is held directly by individuals. I am concerned about the increasing power of the institutions. It is inevitable that that trend will continue, but I should like to see a way of halting the sharp decline in the number of shares held by individuals. The situation was revealed clearly in the Diamond Reports.
I declare an interest as a director of a large share registration company. We can see that the number of individual shareholdings is rapidly declining and that this is largely because many people in retirement, who tend to have the biggest proportion of individual shareholdings, are getting rid of them for many reasons. They are liquidating their savings. But the younger members of the community are not so attracted to the share-owning habit. The Bill would reverse that trend, if in only a small way.
The difficulty about the Bill is that it does not help those who work in the public sector. Sometimes, however, we have to be selective in defining the main objectives that we wish to achieve in the economy. Today the main target is to build up manufacturing industry and commerce in the private sector. The Bill is a method of doing that, and one must therefore accept a degree of selectivity. The Government are being selective in their desire to give greater tax relief to those involved in the export drive. In practice, they are taking advantages away from some people. But they have identified the development of exports as an essential need in our present economic situation. The Bill is selective for good economic reasons.
The wider issue is that the public sector, and the Civil Service particularly, is 965 rewarded through the Priestley fair comparison scheme, and today the Civil Service has the advantage of contractually-guaranteed inflation-proof pensions. The Expenditure General Sub-Committee has looked at that matter recently in terms of fair comparability. If the Civil Service is to have an inflation-proof pension scheme, there must be appropriate deductions to take account of that benefit not being available in the private sector. When the present pay policy ends and we return to the original system of rewarding civil servants, this situation must be taken into account in the private sector. That the Bill does not apply to the public sector is no strong argument against it.
I now turn to unquoted companies and small businesses. The Bill covers them, but the concept of unquoted companies and employees having shares in their own companies is not necessarily attractive because in practice these shares are often locked in. I should like to see a wider choice for the unquoted companies, perhaps by allowing the same element of profits to be put for five years into trusts which hold shares in unit trusts, for instance. At the end of that time the employee should be entitled to acquire the sum which has been built up for him. That may be a more attractive way of achieving our objective in unquoted companies, and there ought to be a choice. This, however, is not an argument about the Bill. It is a detail which, if the Bill receives a Second Reading, can be considered in Committee.
I recognise that by no means every company—or every individual within companies—that takes up the scheme will benefit. It is voluntary, and it is right that it should be. Many may decide not to adopt it, but many others will, and for all the reasons that I have given and for the reasons outlined by my hon. Friends I think that this is a small step in the right direction and should be warmly endorsed by the House.
§ 1.21 p.m.
§ Mrs. Audrey Wise (Coventry, South-West)
I am indebted to several Conservative Members for their penetrating remarks. I was particularly interested to hear the hon. Member for Horsham (Mr. Hordern) say that few large firms pay any corporation tax, because of stock appreciation arrangements, and so on. I hope 966 that my hon. Friend on the Front Bench has taken note of that, because it is something to which I have also drawn attention.
The right hon. Member for Farnham (Mr. Macmillan) and the hon. Member for Harwich (Mr. Ridsdale) commented on the running of modern capitalism—the concentration of power in a few hands and the usurpation of decision making by self-perpetuating small groups of directors. I concur with their remarks but I think that their solutions are wrong.
I want to return to considering the point about risk. The return to which shareholders are judged to be entitled on their capital is supposed to bear a relationship to the element of risk involved. There is a curious view that risk is incurred only by shareholders. I agree with my hon. Friend the Member for Luton, East (Mr. Clemitson) that the element of risk has been reduced. A major objective of companies is to reduce that risk and a major objective of individual shareholders is to spread their holdings in such a way as to minimise the risk to themselves.
No concern seems to be expressed by Tory Members about the other parties who incur risk. We all know that when a company goes bust it is not only the shareholders who suffer. In most cases they suffer the loss of a small proportion of their savings, whereas the workers suffer the loss of their livelihood. In addition, there are great numbers of customers who suffer when a concern fails. Hon. Members on both sides of the House will remember vividly the collapse of Nation Life—
§ Mr. MacGregor
I am sure that my hon. Friends recognise the point made by the hon. Lady. The only reason that it has not been raised this morning is that it is not relevant to the Bill.
§ Mrs. Wise
I deny that it is not relevant, because the whole basis on which the Bill has been presented is that it gives the benefits of shareholding to a greater number of people and ensures that the interests of both sides of industry become congruent. The Bill was presented, quite propertly, in my view, in a wide context and not simply as a matter of providing a tax advantage to a small or perhaps even a large number of people. It would have been possible for the hon. 967 Member for Harwich to introduce his Bill and concentrate on the tax advantages for certain individuals. Quite rightly, he deliberately chose to set the Bill in a much wider context, and I am following his example.
Other speakers have referred at some length to the question of risk in justifying the rights of a shareholder and in measuring the value of his contribution. When Nation Life collapsed, those who were severely affected were the customers. We all also remember vividly the collapse of travel firms and the effect that that had on customers. I contend that, despite the argument about shareholders incurring risk, in modern capitalism the risk is borne to a greater extent by consumers, by workers and by the nation as a whole, yet none of them gets any advantage from our present arrangements for rewarding capital.
§ Mr. Clemitson
An example of what my hon. Friend is saying was the Court Line collapse, in my constituency. Customers were severely affected, but even more severely affected were the 1,100 or 1,200 highly skilled people—airline pilots, and so on—who lost their jobs.
§ Mrs. Wise
Exactly. The Court Line incident was one of the examples that I was bearing in mind. I was also bearing in mind that when that collapse occurred everyone concerned, not least the consumers, asked this House for redress from the State. No one on the Conservative Benches seemed then to shout loudly that one of the characteristics of a capital economy is that there is a risk and that the idea of this bracing economy that we are supposed to have is that those who bear the risks receive rewards, but must suffer if the firm goes bust. That idea seemed to be set aside, and many small people were clamouring for help from the State. That is something that should not be forgotten.
I agree with the hon. Member for Harwich about the concentration of decision-making in far too few hands. I agree that it is necessary and, indeed, urgent that the power to make decisions is widened and decentralised. But I find it curious that Tory Members cannot get beyond the idea that decision-making is, and must necessarily be, a function of capital, and of capital only, 968 and must be exercised on behalf of capital. When Conservative Members quite worthily want to involve workers in decision-making they seem to think that it can be done only by turning workers into capitalists. I do not think that the Bill will succeed in doing that, but that seems to be its objective.
It is on that aspect that the hon. Gentleman and I part company, because it does not seem to me that a necessary condition for the right to make decisions is the provision of capital. I do not concede that the only valid relationship is that of ownership, or that the only useful or even valid contribution that can be made is that of capital; I believe that the contribution of work and the status of being a worker in an enterprise ought of itself to give someone the right to take part in decision-making. That is the fundamental contribution.
A number of Conservative Members have talked about wealth being created by machines. I remind the House that machines do not drop from heaven. They have to be worked on and created. I submit that if one goes back far enough one finds that on the one hand one has raw materials and on the other one has labour. It is the application of work to raw materials that provides the first tools, then the more complex tools, and then all the myriad goods that surround us.
It is quite wrong to assume that because a worker is working on a machine that has been bought, that machine thereby becomes a contribution of capital and not, in its deeper sense, a contribution of work. I believe that the solution offered by the right hon. Member for Farnham is defective in its basic philosophy.
The analysis that the right hon. Gentleman gave about the dangerous concentration of power which now exists means that we have to look for solutions. Along with my hon. Friend the Member for Luton, East I share the view that these solutions are quite different from those that he suggested.
I agree that small and medium-sized enterprises have made an important contribution to the economy and that they should go on doing so. I would say in passing that the greatest enemy of the small and medium-sized business is, in fact, the large business. The growth of 969 companies in modern capitalism has been very much "dog eats dog" and not a proper organic expansion.
I recognise the contribution made by small units and I share my hon. Friend's concern about the sheer size of many of the things in modern society—size for its own sake or in order to accumulate more power in a few hands.
I am concerned that the solutions that we seek should involve genuine decentralisation and sharing of decisions. I also agree with my hon. Friend that the mechanism for this is common ownership. It is quite untrue that Socialists in the Labour Party as wedded to the idea of State power. The clause in the Labour Party constitution that is supposed to be held so fiercely by the Left Wing—and somewhat less adhered to by some of my other hon. Friends—does not talk about nationalisation or State control at all. It talks about common ownership and democratic control.
§ Mr. Roy Hughes (Newport)
Does my hon. Friend agree that the way in which our public corporations have developed has been a distortion of the old Socialist thesis on which the Labour constitution is based?
§ Mrs. Wise
I agree with my hon. Friend. In my view the public corporations ape the large private companies. In their organisational form they bear very little relationship to any Socialist ideals. Although to some extent they have served the community well, they have served private business even better.
I contend that the solution to the problems posed by the right hon. Member for Farnham is the alternative solution of common ownership. That is philosophically correct, and it would give workers a real control—not a stake, because they already have a stake—over their own working lives and the products of their labour.
We must also consider large companies, because the Bill does not distinguish between companies on the basis of size. Its protagonists have said that it would be particularly applicable to small and medium-sized companies. But the Bill does not make such a distinction. In the case of large companies, the solution to the problem of democracy and 970 control lies much more along the lines postulated in the Bullock Report than along the lines contained in the Bill.
I realise that this is not a debate about the Bullock Report and I do not intend to turn it into one on that subject, but I believe that if the right hon. Member for Farnham really studies that report he will find that some of the problems that exercised his mind about democracy and control are met in it. If fully implemented, it would give workers in large enterprises much more real control and share in decision-making.
I shall now pursue the details of the Bill, as opposed to its principle. For the first five years of the proposed share ownership the individual worker would not have an increased share in decision-making at all, because the share ownership would be held on his behalf by trustees. In some measure that contradicts the stated intentions of the Bill's sponsor.
It was even suggested by an Opposition Member that it might be a good thing to extend this so that the decision rights were exercised by trustees in perpetuity and never by individual workers. I suggest that that would torpedo part of the wishes of the sponsor of the Bill.
