PROFIT SHARING SCHEMES

HC Deb 13 July 1978 vol 953 cc1796-819

Amendment made: No. 86, in page 74, line 14, at end insert— '(1A) Where the company concerned has control of another company or companies. The scheme may be expressed to extend to all or any of the companies of which it has control; and in this Schedule a scheme which is expressed so to extend is referred to as a "group scheme" and, in relation to a group scheme, the expression "participating company" means the company concerned or a company of which for the time being the company concerned has control and to which for the time being the scheme is expressed to extend.'.—[Mr. Denzil Davies.]

Mr. Robert Sheldon

I beg to move amendment no. 87, in page 74, line 18, at end insert: or, in the case of a group scheme, by a participating company'.

Mr. Deputy Speaker

With this we may discuss Government amendments nos. 88, 89, 84 and 158.

6.15 p.m.

Mr. Sheldon

Amendment no. 87 makes it possible for a controlling company to set up one scheme for all companies that are subordinate to the holding company. The intention is that where a profit-sharing scheme is created the holding company will not need to have profit-sharing schemes for each of the subsidiary companies.

This represents a commitment given in Committee to the hon. Member for Norfolk, South (Mr. MacGregor. We accepted his argument that it would put a great deal of work on groups of companies if each company in the group had to set up its own individual profit-sharing scheme.

The amendments will make it possible for a controlling company to set up a single profit-sharing scheme within the group of which all the subsidiary companies can make use if they wish. The amendments provide useful flexibility and I am happy to accept the arguments in favour of them.

Mr. John MacGregor (Norfolk, South)

This is one of the many amendments which we proposed in Committee to try to remove some of the administrative complications and tight restrictions on profit-sharing schemes. Our view, and that of many companies, was that to insist on a series of schemes in a group of companies would be restrictive and would add greatly to their administrative burden. I welcome the Financial Secretary's honouring of the commitment that it would be possible to introduce a single group scheme.

Amendment agreed to.

Mr. Ridley

I beg to move amendment no. 41, in page 74, line 39, leave out 'a full-time' and insert 'an'.

Mr. Deputy Chairman (Mr. Oscar Murton)

With this we may discuss amendment no. 42, in page 74, line 40. after 'concerned', insert 'and spends more than half his working time working for it'.

Mr. Ridley

This amendment covers a new point. In part, I seek clarification through it. The amendment involves the definition of "full-time employee". What does "full-time" mean? Does it mean that a person has to be working for a certain proportion of the week or all the week, or is it possible for a person to work part-time for one company and part-time for another company? There is no definition of "full-time".

The Financial Secretary owes it to us to give a definition, because this could cause trouble. It is unfortunate that we cannot seek to amend the schedule in any other direction. If the Financial Secretary will comment, it will be helpful to all those who administer the schemes. The schedule reads: is then a full-time employee or director of the company". Does the director have to be full-time or not? It is not clear from the drafting. I should have thought that if a person was allowed to be a part-time director, as many people are, the words would be "or a director". I shall be grateful if the Financial Secretary will clear that up.

I do not feel tremendously committed to the terms of my amendment, because upon consideration I believe that it is a good idea that those who principally work for a company, although they might have other activities and work for a number of different companies, should be able to participate. The meaning of "full-time" is not clear.

Mr. Robert Sheldon

The amendment seeks clarification of the definition of a full-time employee. I shall give the explanation as well as I can, but there is no real need to define a full-time employee. That is because there is nothing in the schedule to stop a company from including part-timers in its profit-sharing scheme. Provided that all full-timers with five years' service are eligible. full-timers can be defined in any way suitable to the company and its employees. The important aspect is that a scheme has to be open to all full-time employees.

In the next amendment we shall deal with the question of the requirement that each of the employees should be able to join these schemes on similar terms. That prescribes that there should be no discrimination in favour of or against any employee. There is no need for this amendment on the definition of "full-time employee". It is for the company to provide a definition. That is the most suitable way in which to proceed.

Mr. John Pardoe (Cornwall, North)

The hon. Member for Cirencester and Tewkesbury (Mr. Ridley) has raised a point that we did not cotton on to in Standing Committee. If it is true—and it is a highly attractive thought—that part-time directors and part-time employees of two different companies—I go no further than two at this stage—can participate in profit-sharing schemes run by both companies, can they have up to £500 of shares from each, or is there a limit of £500 per person? Or would such a person have to take part of the £500 from one company and part from the other?