No indication is given of who the trustees are to be, or who is to appoint the trustees, or what nature of people they will be. There is no hint in the Bill about such things. That is a grave defect. For the Bill not to lay down some machinery about the choice of trustees, or who shall choose them and on what basis, seems to be a very basic defect.
§ Mr. Ridsdale
I should make clear that if the employees wish they could elect a representative to the trustees or, indeed, elect the whole number of trustees.
§ Mrs. Wise
That proposition would improve the Bill, but I do not think that it is in the Bill as it stands. I am glad that the non. Gentleman concedes that there is some merit in my critcism.
After five years the full ownership and rights will be vested in the individual worker, including the right to sell. That is an interesting contradiction, because part of the justification advanced for the Bill is that ownership of shares in the 971 company for which he works gives the worker a similarity o finterest with the shareholders and the directors. Yet the merit of the Bill is also held to be that the worker can opt out and dispose of his shares. He can "get out", as it was rather inelegantly expressed.
Either the Bill intends to give a similarity of interest between shareholders, directors and workers, or it does not. I do not think it is possible to advance the argument that the worker would have the right to get out of the company and to sell his shares, and thus remove his similarity of interest, and at the same time advance the contrary argument that provision of shares would lead to harmony and serenity in the operation of industry because workers and shareholders would be on the same side.
There are other defects in the drafting of the Bill. A small one lies in paragraph 4(b) of the schedule, which states that the scheme should coverall or most of the … employees.I think that the word "most" could have many meanings, according to one's point of view.
§ Mr. Ridsdale
This is normal drafting practice and is taken to mean that the scheme would cover 50 per cent. or more of the employees.
§ Mrs. Wise
With due respect to the hon. Gentleman, I think that it would be far better if the Bill itself said "50 per cent. or more of employees". In general parlance "most" would be taken to mean far more than 50 per cent., which was precisely the point that I had in mind. If it is the custom in Bills for "most" to mean 50 per cent. or more, it is time that the custom was changed and that the specification was more accurate. I am grateful to the hon. Member for Harwich for his elucidation of the point.
I share the view of my hon. Friend the Member for Luton, East about paragraph 4(c) of the schedule, which provides that workers will receive shareholdings in proportion to the emoluments that they receive. I share the view that this is a great pity, and is distinctly unfair. If one is thinking of rewarding workers, it would be much better to reward them equally rather than to give a greater reward to those who already receive the greatest return for their labour.
972 The Bill is not concerned only with shares as a means of taking part in decision-making. Although I accept the good faith of the hon. Member for Harwich in this matter—and I was extremely interested in his opening remarks—for reasons that I have already given I believe that the amount of decision-making that would be devolved to the workers would be extraordinarily small. In practice, the main effect of the Bill would be on taxation.
I understand that the Bill would cost about £100 million if its provisions were taken up in any great degree, and that it would give tax advantages to certain employees of companies—
§ Mrs. Wise
Tax advantages would be given to some workers—greater advantages to those with the highest incomes —in some enterprises.
If we are to spend £100 million—or less, or more—we can find far more useful means of spending it. This amount of money would be of great help if it were devoted, for example, to the child benefit scheme. Implementation of the first stage of the child benefit scheme, giving £1 a week to the first or only child of a family, will cost £95 million. The injection of a further £100 million would be a very useful contribution.
On the other hand, if we are thinking of workers' direct income from their employment, it is essential that any tax concessions—I believe that tax concessions should be made—should be made only by means of raising the tax threshold so that those with the lowest incomes will find their tax reduced. Those people are the only candidates with a legitimate place in the queue for tax concession—I say that in anticipation of any proposals that may be made later by the Government for tax concessions for people at higher income levels.
Although the Bill may be intended as an extension of democratic control, I think it would fail in that intention. There are various far better ways applicable to small companies and large companies by which democratic control could be extended. To the extent that the Bill is about taxation and giving tax advantages to certain employees, it is giving advantages in the wrong direction, and I earnestly 973 commend my alternative suggestions to my hon. Friend the Minister of State and to Opposition Members.
§ 1.46 p.m.
§ Mr. Robin Hodgson (Walsall, North)
I intend to concentrate on the details of the Bill, so I hope that the hon. Member for Coventry, South-West (Mrs. Wise) will forgive me if I do not follow her tour d'horizon through British industry, worker control and worker participation and ending up with a review of the Child Benefit Scheme. There are, however, a couple of points in her speech which are worth pursuing.
I was glad to hear the hon. Lady's comment that small businesses were a very important part of British industry and that large businesses were the enemy of small businesses. I await with interest her plans for breaking up British Rail and some of the other monoliths that her party has created.
§ Mr. Hodgson
I was merely pursuing the hon. Lady's remarks that small businesses were oppressed by large businesses, and I was saying that British Rail was a large business which her party had built up.
When the hon. Lady was talking about rewards to working people, she said that there was insufficient connection between the work put in by workers in a business and the rewards which they receive. Yet she opposes the Bill, which in a moderate and temperate way gives those rewards to a worker in his or her individual company.
I thank and congratulate my hon. Friend the Member for Harwich (Mr. Ridsdale) on choosing such an excellent and worthy topic on which to bring forward a Bill. I thank him also for guiding us carefully and clearly through the nuts and bolts of the details of his proposals.
I wish to speak in support of the Bill, not simply for reasons of incentives and industrial relations, or the more technical reasons of tax, but because of what I have learned in my professional life, much of which has been spent preparing 974 companies for the process of going public. They are primarily industrial productive companies, and my hon. Friend the Member for Norfolk, South (Mr. MacGregor) emphasised the importance of getting growth going in the productive industrial sector. The crucial change that comes about when companies go public is in rights transferability and marketability of shares. This change in the status of the shares, making them transferable and marketable, gives them greatly increased value. Going public is a long process which may take two or three years while all the knots are un-ravelled. One topic that invariably emerges in discussions is that of employee share purchases. It comes up again and again and again. Here I touch on the point raised by my hon. Friend the Member for Horsham and Crawley (Mr. Hordern) in his thoughtful speech earlier in the debate.
The point arises in two ways: It arises, first, from the desire of the owner or the manager of the business to reward the hard work and effort which have been put in my his management and staff in building up the business. This is a genuine wish. At a time when the shares will become marketable and transferable, the owner would like to see his employees have a share in the business, a reward for past work and a hope that the future of the business will be as prosperous as the past has already been.
Secondly, and no less important, is the desire of management and staff to share in the future growth of the business which their efforts and their work over a lone period of time have helped to create. These are entirely laudable motives, motives of wishing to reward the work force for past effort and the wish of the work force to participate in the business in which it has a psychological and material stake.
It is easy to be cynical about this and to say that the work force is not interested. I can tell Labour Members from my experience that this is not the case and that from the very top to the very bottom of these firms there is a genuine interest in participating in the future of the enterprise.
Last summer I was down in the West Country talking to a company about this, and after a very long and tiring day I 975 was given a lift back to the station by one of the chauffeurs employed by the company. He was desperately keen that he should have a chance to share in the future of the business. However, the problem that he faced was the problem that many representatives of management face and which has come up in this debate today—the problem of the lack of capital to make an investment. There is a terrific shortage of capital, and if I were making a political speech today I would point out how the activities of the Government over the past three years have hardly made the accumulation of capital any easier. I will let that be for the purpose of the present debate.
Faced with the problem of how to get employees the participation which they so earnestly want in the business, under current legislation a professional adviser really has very few options open. There are very very few ways in which this end, so earnestly desired by both sides, can be achieved.
If the shares are offered to employees at a discount, albeit a small one, and albeit that the employees are bona fide, to enable them to have something of a small free ride while the shares come up to the full market value, this discount is taxed as income in the employees' hands. If the company sets up a low interest loan scheme to finance employees' share purchases, the Inland Revenue will apply a punitive rate of interest to the loans made under the scheme, and this subsidised interest rate is then taxed as income in the hands of the employees. Thus, even relatively modest loans to employees—a loan of, say, £2,000 to an employee at 2 per cent.—will probably in the current climate attract a punitive rate of interest in the Revenue's eyes of about 12 per cent. As a result, the employee in turn will be assessed on £200 of income every year —10 per cent. of £2,000—which he has never seen and which he is taxed on at his higher—his marginal—rate. We all know from our constituency contacts what a very great impact marginal tax rates are now making on even modestly paid people. My hon. Friend the Member for Norfolk, South underlined how the fact that tax bands have not been expanded as inflation has taken effect has meant that tax is biting ever lower down the income scale.
976 My hon. Friend the Member for Harwich referred to the constructive aspects of the Bill, and it is for those reasons that I would like to be able to give him support today. First, this is a moderate and temperate measure. The sums involved are relatively small from the point of view of the company and of the employee. None the less, they will act as a genuine incentive in the case of the latter. Secondly, the restrictions are such as to allow into the scheme as proposed only bona fide employees who have a genuine and long-term interest in the prospects of the company. Thirdly, the measure fulfils a need for which, as I know from my professional experience, there is a genuine demand from both sides of industry. It is a demand which I believe it is in the interests of the country to fulfil, and I believe that it will show a cynical disregard for the very worthy actions of work people all over the country if the Government oppose the Bill this afternoon.
§ 1.55 p.m.
§ Mr. Roy Hughes (Newport)
The Long Title says that this is a BillTo encourage companies to extend investment in the ownership of their shares to employees; to regulate the terms, conditions and extent of such investment including the liability to tax of the companies and employees; and for purposes connected therewith.I agree that those are what might be called commendable sentiments, and the Bill has what I would call a mixed bag of supporters. There is one Labour Member—at least, I believe he is still a Labour Member; I mean the hon. Member for Birmingham, Ladywood (Mr. Walden)—who has added his name to these proposals.
Indeed, it could be said that any proposition that puts forward ideas for increasing investment in British industry at present has to be looked at very seriously. We all know that investment or, rather, the lack of, is one of the basic and essential difficulties of our industrial scene at this time. This is perhaps a little incomprehensible to some people—to historians, and so on—bearing in mind that we were essentially the first country in the world to industrialise. We set off the Industrial Revolution, with all the great expansion of the coal, iron, and, later, the steel industry. I know that my ancestors back in 977 South Wales were right in the thick of it in those days when it all started off.
Gradually other nations started to catch up with us, and we found that investment in our own industries—investment that had been poured in at an earlier stage—began to taper off, with the loss of markets, the world wars, and so on.
One of the reasons why the Bill is now being put forward is that British industry, particularly in the post-war years, has been starved of investment, at least from private sources. Investment has been the cry of every Government. The exhortation to private industry is "Invest, invest, invest." We had it from the last Conservative Government. When the right hon. Member for Sidcup (Mr. Heath) was Prime Minister he called on private industry to invest. But that investment was not forthcoming, and eventually the right hon. Gentleman fell by the wayside over the difficulties with the miners and the three-day working week which eventually stemmed therefrom.
This lack of investment in British industry has also had an effect on the pattern of ownership of industry in this country. I do not know whether my hon. Friend the Member for Coventry, South-West (Mrs. Wise) would agree with me that the so-called basic or essential industries such as coal and railways were not taken into public ownership because of any Marxist dogma. Those industries were taken into public ownership because investment was not being generated in them. Those industries were so essential and basic to the affairs of our nation that money had to go into them, and the Government had to take action to see that it did. That is why they were nationalised.
A point that concerns me is the nature of the control of publicly-owned industries at present. I have been very critical of the British Steel Corporation. The whole set-up is bureaucratic and top heavy, and the industry is not particularly successfully managed. This is very regrettable to those of us who have supported public ownership so ardently over the years. When any move is made to involve employees in participation in their industries, public or private, I am all for it in principle. I suppose that it could be argued by the sponsors of the Bill 978 that one of their intentions is to get employees more involved in the fortunes of their companies.
As a nation we have tended to neglect our industry, bearing in mind that manufacturing industry in particular is the goose that lays the golden eggs and gives us the standard to which we have grown accustomed. This neglect of our industry is reflected in our education system, which is not geared to an industrialised nation. This is one of the main planks of the Prime Minister's argument about education, which he as emphasised in recent months and which the Secretary of State for Education and Science also has used as her theme. We must give more emphasis to training people for entering industry and taking up important posts in it.
The Minister replying to the debate represents a South Wales constituency, as I do, and he will be aware that in South Wales the emphasis has tended to be on training people to become teachers and preachers. He is a barrister, which is slightly different but is still an offshoot of the general theme. This tendency has a lot to do with the ravages of capitalism in South Wales. Because investment has not gone into industry, people are left with derelict communities and high unemployment, and many are forced to emigrate to the Midlands and elsewhere.
Because of this neglect of industry and the failure to invest in it we have had immense balance of payments problems, particularly since the end of the Second World War. We know that our principal competitors had the foresight to invest extensively in industry. This is particularly true of the Germans, although admittedly a lot of United States aid has been poured into that country.
§ Mr. Speaker
Order. I am sorry to interrupt the hon. Member, but he has begun to embark on an economic debate rather than speak to the Second Reading. I always try, especially on Friday, to be as tolerant as possible. Perhaps the hon. Member will bear that in mind.
§ Mr. Hughes
The point that I was trying to make, Mr. Speaker, was that while I support the sentiments of the Bill, it does seem, nevertheless, to be an attempt to generate investment through the normal capitalist system, which seems to have fallen down in this country.
979 I recall that when Lord Barber was Chancellor of the Exchequer, hon. Members on the Government Benches at the time threw their Order Papers in the air, ecstatic with excitement, when tax concessions were announced in order to generate investment. That is the basic principle of this Bill. But on that occasion investment, once again, was not forthcoming. The Bill provides for tax concessions for employees who do invest in their companies. That is one of the most important snags in it. Other employees who might not have the resources to enable them to put money into their company will resent the fact that colleagues working alongside them are getting these concessions. Also, there is the question of considerable loss of revenue to the Treasury, and we all know that the Treasury needs every pound it can get at the moment.
The sentiments contained in the Bill are admirable, but I do not agree with the basic philosophy of tax concessions, which I think is particularly unfair. The best way to generate confidence in industry is to implement fully all the Bullock proposals at the earliest possible opportunity.
§ 2.7 p.m.
§ Mr. Peter Emery (Honiton)
I shall attempt to speak briefly. First of all I congratulate my hon. Friend the Member for Harwich (Mr. Ridsdale) on bringing forward a small Bill which could do a considerable amount to increase the degree of share ownership throughout industry.
I have sat here since midday listening to the debate, and I have been most intrigued by the speeches of hon. Members who are against the measure. It seems to me that they cannot be supporters of the present Socialist Government. They cannot be willing to see the Government move forward in their intention of bringing about a mixed economy. If we are to have a mixed economy, there is not much use in strengthening only the public sector without strengthening the private sector as well. The Bill is a small way of strengthening the private sector.
This is very important because the Bill, in enabling an increase in the amount of share ownership throughout the population, gives us a better chance than any other method of overcoming Communism and extreme Socialism. When people 980 begin to take some part in the ownership of industry, they pay greater attention to that industry and its management and to the whole structure of the economy which allows industry to go forward.
I think that the Bill is of some specific use in that it could be one of the ways in which the first step towards share ownership could be given to a large number of people in industry who do not have any share ownership at present. Here is a way, by tax concessions, of encouraging people at work to put their savings into this type of ownership. When hon. Members say that this is unfair because some people will benefit when others do not, they should consider the fact that life itself is not absolutely fair. At the workbench today there are some people who get tax concessions when alongside them there are others who do exactly the same job and get exactly the same wage, but who do not have the same tax concessions. An example of this is the man who is buying his own house. That person will have a tax concession for life, whereas a person who is not purchasing a house will not have that benefit of a tax concession.
There is no equality in terms of tax concession. A person who acquires his own house is able to secure ownership of something and has the advantage of a tax concession, but a person who lives in a council property and who is unable in a Socialist-controlled area to purchase that house should at least be given a small concession by being able to own some shares.
§ Mrs. Wise
I know that the hon. Gentleman is not a sponsor of the Bill, and I wonder whether he has read it. The Bill says nothing about employees' savings. It was said earlier that the merit of the Bill had nothing to do with employees' savings and their investment in a company but was related to additional payments in the form of shares made to certain employees.
§ Mr. Emery
I knew that I should not have given way to the hon. Lady, because we are liable to become involved in an argument that is very much distant from that which I sought to propound. If a person owns capital, does not he or she consider it to be part of savings? The answer must be in the affirmative. If the hon. Lady has shares in the ownership 981 of something, is that not, in her view, part of the totality of her assets and her savings? The proposal in the Bill is a way of creating investment and, therefore, savings in the hands of the person concerned.
The point I was making was that the Bill proposes the first step for many people into the area of share ownership. It is true to say that many people are terrified at what a share certificate may or may not represent. These proposals are a method of enabling them to be brought into the arena of share ownership. It may encourage them to go further and to participate in the ownership of other shares. That would be a good thing for the country.
I have one worry about the Bill, and this fear often arises when one speaks of profit sharing and share option schemes. One difficulty for the workers—or, indeed, for directors in such a scheme—is that under these provisions the investments would be in their own company. This has the advantage of giving the participants a share in the profitability of the company and may give them an incentive to work harder and make more profits. However, it also means that those who are investing may be putting all their eggs in one basket. If the company goes into liquidation, those concerned will not only lose their jobs but will lose the extra piece of investment which they would have obtained. The investment will be worthless because the company to which it was attached will have disappeared.
The point made earlier by the hon. Member for Coventry, South-West (Mrs. Wise) is false, because the whole concept of trustees does not need to be in this Bill because it is already part of our common law. Trustees in this scheme should be empowered to invest, if the individual so wishes, 50 per cent. of the money outside the company in which he is employed. This would enable a spread to take place, and would mean that if a company were to go into liquidation the workers would not lose everything. They would still have a nest egg in other equity investments outside that of the individual company. That would provide a major improvement which would assist those 982 who opt for such an investment, because in the unlikely event of the company going into liquidation they would not lose everything as 50 per cent. of their investment would be employed outside their own company.
§ Mrs. Wise
I appreciate the hon. Gentleman's argument that the matter of trustees and their appointment is dealt with in common law. However, since we are not all experts in common law, perhaps the hon. Gentleman will say who would appoint the trustees and how they would be chosen, because these matters are not mentioned in the Bill.
§ Mr. Emery
The trust document is that piece of legal documentation which contains the structure of the trust. Such a document may stipulate that the whole of the trustees are to be appointed from the shop floor among, say, those who work the lathes. I do not suggest that the document would contain such a provision, but it would allow the trustees to come from any area of activity at any time. If the hon. Lady seeks to suggest that the Bill would be stronger if it contained a provision relating to the appointment of trustees, perhaps when the time comes she will table an amendment to that effect.
I conclude by congratulating my hon. Friend on presenting his Bill. I hope that he will reconsider the point of substance involving the encouragement of greater participation by workers if their investment is not tied up in one single investment. The benefit from the point of view of the Government is that the Bill is a way in which investment can be increased by an immense amount of participation by which the Government have only to provide a smaller percentage than they afford in other areas of activity. I believe that the Bill should be allowed to go to Committee to enable the points made by Labour Members to be ventilated. We hope that the Bill will be improved and will eventually find its way on to the statute book.
§ 2.18 p.m.
§ Mr. David Howell (Guildford)
This has been a thoughtful and serious debate on a most important issue, of which I am sure we shall hear a great deal more. I predict that on the next occasion when we debate these matters we shall be allotted a different spot from the Friday spot and shall have a much more wide-ranging discussion. The idea that this is a fringe matter, however small and modest these proposals may be, has been shown by this debate to be false, because we have dealt with some fundamental issues about the future of our society.
We are indebted to my hon. Friend the Member for Harwich (Mr. Ridsdale) for bringing forward the Bill and for enabling us to air our thoughts on these proposals. The proposals have the fullest approval and support of my right hon. and hon. Friends. I know that my hon. Friend the Member for Harwich will appreciate that one cannot hope to get right every detail in such a Bill. When embarking on somewhat novel territory for this country—although these matters are not new in other countries—inevitably there will be some element of experiment.