Mr. Ridley

I am scarcely rising to assist the Financial Secretary to get the answer to his question. The hon. Member for Cornwall, North (Mr. Pardoe) should not limit his question to those who are working part-time only for two companies. We know of some people who are part-time directors of up to 50 companies. Are they also eligible for joining 50 private schemes?

Mr. Pardoe

I stressed that I was going only as far as two companies, but the hon. Member is perfectly right. The mind boggles at the opportunities for getting £500 each from a large number of companies.

Mr. Lawson

My hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) has raised an important new point which, in spite of the exhaustive discussions we had in Committee, did not arise then. The point has been further elaborated by the hon. Member for Cornwall, North (Mr. Pardoe).

As I understood the Financial Secretary, he was saying that there was no need for a definition of "full-time" or part-time but it was entirely up to the company to say which applied because the company could perfectly well include part-time employees in its scheme. If that is so, it is difficult to see why the words "full-time" occur in the schedule. The only reason must be that while, according to the Financial Secretary's logic, it is true that part-time employees may be included, they may also be excluded, whereas full-time employees may not be excluded.

If that is the case, we need a definition of full-time and part-time employees. It clearly cannot be up to the firm to decide the law of the land. It is the law of the land, if the Bill reaches the statute book, which determines that full-time employees may not be excluded from such a scheme while part-time employees may be excluded. The point needs a little more explanation from the Financial Secretary.

Mr. Robert Sheldon

On the point raised by the hon. Member for Cornwall, North (Mr. Pardoe), I should explain that paragraph 3 of schedule 8 provides for a £500 limit for any participant in a tax year. That is the total sum for each individual.

The correct way for dealing with full-time employees under profit-sharing schemes is that they have to be included in a scheme if they have five years' service with the company. It is not for us to define "full-time". That will depend on the operations of a particular company, and it should be for the company to decide. Why should we limit or restrict it? The hon. Member for Cirencester and Tewkesbury (Mr. Ridley) has not made a case for excluding certain employees.

We should like to include as many employees as possible, and to exclude them only for the reasons I have stated where preferential terms may be offered to certain individuals. As long as companies comply with that obligation, we think that it is right to give them the choice to decide for themselves who should be eligible.

Mr. Lawson

The Financial Secretary has not quite met the point. The Government have very carefully said that it would be wrong to have a scheme which provided that some employees could participate while others could not. They have therefore carefully said that it would be wrong to have any kind of an exclusive scheme. Now they are saying that it is possible for there to be exclusion—namely, the exclusion of part-time employees. Nowhere, however, have they defined "part-time employees". The Financial Secretary says blithely that it is entirely up to the company, but if that is so he has torpedoed the universality that he has attempted to write into the Bill.

Mr. Graham Page

It is not clear from the wording of paragraph 2(a) that it intends the director to be full- or part-time. It reads full-time employee or director". If, as has been suggested, he is a director of a number of companies, is he full-time in all of them or part-time in each? That is not an extraordinary state of affairs. I declare, as is shown in the Register of Members' Interests, that I am a director of 30 companies. They are all subsidiaries of one company, and, although it looks as though I am considerably important, I am not. If one turns over the page in the register, one can see the names of other hon. Members whom one knows to have far more trading interests than I but who have nothing against their names. No doubt they have very efficient wives.

It is not fanciful, therefore, to suggest that any of us may be directors of a number of companies. Could we then enter into the schemes of each of those companies? Then comes the question of what is a full-time employee. A scheme must provide cover for all full-time employees. Suppose that a company employed people working a 40-hour week and others working for 35 hours. Are those on 35 hours part-time or full-time employees, given that the other employees are working 40 hours?

Finally comes the point about whether anyone can obtain the relief in respect of the £500. The Financial Secretary quoted paragraph 3 of schedule 8, which reads The scheme must provide that the total of the initial market values of the shares appropriated to any one participant in a year of assessment will not exceed £500. But that refers only to what a scheme does, not to what the participant may he allotted in some other scheme. The scheme referred to here is that set up by the company in which a person is employed. Perhaps we are going round in a circle, because if a person is employed full-time in one company it might be that he cannot be employed full-time in another and, therefore, cannot participate in more than one scheme. However, if he can be employed full-time as a director in 30 or 50 different companies, does that mean that he can take part in 30 or 50 different schemes?

6.30 p.m.

Mr. Ridley

The Financial Secretary said that paragraph 2 relates only to eligibility, and that all full-time employees must be able to join the scheme. However, he said clearly that all part-timers would be able to join the scheme. The condition here is that the scheme will not be passed unless everybody who is full-time is eligible. There is, therefore, no doubt from what the Minister says that any part-timer can join, which means, as my right hon. Friend the Member for Crosby (Mr. Page) said, that under sub-paragraph (3) one may have as many of these positions as one likes if one can be made a part-timer in a number of companies.

Mr. Graham Page

My perspicacity had not gone as far as that. My hon. Friend is undoubtedly right, that part-timers can join a scheme. They can, therefore, join any scheme and any number of schemes and thereby become participators and be entitled to the £500-worth of shares.

I do not know what we can do at this stage to amend those words or get the schedule right. I suppose that we could have an undertaking that there will be an amending Act in future. I do not think that there is any power under the schedule to amend it by order. All that can be done is to have some extra-statutory concessions or directions from the Inland Revenue, which the majority of us on this side dislike immensely. Nevertheless, it may be a way out—if "extra-statutory concession" describes properly what the Government intend in this part of the schedule.

Mr. Robert Sheldon

As I said, no individual is allowed to have more than £500-worth of shares in any tax year, irrespective of the number of schemes in which he is involved.

Mr. Ridley

Where does it say that?

Mr. Sheldon

Clause 47 deals with that point.

As I said, the allowance is £500 per person, and it applies to full-time employees, who have to be in the scheme. Part-timers may be in the scheme.

I was asked for a definition. There was a definition under the Conservative 1972 scheme, where "full-time" was defined as required to devote substantially the whole of his time to service as a director or employee". That is a little rigid and I prefer to keep it more flexible. There may be abuses, but I hope that they will not arise and I prefer companies to have the option of arranging the matter in the way which suits them best. If it turns out that the system is not working satisfactorily, we can always return to it.

I was asked about directorships. Full-time directors are in the same position as full-time employees. A part-time director of several companies in a group—that is perhaps what the right hon. Member for Crosby (Mr. Page) had in mind—will be working full time for the group as a whole.

I prefer to leave this provision as it is. We have the opportunity to return to it if there any difficulties, but our first method of approach should be flexibility unless there is convincing reason for not allowing it.

Mr. Ridley

The Financial Secretary has cleared up the point raised by the hon. Member for Cornwall, North (Mr. Pardoe)

about how many times someone may collect £500-worth of shares if he is part-time. That was helpful, but I am not satisfied on the main point of the amendment.

If a company can decide which of its employees and directors are full time, it can squeeze out those it decides are part time. I know that this paragraph deals only with eligibility, but at the same time it gives a company the right to say that a certain group who may work eight hours on day shift are full time and another group who work seven hours on night shift are part time, and it has the right not to make the part-timers an offer of participation.

A row could easily happen in a private company between shareholders and directors—this is common in vexatious situations—and, to spite a minority shareholder, the majority could exclude him by some device of this sort.

This should have been defined. It is a genuine slip, I believe, and by agreeing to amendment no. 41 but not pressing amendment no. 42 we can put it right. It would then be necessary for the company to demonstrate that the scheme was open to all its employees and directors, whether part-time or full-time. Since that is the Government's objective, I think that we should back it. I hope that my right hon. and hon. Friends will support the amendment.

Question put, That the amendment be made:—

The Committee divided: Ayes 238, Noes 255.