There may be some areas that we would like to improve—some proposals in the Bill that we would wish to build upon—but the general direction of the Bill has the wholehearted approval of my right hon. and hon. Friends and, I suspect, of many Government Members. I want to put that on record. I hope that when the Minister replies he will share in the support for the general principle that has been widely voiced this afternoon.
I was sad to hear of the possibility that the Government may seek to oppose or, in some way, block the furtherance of this legislation. If there is to be opposition from the Treasury Bench I hope that it will be only on matters of technical and minor detail and that it will not take the form of a generally hostile attitude to the whole thrust of the Bill. That would be a great mistake. It would be out of tune with the times and with developments in most free countries in the Western world. It would be a sign that the Government's thoughts are in the past and that they are backward-looking rather than forward-looking in this matter.
Before I come to specific details, I want to say something about the broader point concerning the importance of a 984 wider spread of personal capital ownership. When one contrasts wider capital ownership with relying for ever on wages and salaries as the form of remuneration for the majority of working people, it immediately becomes apparent that it is vastly better to encourage working people to accumulate capital. The doctrine that has been advanced by the hon. Member for Coventry, South-West (Mrs. Wise) and by many of her hon. Friends is humiliating: the doctrine is that workers should be confined to wages and that their lot must be to depend solely on wages and salaries; that they must, in effect, be wage slaves.
Society has a duty to promote ways in which the vast majority of working people can escape from that confine and can participate, through personal capital ownership, in the status and independence that capital ownership gives. That is a central issue. The House may not agree on that philosophy, but it is wrong for hon. Members, the Government and Ministers to dismiss the idea of wider capital ownership. They should not tell the working people of the country, whether in unions or not, that their lot must depend solely on wages and that there is nothing for them in capital ownership. I hope that in future, through the Bill, we shall be able to turn that humiliating and restrictive idea on its head once and for all.
Another thing that the Bill has enabled us to do in this debate is to move much of our argument about the economic situation away from the two-dimensional and outdated argument about capital and labour. I was sorry that, the other day, the General Secretary of the TUC, Mr. Len Murray, gave further currency to this view—to the analysis that separates capital and labour. He was arguing that there should be equality between the two. I paraphrase his words, but his implication was that it was time that labour had equal shares with capital. That is an outdated and false view of the way that modem industrial society operates. If the General Secretary of the TUC had said that the time had come for the increased fruits of capital to go to labour, it would have shown some understanding of the way in which things are organised.
In our use of words we often slip away from the fact that the vast majority of 985 output comes from capital, which may, in turn, have resulted from layers of effort and sweat by past generations of labour. The difference between today's industrial society and primitive societies of the past is that the vast bulk of output now comes from capital equipment, at the elbow of every work person, rather than from the sweat of labour. It is totally retrograde for Mr. Murray or anybody else to argue that capital and labour should somehow have equal shares, that workpeople should benefit only from the fruits of their labour and not from the fruits of capital. Mr. Murray should think in a more modern and up-to-date way and should look at the real interests of today's working people.
Another reason why the Bill is important has already been mentioned by some hon. Members. There will be greater savings and investment in the country only if better returns are given for savings and investment than in the past. That obviously means, as my hon. Friends have rightly said, lower tax penalties and greater rewards for capital. The difficulty, especially in the atmosphere of the past few years, has been the argument that capital rewards must be restricted and penalised. It has been considered that capital should be for the minority. But if the majority are to enjoy the rewards of capital it would be unfair to change the basis of rewards for capital ownership. If we can secure ways in which personal capital ownership can be widened, there will be wider acceptance of the idea that capital should have its proper rewards.
In the Bill there is a harnessing and bringing together of ideas for the promotion of a fairer and more democratic structure in society. Capital should be rewarded more closely in line with its earning power. That must make sense in a country that so desperately needs to raise its level of investment and savings and to reduce the amount consumed in relation to total output so that it can be diverted into export and investment. That important theme has been eloquently expressed by my hon. Friend the Member for Harwich and other hon. Members.
Such a scheme would also help to promote better relations in industry. I do not argue, and I do not think any other hon. Member has argued, that such a 986 scheme is "the answer to Bullock". That is seeing the scheme in the wrong light. These ideas stand on their own. It is reasonable to assume—particularly on the basis of experience in firms that have tried such schemes—that a wider degree of ownership amongst employees will improve the atmosphere, attitudes, loyalty and interests in their companies among work people. It will create a better background against which the normal practices of industrial relations, consultation, communication and close involvement among all levels of blue collar, white collar and management staff in a department or firm, can take place. That is an important consideration.
A scheme such as that suggested in the Bill would also provide a natural and genuine vehicle for the election of employee directors, who would truly represent the interests of shareholders in a way that would offer employees a direct interest in the management and direction of the firm.
That sort of financial participation seems entirely desirable, open and realistic, and I hope that hon. Members will see its virtue. It provides a contrast to some of the ambiguous and spurious doctrines aired in the Bullock Report and in some of the reactions to it.
In the debate we have heard references to the increasing concentration within industry and the need for a greater decentralisation of the ownership of capital in our economy. I share that view; the British economy is one of the most concentrated of the free economies and is concentrated particularly in State and collectivist hands.
We have a smaller small business sector than almost any other Western country, and some of the fastest growing economies reflect the decentralisation of economic ownership by having the largest small business sectors. We also have the smallest number of people involved in direct share ownership.
It is no coincidence that, with the smallest proportions in both these areas, we are so near the bottom of the league of economic performance and capital growth. It is a powerful argument for seeking a reversal of the situation.
The hon. Member for Luton, East (Mr. Clemitson) rejected State ownership in terms that made me smile and wonder 987 why he had voted for the recent nationalisation measures that have been driven through the House. He said that there was another way—the collective or corporate ownership of firms. But we should then be moving back into the realms of collectivist and State control and all the problems that arise when, in the name of individuals, a central group of people, whatever the form of ownership, attemps to rule the roost and declare what shall be done. The collectivism and corporatism that the hon. Gentleman described is no improvement on the State collectivism that is causing such damage to this country and has concentrated so much power in so few hands in such an undemocratic fashion, to the detriment of our workpeople.
The sincere and serious defences made by some hon. Members on the Government Benches against the enormously powerful logic of the scheme of my hon. Friend the Member for Harwich do not stand up, and they will not suffice to argue against what he is proposing in his excellent Bill.
Turning to the details of the Bill, I place great importance on the concept of deferment. The scheme is so organised as to provide a strong incentive for the recipient of profit shares—the employee—not to flog them at the factory gate but, rather, to hold on to them and thus become an asset owner. That is an important element, because there would be little point merely in promoting a scheme that involved the immediate disposal of shares.
The deferred element is enormously valuable and important, especially in regard to overall economic management. I should expect the Treasury to welcome that aspect of the Bill. Anything that can create a deferred element in the demands on our resources in the present difficult period must be for the good. The idea that after five years an individual may become a free shareholder and do whatever he wishes with the shares is also a central theme in any scheme such as this. It means that the trust will have control over the shares held by employees in those five years of employment, but not necessarily afterwards—unless the employee decides to leave the shares there of his own free will. This is important, because we wish to avoid building up large vulnerable trust organisations own- 988 ing large numbers of shares that could be snapped up by collectivist organisations.
It is worth remembering that the trade unions in Sweden were all in favour of profit sharing, and proposed that the profit shares should be put into funds that would be controlled by union officials. Such a system would take us back to more collectivism and less capital ownership by individuals. It is not surprising that the Swedish people sharply rejected that idea at the polls.
I emphasise the vital point made by my hon. Friend the Member for Harwich, that we are talking about new capital. We are not in the business of smashing up the wealth of the country in order to satisfy the blood lust of those who want to tear down the capitalist system; we are concerned with improving the benefits of the capitalist system and to see that there is far wider participation by the vast majority of work people in these benefits.
My hon. Friend the Member for Walsall, North (Mr. Hodgson), in an able and interesting speech, spoke about the relationship between these schemes and aspects of wage negotiations. He rightly pointed out that the scheme was small and modest, and would cost little—my assessment would be a zero cost or even a positive gain for the Revenue.
I do not foresee these schemes becoming muddled with wage negotiations. Negotiators who sought to consolidate them or tie them up with a wages agreement would do great detriment to employees and employers, and any negotiator who wrecked the prospects of such a scheme would not be thanked by his fellow employees.
When we survey the present situation and compare it with that in other EEC countries and in the United State we must conclude that we can do very much better for our workpeople. We can create circumstances in which there is a far wider spread of personal capital ownership, and get away from the farce—I was going to say fraud—inherent in the argument that State ownership is ownership by the people. It is increasingly apparent that it is the exact opposite.
I hope that the TUC, the employers and the Government will give careful consideration to these proposals, which we shall be hearing increasingly in future, 989 because within these forward-looking ideas lies the basis of the fair and free society to which we intend to return.
§ 2.39 p.m.
§ Mr. Sydney Bidwell (Ealing, Southall)
I apologise to the hon. Member for Harwich (Mr. Ridsdale) and to the House, but it is not always easy for hon. Members to get to the House in time for the start of Friday debates. I have a longstanding interest in this subject, as will become apparent if I explain how I have applied myself to the principles in the Bill in the past and how I have been involved within the Labour movement, and particularly the trade union movement, in many discussions, involving much burning of midnight oil, on such schemes.
I find the Bill untimely in the sense that we now face discussion on the long-awaited Bullock Report, which puts forward the idea of worker directors. My right hon. Friend the Secretary of State for Employment has promised the utmost national discussion before any conclusion is reached and legislation is passed based on the proposals that the Bullock Report has presented to the House.
Obviously, such a revolutionary proposal has to be a matter for considerable national discussion. Therefore, I find the Bill, whatever its merits, to be out of place. To propose statutorily to change company law is to propose a profound change. Although what the Bill proposes may be described as small, there is, in fact, much in it. Indeed, there is much in it that I find to be half-baked compared with the considerable changes that most of my hon. Friends want to see in the structure of the joint stock limited liability company.
We have not always had in our history the existence of the joint stock limited liability company, and we shall not always have it as part of our national economy. It will not always fit in. When we study the coming into being of the capitalist system of society and the breaking away from the old feudal aristocratic class and the peasants, we find that company law and company activity have changed considerably in the process of time and are changing still.
If the Bill were a fundamental reform seriously designed to change the class 990 character of our present capitalist system of society, designed in any way seriously to challenge the ownership of the means of production by a tiny handful of the population, I should not be putting up only one hand for it; I should be putting up two hands. I should not be walking towards it with two feet; I should, as it were, be walking with four feet. However, it does not seek to make such changes and in that sense it is misleading.
I feel that the Bill is a bit of a sop. It is seriously deficient and is no part of Socialist thinking. It has never been part of Socialist thinking not to honour national endeavour and, in the whole productive process, the existence of a small business sector within the economy What we as Socialists have seriously challenged is the emergence of monopoly capitalism, and more especially the multinational monopoly capitalism that we now see. That is what we are worried about. We want to wrest control from the hands of a tiny few and place this aspect of economic life, which involves national welfare and international welfare, into the hands of the people.
We have never said that we must be zealous about roping in every particle of private enterprise. I freely acknowledge and honour the enormous amount of zeal, enterprise and talent that go into the management and operation of small businesses. The smaller they are, especially in relation to trading and shop-keeping, the more likely they are to be based upon family slavery.
In the area that I have the honour to represent, where there is the largest Asian community in the land, there is an enormous amount of small-scale enterprise that is reflected in shopkeeping and other businesses. As time goes on, many of these talented people will find their way out of shopkeeping and trading and will be involved in small business enterprise. Indeed, this is beginning to happen. Good luck to them. Such enterprise will be accepted on the basis of whether they are able to prosper.
I hope that I am not making too much of a diversion. My purpose is to show that I am no less zealous in wishing success for the genuine small business. I do not include small business activity that is really under the umbrella of hidden and more gigantic forces. That has 991 never been the history of Socialists. We support genuine small-scale family businesses and co-operative private enterprises.
I suppose that the logic of the presentation of the Bill is to try to assert that it is a meaningful step towards certain concepts of co-operative facility within enterprise. It is an argument but I do not think that it is seriously upheld by the character of the Bill, not only because of its untimeliness but because it is, with respect, half-baked. Is it seriously meant as a step forward to the concept of people's participation, of ordinary work-people having a share in the product that they help to create? It does not do anything of the sort.
We have heard from the hon. Member for Guildford (Mr. Howell) about the rôle of the State. From the Opposition Benches there is the chant that State oppression is synonymous with Socialism. It is nothing of the sort. That does not relate to genuine Socialism. The growth of the State, the overweight of the State and the overweight of bureaucracy have nothing to do with Socialist theory. In fact, Socialist theory is all about the withering away of the State, the lessening of the State, the lessening of armed bodies of men. Engels, Marx's collaborator, once described the power of the State in the last analysis as being armed bodies of men and not bits of paper, not rules that we may lay down in the House from time to time.
Oppression, slavery, large police forces and large armies have never been the doctrine of real Socialist understanding.
§ Mr. Bidwell
The idea of the State being synonymous with Socialist ideas shows considerable deficiencies in Opposition thinking if it is seriously put forward—mostly this is done by younger Conservative Members—as Socialist policy. Perhaps the younger Conservative Members know no better. Some Conservative Members know better because they have read the books. They have read the political, historical and theoretical books and they understand. The continual chant of the younger Conservative Members indicates that there has been some serious neglect in the 992 background of their political education. In the universities and the colleges there is no really serious examination of what Socialist ideas are about. Such examination can be engaged in only extraneously.
I bring forward those background thoughts in looking at some of the details of the Bill. As extra weightage, perhaps I may explain, having been a railwayman and having campaigned for the nationalisation of the railways—this matter has been mentioned by the hon. Member for Guildford—that railwaymen were not satisfied with what they got. However, many would not go back to what they had. They were disappointed that they did not get more employee participation in the running of their industry.
§ Mr. Bidwell
I shall give way to my hon. Friend when I complete this point. The miners feel more satisfied because they have a powerful say in events in the new, nationalised coal industry. In other respects—Conservative Members have often sought to rub our noses in it, so to speak—workers in nationalised enterprises have been far from satisfied with what has emerged. That does not mean that they are opposed to the concept of the national ownership of the means of production or of the nation owning an enormous part of our national enterprises.
§ Mr. Ernest G. Perry
My hon. Friend mentioned that he was a railwayman. Can he take his mind back to the 1920s and 1930s, when a job with the different railway companies in many cases meant not very high earnings but job security? In those days job security had a tendency, in the words of J. H. Thomas, to keep them docile for quite a long time.
§ Mr. Bidwell
That is perfectly true. Many of us are a little older than some hon. Gentlemen opposite who are present today. That was the prime attraction. To some extent, the prime attraction of going into the Army was that it was a regular job in days of mass unemployment. Parents were anxious that their offspring should have jobs for life with pensions and so on. That was certainly in my father's mind when he put all his sons—I was the fourth—on the railways. That was because he had been in and out of work as a building trade worker. 993 But when we had full employment after the war, the job became a bit too regular and many left it.
§ Mr. Michael Spicer (Worcestershire, South)
On a point of order, Mr. Deputy Speaker. These reminiscences about history are interesting —
§ Mr. Michael Spicer
—but I cannot see what they have to do with the question of wider share ownership.
§ Mr. Deputy Speaker (Mr. Bryant Godman Irvine)
I am hoping that the hon. Gentleman will deal with what is in the Bill or alternatives to it. This is a Second Reading debate.
§ Mr. Bidwell
In those days, to put in a bit of meaningful background, I worked with a chap who had a few shares left to him by his grandma. I was then a shop steward. He was more concerned about the next declaration of a dividend and whether he would get another few quid from those shares than about fighting for proper wages and conditions, which was what I was concerned about. Some of these reminiscences are relevant when considering a Bill of this kind.
I do not know whether it has yet been elicited whether the shares proposed to be made available to employees will have voting rights. I do not know whether the promoter of the Bill has dealt with that matter. The question of whether participation shares are equity stock is of profound importance. We should know whether they will be designated as equity stock and whether the employees concerned will have voting rights at the shareholders' annual meeting.
Some members of the Association of Scientific, Technical and Managerial Staffs—my hon. Friend the Member for Feltham and Heston (Mr. Kerr) is a leading member of that body—believe that it would be a favourable thing to take shares in ownership without statute. That body certainly does not frown upon taking equity stock in companies in the private sector in which its members are employed—if they can afford and get hold of the shares—in order to have a presence at the shareholders' annual meeting. 994 Hon. Gentlemen opposite may know more about company activities from a personal point of view than I do. I have no businesses interests to declare. I am a sponsored Member of the Transport and General Workers Union. Many hon. Gentlemen opposite sail under the title of "company director". Often one's Conservative opponent is described as a company director. That description covers—
§ Mr. Bidwell
—a multitude of occupations and sometimes a multitude of sins. It can also obscure a multitude of virtues. A person can sometimes be a director of one, two, three or a dozen companies. One can obtain that information from the "Directory of Directors". That often means that they are non-executive directors. I support the Companies (Audit Committees) Bill introduced by the hon. Member for Kensington (Sir B. Rhys Williams) as a progressive measure in that respect. It could help to prevent some companies from going smash. I believe that non-executive directors should fill a considerable supervisory rôle in overseeing the affairs of their companies. That Bill could have saved consumers and customers, particularly in the insurance world, a considerable—
§ Mr. Ernest G. Perry rose—
§ Mr. Bidwell
I see that I shall get into trouble, since my hon. Friend the Member for Battersea, South (Mr. Perry) is an ex-insurance worker. I have touched him on a raw nerve there.
In the present climate, a Bill must have a serious deficiency if it does not contain an absolute insistence that such shares acquired by State intervention carry voting rights. If that thought has not yet been brought forward in this discussion, it gives the game away. Here we have the question of statutes and the sprat to catch the mackerel. We are entitled to be suspicious.
This Bill has more to do with allowing directors to get away with tax-free income by obtaining extra shares than it has to do with the general advance of industrial democracy and empuring that employess have a full involvement with the enterprise in which they work.
§ Mr. Michael Marshall (Arundel)
The hon. Gentleman is raising a number of 995 questions which my hon. Friend the Member for Harwich (Mr. Ridsdale) has fully covered and explained to the House. It is unfortunate that the hon. Gentleman could not be here earlier to hear what my hon. Friend said. It might be more convenient if the hon. Gentleman returned to his personal reminiscences. Even if they were out of order, they would keep us moderately entertained.
§ Mr. Bidwell
It would be much more interesting if the hon. Member for Harwich could tell us whether the shares he has in mind will be voting shares. The hon. Member for Harwich may intervene if he wishes.
If this aspect has not yet been brought forth, it is not only a serious deficiency but, is a curious one. It should be cleared up. The hon. Member for Arundel (Mr. Marshall) is suggesting that the matter has been cleared up. I do not think that it has been, because of the silence of the hon. Member for Harwich. I leave the House to draw its own conclusions.
The Bill is meant to encourage companies to extend investment in the ownership of their shares to employees. There is no discouragement now to the extent to which companies are disposed to do that. Companies may approach their employees on this matter at present. It is better if the employees are in unions, because they are then able to speak through a representative voice. This has been a matter for joint consultation between management and unions in private enterprise. It is probably the case that many schemes are proffered in companies without serious discussion with the employees.
The history of employee share participation in some cases meant that the workers were "flogging" shares at the gate. The hon. Member for Guildford used the verb "to flog" meaning "to sell". The workers were much more interested in cashing in their shares. When that is the case, it is because there is a self-defeating sense of extra responsibility as a result of owning such shares. The thing to do is to cash in on them. If they are bonus shares, if they are sold not as existing shares but as "watered" stock or as additional shares, that is "phoney". Such participation has not worked out because it has not 996 got the workers thinking that they have a serious stake in the enterprise.
The Bill will bring about tax concessions for shareholders, large and small. They would gain additional tax-free income at a time when there is concern about tax-dodging, about the amount of income which directors often receive without paying tax—the "bunce". Sometimes directors have their car provided free or the rent paid on their house. In this sense they are living in a tied cottage. It is better that things should develop in a different way.
The Bill is badly timed and is "phoney". I want to see the tax threshold raised because problems arise with unemployed workers who have many dependants. We will not allow them to starve. Because they receive State benefit which brings them, perhaps, to the level of the lowest-paid workers, they can be caught by taxation. The tax threshold must be raised because inflation has overtaken it. We look forward to the Chancellor taking this action in the next Budget.
I believe that there should be far more shop stewards involved in the nation's life throughout the country. It is not possible to get more down to earth than the British trade union movement. This Bill is "phoney", a sop. I hope that my two hon. Friends who have put their names to the Bill will read what I have said. My hon. Friend the Member for Birmingham, Ladywood (Mr. Walden) is a confessed non-Socialist, so perhaps he will find it easy to support the Bill. However, my hon. Friend the Member for Ilkeston (Mr. Fletcher) is an old colleague of mine—a trade union education officer with whom I worked in the Labour College movement, a one-time fellow tutor-organiser. My hon. Friend might have thought that the Bill was a little advanced, but he cannot have examined the small print seriously. Anyone who does so must oppose the Bill.
§ 3.8 p.m.
§ Mr. Perry
I do not know what the object of that remark is. I remind the hon. Gentleman that I was here at 11 997 o'clock this morning and remained here until 12.30 p.m. I listened to the speech of the hon. Member for Harwich (Mr. Ridsdale) and many others. I would not have left the Chamber and had it not been for the fact that I was called away because in my constituency a firm known as Phillips Medical Systems is closing down. Over 100 skilled technicians and craftsmen will be made redundant. I apologise for being absent, but I was arranging a meeting between my constituents and the relevant Minister.
§ Mr. Michael Marshall
I am sure that we would all wish to exempt the hon. Member for Battersea, South (Mr. Perry) from any criticisms made earlier, since he has been in the Chamber for such a long time. All that we would like to hear from the Government is whether they intend that the Bill should be talked out.
§ Mr. Perry
To some extent I am pleased to support the Bill. Despite the hon. Member's remarks, many of us can support the Bill, although there are drawbacks involving income tax.
I agree with what the hon. Member for Harwich said about the ownership of working capital and the need to spread it more widely. If the intentions behind the Bill are genuine, I give it my full support. But I am worried about the taxation aspect. According to the inquiries that I have made the Bill could cost the Exchequer between £50 million and £100 million. Taxation concessions of that size require further consideration.
Mr. Charles Pearce, who lives in Du Cane Court, Balham High Road, wrote to me to explain that he was 78 years of age and still working in a solicitors' office in London. He was upset about the taxation of old people and asked me to submit his case to the Chancellor of the Exchequer.
§ Mr. Ridsdale
If the hon. Gentleman's figures could be proved I would not have been able to introduce my Bill. There will not be taxation charges. The increased productivity involved would not put an extra charge on the taxpayer.
§ Mr. Stainton
The Bill would have been out of order had any figures been capable of substantiation.
§ Mr. Perry
I accept that, but the Bill does involve a taxation concession. Profit that would be taxed will be given instead to employees, whether they are on the executive or among the workers. Under the Bill 10 per cent. of gross profit will be distributed in shares. That is why I have doubts about the Bill. The gentleman aged 78 complained to me about the amount of tax that he has to pay because he still goes to work.
The hon. Member for Harwich said that over 55 per cent. of the population are now house owners. Home ownership has changed over the last 50 to 60 years. During that time wealth has been spread, and today the insurance industry, which takes the savings of millions of ordinary people, provides investment for industry. There has been an extension of home ownership and investment in insurance companies. The introduction of pension schemes in small and large firms—which I welcome—means that people have a vested interest in their pension fund and in the firm in which they work. I see no objection to the hon. Gentleman's proposition, provided that we can get over the taxation question.
I do not know the source of the interesting figure given by the hon. Gentleman, but he told us that 96 per cent. of those who voted at elections had no direct ownership in industry. I take it he means that they have no direct ownership in companies engaged in industry. That may be true. They may have no direct investment in firms, but I am sure the hon. Gentleman knows as well as I do that most people, through insurance policies, building societies and pension funds, have some stake somewhere in our industry. I want to see that idea develop. I want to see a larger share of investment coming from ordinary people, so that we all have a stake in industry.
The only thing that worries me about the scheme is how a small business will operate it. I have in mind a small business employing 20, 30 or 40 people. How will such a firm benefit from this scheme? I do not believe that large 999 family businesses or the multinationals should be the only beneficiaries.
The hon. Member for Horsham (Mr. Hordern) made a useful contribution to the debate. He said that he would like to see this scheme introduced for the nationalised industries. I ask hon. Members to cast their minds back to the late 1940s and the introduction of nationalisation schemes for the mines, electricity and gas. The workers in those industries have no more idea now than they had before these industries were nationalised what is happening in them. They have no more control over these industries and no more idea how they are run than they had when they were under private enterprise. It is necessary to look at the whole set-up of the industries if we mean what we say and want to do something about them.
It is not my intention to delay the progress of the Bill. Nobody can accuse me of wasting time. I have put a few ideas to the hon. Member for Harwich because I believe that they should be considered. The Bill has merit, but before supporting it I must be satisfied on the tax issue. I want to know how much it will cost, and whether it is right to make this provision when other people are paying millions of pounds by way of tax and complaining about it.
§ Mr. Perry
I should like to discuss these issues with the hon. Gentleman in Committee but, unfortunately, starting next Wednesday I shall be a member of the Committee considering the Insurance Brokers (Registration) Bill, which will take some time. If the hon. Gentleman's Bill receives a Second Reading today, I shall not be available for the Committee that will consider it. I must give that notice now, in case those concerned decide that they would like me to serve on this Committee. As I am a member of one Committee; I shall not have time to be on the other.
This is a useful proposition. It needs to be considered further, and I hope that the Bill will make some progress.
§ 3.19 p.m.
§ Mr. David Weitzman (Hackney, North and Stoke Newington)
No doubt I shall earn the censure of the hon. Member 1000 for Arundel (Mr. Marshall) because, unfortunately, as I had another engagement I was not present to hear the words of wisdom from the Tory Front Bench and from other Conservative Members. I must have missed a complete treasury of gems, which I should very much have liked to hear.
I put my name down to speak in this debate and I was anxious to take part in it, because there are one or two points—and only one or two—that I want to raise. I am sure that the Minister will have ample time in which to deal with all the queries that have been raised.
The object of the Bill is to:Encourage companies to extend investment in the ownersship of their shares to employees; to regulate the terms, conditions and extent of such investment including the liability of tax of the companies and employees; and for purposes connected therewith.Like my hon. Friend the Member for Battersea, South (Mr. Perry) I am entirely in favour of profit-sharing schemes, given that they are put forward properly. The one strong objection that I have to the Bill is that it is in the form of a Private Member's Bill, which is discussed on a Friday when very few hon. Members are present. If the Bill goes to a Comimttee a small group of hon. Members will deal with it. The Bill deals with important changes in finance, which should have been put forward as amendments to the Finance Bill, so that there could be discussion in the House and Committee and it could be dealt with in detail there. That is my strong objection to a Bill of this kind being brought forward on a Friday in these circumstances. If hon. Gentlemen think about it I am sure they will see how wrong it is that changes of this kind should be made in this way.
§ Mr. Ernest G. Perry
My hon. and learned Friend is perhaps being rather unfair. An ordinary private Member who is lucky enough to win a place in the Ballot is surely entitled to introduce a Bill of this kind. It takes a lot of investigation and thought, and the hon. Member for Harwich (Mr. Ridsdale) is to be congratulated, whether or not we agree with the Bill. It is the only chance that an ordinary Back Bencher gets of bringing a Bill forward.
§ Mr. Weitzman
Certainly the hon. Gentleman is entitled to use his luck 1001 in the Ballot to bring forward matters of this kind. But I emphasise the important point that when we are seeking to make important fiscal changes, which as a rule are brought about in a Finance Bill, they should be made by way of amendments to a Finance Bill.
The reason is perfectly simple. It is true that my hon. Friend the Member for Battersea, South has a profound knowledge of these matters and can call on expert experience. It is also true that many Opposition Members can give excellent views. But we know that very few hon. Members attend this House on a Friday and we know that when a Private Member's Bill goes to Committee upstairs it is dealt with by a small number of hon. Members. When we have important changes of this kind it is my view that they ought to be made to a Finance Bil.
I want to refer for a moment to what I consider are the important changes that have been made. I understand that the Government's position is that any benefits from shares that a person receives as a director or employee are, and should be, chargeable to income tax under Schedule E as emoluments of his office or employment. That is the policy of the Government. I understand that that was exactly the policy of the previous Government. They accepted the general principle that benefits accruing from shares by virtue of office or employment should be taxed as income.
It is true that in 1974 the present Government repealed certain general "let-outs" that were introduced by the former Government. Those "let-outs" were considered to be tax privileges for the favoured few. This Bill is, in effect, trying to restore some of those privileges, and I object to that. I have no desire to go into the matter in detail, but I am sure that hon. Members will agree that the Bill seeks to give privileges to a few. I object to that, because it is something that should be done—if it is the will of the House that it should be done—in the Finance Bill.
I have no desire to prevent the Minister from dealing in detail with the points raised by Opposition Members, as I am sure he is ready and anxious to do, but I desire to put forward these two points, 1002 which I consider are, to say the least, very strong objections to giving the Bill a Second reading.
I congratulate the hon. Member for Harwich (Mr. Ridsdale) on introducing the Bill, because it has given us an opportunity of going into the matter in some detail. I note that a number of Opposition Members are anxiously waiting to take part in the debate, but I am sure that they also want to hear what the Minister has to say. I shall therefore refrain from going further and end by saying that I hope that the Bill will not receive a Second reading.
§ 3.27 p.m.
§ Mr. Julius Silverman (Birmingham, Erdington)
I apologise to the House for not being present earlier in the debate, but I have read the Bill and considered its provisions. I am certainly not opposed to so-called profit-sharing schemes. I know of a number of them and I have no objection to them, but I do not think that they achieve what is claimed for them. Certainly they have some advantages and, as far as I know, they have no disadvantages, but they do not advance to any great extent what we all wish to advance, namely, the involvement of workers in their firms and in their place of work. I have never found that profit-sharing schemes do this to a substantial extent.
When a worker has £100 or £200 in shares, it does not make him feel that he is really part of his company. He usually plays no part in the decisions of the company. Nevertheless, I do not think that these schemes are undesirable. I would have thought that this matter might well be considered when discussions on the Bullock Report take place with trade unions and employers.
What I object to is that if there are to be profit-sharing schemes on the lines suggested in the Bill, the taxpayer will be asked indirectly to make a contribution towards them. It is true that expenditure under the scheme is limited to £1,000 for each participant but, even so, there is a dangerous principle here, which is capable of extension and which may erode the fairness of taxation, which is extremely important to all taxpayers.
I do not think that the scheme is fair or reasonable, because the general principle is that a person who derives any benefit or any profit from shares in a 1003 company, however, the shares come to him, should be taxed in precisely the same way as everybody else. If this is extended, it could create a serious hole in all our taxation provisions. I think it is a bad principle to start with.
There is another point, apart from taxation—the question how this fits into the wages policy of the Government—a policy with which quite a number of Opposition Members agree.
If there is to be a wages policy, we are obliged to take other benefits into consideration. This the Government have done. They have had to do it in the form of pension schemes, for instance. They would have to consider benefits in relation to this scheme. Otherwise, the door would be wide open, through a multitude of fringe benefits, to erode and destroy any sort of wages policy. That, again, is something that the Government would have to consider, in seeing how this fits in with an agreement, which will certainly be difficult to achieve, anyhow, during the coming year. If there were any elements of unfairness about this, obviously it would be still more difficult to achieve.
Having gone through the Bill in detail, I notice that according to paragraph 6 of the schedule to the Bill a participant does not derive any benefits until he has been in the scheme for five years, unless he has the good fortune of dying or being dismissed for redundancy or suffering injury or disability during that period. I cannot conceive that, with this particular paragraph in mind, it is likely to secure any feeling of involvement on the part of participants. If that is the object of the Bill—the object itself is good, but whether the Bill achieves it is another thing entirely—I really cannot see that this will advance us any further on that course.
I am hoping that the Minister will consider all these points. The question of taxation has been mentioned on a number of occasions. The question of its connection with the Government's wages policy certainly ought to be considered. No doubt my hon. Friend will be able to say something about that, and no doubt the Minister will also consider the other matters.
I congratulate the hon. Member for Harwich (Mr. Ridsdale) on introducing the Bill, which has formed a useful basis 1004 of discussion. At the same time, I am very doubtful about some of the reasons for the Bill, and I am very doubtful whether it will obtain a Second Reading. If by any chance it does, I hope that it will be considerably amended in Committee.
§ 3.33 p.m.
§ The Minister of State, Treasury (Mr. Denzil Davies)
There seems to be a great desire, especially on the Opposition Benches, for me to intervene at this stage. I think that after the long and very interesting debate which we have had it is right that I should try to answer some of the points.
In fairness, I should say that this has been a very general but very interesting debate covering, in the main, the virtues or otherwise of extending share ownership, the reason for the decline in ordinary, private share ownership, and the way we should advance industrial democracy.
First, I should also add my congratulations to the hon. Member for Harwich (Mr. Ridsdale) on introducing the Bill, with the other persons who are with him introducing the Bill, although he is obviously the main sponsor of the Bill. It is not an easy field. It involves company law and taxation requirements and is an extremely complicated area. The fact that the Bill in itself is fairly short does not mean that it is not a complex and difficult area, and I would like to congratulate the hon. Gentleman. I accept also that the hon. Member brought the Bill forward in a genuine attempt, made in good faith, to increase employee participation in companies and to advance the cause of what is commonly called industrial democracy. I accept that that was his main motive entirely.
We have had a general debate on the value of share ownership. If I were not at the Dispatch Box I could indulge in the luxury of thinking aloud and giving my personal views, but unfortunately if one is a Treasury Minister the Dispatch Box is not the best place for thinking aloud.
Quite clearly there has been a decline in the ownership of ordinary shares by private individuals. I do not know the reason for this. Opposition Members have advanced a number of reasons—Government policies, dividend restraints and the growth of institutions. My hon. 1005 Friend the Member for Luton, East (Mr. Clemitson) pointed out that the acme for ordinary shares was in the nineteenth century, when society was very different and ownership of shares played a different part. There could be many reasons for the decline.
About a year ago I answered another debate on a Friday about the direction of funds from life offices and pension funds into industry. We had an interesting debate on that occasion. I must say that I find a paradox in the Opposition's advocacy on the one hand of the need to encourage life institutions and pension funds, and to maintain the considerable benefits which they have in taxation and otherwise, and their advocacy on the other hand of increasing share ownership among private individuals. I should have thought that one reason for the decline in the holding of ordinary shares by private individuals was the considerable growth which has taken place in this country in the power of institutions such as life offices and pension funds and the benefits which we have given to them.
The growth of those institutions must have affected to some extent the capacity of the ordinary individual to own shares, because in some ways they are competing for the same kind of money. One hon. Member mentioned the figures for France and Germany and pointed out that in France there was 9 per cent. ownership of shares compared with 3 per cent. in this country. My personal view is that the reason why the percentage is higher in France is that this kind of channelling of private funds into large institutions and the whole pattern of Continental saving is different from that in this country.
The Opposition cannot have it both ways. On the one hand they advocate the need to increase the power and benefits of the institutions, and on the other hand they advocate increasing ordinary share ownership. There is a paradox between these two objectives.
§ Mr. Ridsdale
Would the Minister accept that both France and Germany go a lot further in encouraging share ownership schemes?
§ Mr. Davies
I take the hon. Member's word for it. I think that Germany has gone much further than France. I sus- 1006 pect that in France, with a substantial small private sector held tightly in family hands, they have not gone quite as far. Certainly Germany has gone a long way.
The Government do not disapprove of private share ownership. Nor do we disapprove of the Bill because it allows greater ownership of shares in industry. Indeed, the contrary is true. Nothing we have done inhibits greater ownership of shares by workers in industry—indeed, there are many schemes in existence. There is nothing to prevent the extension of share ownership by employees in the industry in which they work—indeed, it is happening all the time in British industry. We are not against the Bill for that reason. We are against it because of the reasons given so clearly by my hon. and learned Friend the Member for Hackney, North and Stoke Newington (Mr. Weitzman). At the end of the day, this is not a Bill to promote wider share ownership by employees in industry; it is a tax Bill.
The Bill seeks to make major changes, for good or ill, in tax legislation. Opposition Members have spoken at length about the benefit of these provisions as a result of ownership of shares. Clause 3 was hardly mentioned, and without that clause the Bill is of no use. That clause, which is the crux of these provisions, refers toany shares … or any interest in shares … acquired in pursuance of a scheme to which this Act appliesand then refers toany benefit received by any person by virtue of the ownership of or interest in the shares acquired under the scheme".The whole success of the Bill depends on Clause 3, yet there has been no discussion about the effect of that clause on our tax laws. Undoubtedly it involves a major change in legislation.
That comprises the Government's opposition to the Bill. If this has to be carried out as a major form of change, it will have to be instituted by means of provisions in the Finance Bill instead of by a Private Member's Bill, however worthy its aims may be.
§ Mr. Maurice Macmillan
The Minister advises us to go ahead via provisions in the Finance Bill. That advice was given to me by the Treasury Bench 15 1007 or more years ago when a Conservative Government were in power, but they sedulously resisted every attempt to use the tax structure to encourage the spread of wealth more widely, largely on the ground that it was an improper use of the tax system. Will the Minister give some assurance that we may expect a more enlightened approach from his governmental colleagues in the next few weeks?
§ Mr. Davies
The present Government are far more enlightened than were the Conservative Government, but I admit that the hon. Gentleman's argument is fair. I repeat that these provisions will involve substantial changes in tax legislation.
Let me deal with the present tax position. There is nothing to stop an employee acquiring shares in a company at market value and selling them five or six years later, having participated in the growth of the company and having taken up the capital gains tax at 30 per cent. increase in value. If the intention is that the employee should benefit from any growth in a company, there is nothing in present tax legislation to prevent that happening provided that the shares are normal shares with no special restrictions and are acquired at market value.
The Bill seeks to enable companies to give employees shares at low valuations or at discount.
§ Mr. Davies
The hon. Gentleman does not agree, but my understanding of the Bill is that it enables companies to take that step. The shares are a gift or benefit to the employee in the sense that he does not pay market value for the shares. As the law now stands, the difference between the price paid by the employee and the market value of the share is charged to income tax under Schedule E. The Bill would provide that at that point of time, because of the benefit received, there would not be a Schedule E computation. The hon. Member for Harwich has not indicated the contrary view, and I take it that he would agree with me on that aspect of the matter. The benefit in future would not be charged to income tax but would go free of tax. 1008 Therefore, we cannot accept the Bill in its present form.
Until 1974, there were a considerable number of schemes afoot to circumvent the tax principle, imposed by both Tory and Labour Administrations, that if an employee received benefit in payment, shares or any other benefit that could be converted into money, he should pay tax on it. Until 1974, schemes aimed at getting round that provision proliferated, and did so successfully. An enormous number of share option schemes was introduced by boards of directors, mainly for the benefit of senior management and themselves. There did not seem to be any desire to promote industrial democracy. My recollection is that most of the schemes were confined to senior executives. They were given the option of acquiring shares with odd rights of various kinds. They received, at less than market value, shares that could be disposed of later merely by payment of capital transfer tax. Such schemes were not confined to manufacturing industry and were most common in the banking and insurance sectors.
§ Mr. Stainton
The Minister is suggesting that the Bill is a good way of giving a free benefit to participants in the scheme. I refer him to the schedule, which stipulates:The price at which shares may be acquired by the trustees under the scheme must not be manifestly less than the market value of the shares".
§ Mr. Davies
That stipulates the price that the trustees pay. They would hold the shares for five years, at the end of which period the employee would become the absolute owner. At the end of five years, would the employee pay the full market value of the shares as paid by the trustees?
§ Mr. Stainton
I am sorry to prolong the intervention, but if that is the case, and if the Minister is on safe ground, will he spell out to the House the implications in terms of capital transfer tax?
§ Mr. Davies
I shall come to capital transfer tax later. By whatever mechanism the shares are put into the employee's hands, he would not, as I understand the Bill, have to pay the full market value for them. Otherwise, there is no point in the Bill and it would 1009 achieve nothing that cannot be done now. The point of the Bill is that it would enable shares, through the vehicle of the trust, to be put into the hands of employees without their paying full market value for them. The employees might pay nothing for the shares or might get a discount on the market value. The aim of the Bill is to enable an employee to receive a benefit. The value of that benefit would be the difference between what the employee would pay for the shares and their full market value.
§ Mr. Ridsdale
The intention of the Bill is that an employee would no longer pay income tax on an annual basis. He would pay capital gains tax at the end of five years.
§ Mr. Davies
Yes. The hon. Member has answered my point. The object is to allow the employee to pay capital gains tax instead of income tax on benefits received. Our tax legislation is such that, if an employee receives a benefit or an emolument in the course of his employment, that benefit is taxable under Schedule E income tax. If an employee receives a motor car, a piece of antique furniture or any other asset from a company instead of payment in cash, he must pay income tax on it. But the Bill says that if the employee is paid in shares he should pay not income tax but capital gains tax.
That is the Government's major objection to the Bill. Tax legislation should treat all benefits received from companies in the same way. It may be argued that the rates of income tax are too high, but that is not the point. If a person receives a benefit from his company in respect of work which he has done for it, he should pay income tax on that benefit, irrespective of its nature.
Reference was made to the £100 million or so that the scheme might cost the Inland Revenue. It is extremely difficult to arrive at a precise calculation of the likely loss. Future schemes that might not have been introduced otherwise could be introduced to take advantage of the proposals in the Bill, but they would not involve any fiscal loss. Our concern is that many existing schemes could be tailored to meet the requirements of the legislation to get the benefit of it. It is 1010 because of that, together with the fact that new schemes that would not otherwise be introduced will be brought forward, that we believe that the cost to the Inland Revenue could be about £100 million.
§ Mr. Emery
I do not accept the hon. Gentleman's argument, but if it were correct and if the people concerned were paying the standard rate of income tax, it would mean that about £300 million of extra investment was going into industry and that the taxpayer was contributing only one-third of it. Would that not be to the benefit of British industry, and be the sort of thing that the Government wound want to encourage?
§ Mr. Davies
I do not follow the hon. Gentleman's reasoning. Arriving at £100 million is difficult enough in this difficult area; multiplying it by three and saying that that gives us the figure of investment in industry is getting too convoluted. Our best estimate is a loss of upwards of £100 million, and we have to ask whether this is the best way of using Government money or whether there are not other areas into which it could be channelled.
Some hon. Members have spoken of the benefits that the scheme would bring to industry, but it is not confined to what I understand to be industry. I know that practically every organisation calls itself an industry, including banking, insurance and stockbroking, but the scheme is not confined to traditional forms of industry or to manufacturing industry. No doubt the banks and the stockbroking interests will take great interest in such schemes, but that sort of investment will not go into the productive side of British industry.
We are talking not about £100 million going into manufacturing industry but, rather, £100 million spread across the whole British corporate sector. My guess is that most of it would not go to productive industry, nor would it benefit productive industry in the public sector—coal and steel—which is basic to our industrial revival. It is a highly discriminatory benefit which does not go to everyone.
My hon. Friend the Member for Coventry, South-West (Mrs. Wise) asked who would decide who the trustees would be. I understand that the decision would 1011 be taken by the board of directors. It was suggested that shop stewards could figure in the trust documents, but the board would decide who were to be the trustees. Some Opposition Members are shaking their heads, but the Bill does not make clear who else could take that decision. The directors are responsible, finally, to the shareholders for what goes on in a company. If trustees are to be appointed for this important venture, it is clear that the initial decision will be taken by the directors and that they will seek approval of it at the annual meeting of shareholders.
§ Mrs. Wise
Will my hon. Friend take into account the fact that there does not seem to be anything in the Bill laying down who decides which employees get the benefit of this scheme? It could be used as a means of exercising even further power by directors. This is relevant, since the Bill is being presented as a means of extending industrial democracy. Can my hon. Friend say whether these shares need necessarily have voting rights?
§ Mr. Davies
Perhaps those questions should be directed towards the hon. Member for Harwich. I do not know the answer to the second question, except that they would be ordinary shares, no different from other ordinary shares. The directors will decide in the first place which employees receive the benefit of the tax concession. No one else could decide. I return to my recollection of share option schemes before 1974. The directors of many companies did very well for themselves in deciding who would benefit from the schemes. The directors
§ decided after the company general meeting had approved the scheme.
§ Mr. Maurice Macmillan
>: Under the existing tax legislation, which is not affected by the Bill, there is a substantial advantage in making this apply to all employees, regardless. There would be benefits of a capital transfer tax nature by making arrangements for a discretionary trust.
§ Mr. Davies
The hon. Gentleman is now raising the issue of capital transfer tax. I am aware that if the whole of the ownership of a company is transferred to trustees for the benefit of employees there are substantial capital transfer tax benefits. I do not know how companies will decide. My point is that directors will decide which employees shall have the benefit of this important concession of converting capital at a lower rate of tax.
My experience, and I think that of most people, is that directors have not used this power in the past to advance industrial democracy. Certainly, under the share option schemes they used this power to advance things other than industrial democracy. When bodies corporate are being given the power to determine a change in the rate of tax, and this is what is happening, we should not give this power to groups of—
§ Mr. Ridsdale rose in his place and claimed to move, That the Question be now put.
§ Question put, That the Question be now put:—
§ The House divided: Ayes 49, Noes 27.1013
|Division No. 57.]||AYES||[3.58 p.m.|
|Berry, Hon Anthony||Hodgson, Robin||Page, Rt Hon R. Graham (Crosby)|
|Bottomley, Peter||Hooson, Emlyn||Parkinson, Cecil|
|Buck, Antony||Howell, David(Guildford)||Rawlinson, Rt Hon Sir Peter|
|Clark, William (Croydon S)||Hunt, John (Bromley)||Rhodes James, R.|
|Dean, Paul(N Somerset)||Langford-Holt, Sir John||Ridsdale, Julian|
|Drayson, Burnaby||Lawrence, Ivan||Rossi, Hugh (Hornsey)|
|du Cann, Rt Hon Edward||Macfarlane, Nell||Scott, Nicholas|
|Durant, Tony||Macmillan, Rt Hon M. (Farnham)||Sinclair, Sir George|
|Dykes, Hugh||Mates, Michael||Stanbrook, Ivor|
|Fell, Anthony||Maudling, Rt Hon Reginald||Stradling Thomas, J.|
|Fisher, Sir Nigel||Mayhew, Patrick||Tebbit, Norman|
|Fletcher-Cooke, Charles||Meyer, Sir Anthony||van Straubenzee, W. R.|
|Gardiner, George (Reigate)||More, Jasper(Ludlow)||Weatherill, Bernard|
|Glyn, Dr Alan||Nelson, Anthony|
|Goodhew, Victor||Neubert, Michael||TELLERS FOR THE AYES:|
|Gorst, John||Newton, Tony||Mr. Peter Emery and|
|Hamilton, Michael (Salisbury)||Onslow, Cranley||Mr. Keith Stainton.|
|Hayhoe, Barney||Page, John(Harrow West)|
|Bidwell, Sydney||MacFarquhar, Roderick||Ward, Michael|
|Booth, Rt Hon Albert||Maclennan, Robert||Weitzman, David|
|Cocks, Rt Hon Michael||Mikardo, Ian||Williams, Sir Thomas (Warrington)|
|Davies, Denzil (Llanelli)||Morris, Charles R. (Openshaw)||Wise, Mrs Audrey|
|English, Michael||Price, C. (Lewisham W)||Wrigglesworth, Ian|
|Foot, Rt Hon Michael||Richardson, Miss Jo|
|Graham, Ted||Sandelson, Neville||TELLERS FOR THE NOES:|
|Hughes, Robert (Aberdeen N)||Silverman, Julius||Mr. Ivor Clemitson and|
|Hughes, Roy (Newport)||Spearing, Nigel||Mr. Ernest G. Perry.|
|Janner, Greville||Summerskill, Hon Dr Shirley|
|Kerr, Russell||Tuck, Raphael|
§ Mr. Deputy Speaker
Fewer than 100 Members have voted for the majority. It is my duty to declare the Question as not being decided in the affirmative, in accordance with Standing Order No. 31.
§ Dr. Alan Glyn (Windsor and Maidenhead)
On a point of order, Mr. Deputy Speaker. I was in the lower secretarial room. I saw the closure announced on the annunciator, but no Division bell rang.
§ Mr. Deputy Speaker
I think the hon. Gentleman will have noticed that more than one extra would be required to make any difference to the result.
§ Mr. Anthony Fell (Yarmouth)
Further to that point of order, Mr. Deputy Speaker. Many people apart from my hon. Friend the Member for Windsor and Maidenhead (Dr. Glyn) did not hear the bell.
§ Mr. Deputy Speaker
Inquiries will be made so that the bell will be in good order on Monday next. It does not seem that it would have affected the result of the Division.
§ It being after Four o'clock, the debate stood adjourned.
§ Debate to be resumed upon Friday next.