Division No. 267]	AYES	[6.36 p.m.
Aitken, Jonathan	Brotherton, Michael	Dykes, Hugh
Alison, Michael	Brown, Sir Edward (Bath)	Eden, Rt Hon Sir John
Amery, Rt Hon Julian	Bryan, Sir Paul	Edwards, Nicholas (Pembroke)
Atkins, Rt Hon H. (Spelthorne)	Buchanan, Richard	Elliott, Sir William
Atkinson, David (B'mouth, East)	Buchanan-Smith, Alick	Emery, Peter
Awdry, Daniel	Buck, Antony	Eyre, Reginald
Baker, Kenneth	Budgen, Nick	Fairbairn, Nicholas
Banks, Robert	Bulmer, Esmond	Farr, John
Bell, Ronald	Burden, F. A.	Fell, Anthony
Bendall, Vivian	Butler, Adam (Bosworth)	Finsberg, Geoffrey
Bennett, Dr Reginald (Fareham)	Chalker, Mrs Lynda	Fisher, Sir Nigel
Benyon,W.	Channon, Paul	Fletcher, Alex (Edinburgh N)
Berry, Hon Anthony	Churchill, W. S.	Fletcher-Cooke, Charles
Biffen, John	Clark, Alan (Plymouth, Sutton)	Fookes, Miss Janet
Biggs-Davison, John	Clark, William (Croydon S)	Forman, Nigel
Body, Richard	Cooke, Robert (Bristol W)	Fox, Marcus
Boscawen, Hon Robert	Cope, John	Galbraith Hon T. G. D.
Bottomley, Peter	Cormack, Patrick	Gardiner, George (Reigate)
Bowden, A. (Brighton, Kemptown)	Costain, A. P.	Gardner, Edward (S Fylde)
Boyson, Dr Rhodes (Brent)	Crowder, F. P.	Glyn, Dr Alan
Bradford, Rev Robert	Dean, Paul (N Somerset)	Godber, Rt Hon Joseph
Braine, Sir Bernard	Dodsworth, Geoffrey	Goodhart, Philip
Brittan, Leon	Drayson, Burnaby	Goodlad, Alastair
Brocklebank-Fowler, C.	du Cann, Rt Hon Edward	Gorst, John
Brooke, Hon Peter	Durant, Tony	Gow, Ian (Eastbourne)
Gower, Sir Raymond (Barry)	Macfarlane, Neil	Ridsdale, Julian
Grant, Anthony (Harrow C)	MacGregor, John	Rifkind, Malcolm
Grieve, Percy	MacKay, Andrew (Stechford)	Roberts, Wyn (Conway)
Griffiths, Eldon	Macmillan, Rt Hon M. (Farnham)	Rodgers, Sir John (Sevenoaks)
Grylls, Michael	McNair-Wilson, M. (Newbury)	Rost, Peter (SE Derbyshire)
Hamilton, Archibald (Epsom & Ewell)	McNair-Wilson, P. (New Forest)	Royle, Sir Anthony
Hamilton, Michael (Salisbury)	Madel, David	Sainsbury, Tim
Hampson, Dr Keith	Marshall, Michael (Arundel)	St. John-Stevas, Norman
Hannam, John	Marten, Neil	Scott, Nicholas
Harrison, Col Sir Harwood (Eye)	Mates, Michael	Scott-Hopkins, James
Harvie Anderson, Rt Hon Miss	Mather, Carol	Shaw, Giles (Pudsey)
Haselhurst, Alan	Maude, Angus	Shaw, Michael (Scarborough)
Havers, Rt Hon Sir Michael	Maudling, Rt Hon Reginald	Shelton, William (Streatham)
Hawkins, Paul	Maxwell-Hyslop, Robin	Shepherd, Colin
Heyhoe, Barney	Mayhew, Patrick	Shersby, Michael
Heath, Rt Hon Edward	Meyer, Sir Anthony	Sims, Roger
Higgins, Terence L.	Miller, Hal (Bromsgrove)	Sinclair, Sir George
Hodgson, Robin	Mills, Peter	Skeet, T. H. H.
Holland, Philip	Miscampbell, Norman	Smith, Dudley (Warwick)
Hordern, Peter	Mitchell, David (Basingstoke)	Smith, Timothy John (Ashfield)
Howe, Rt Hon Sir Geoffrey	Moate, Roger	Speed, Keith
Howell, David (Guildford)	Moore, John (Croydon C)	Spence, John
Howell, Ralph (North Norfolk)	More, Jasper (Ludlow)	Spicer, Jim (W Dorset)
Hunt, David (Wirral)	Morgan, Geraint	Spicer, Michael (S Worcester)
Hunt, John (Ravensbourne)	Morgan-Giles, Rear-Admiral	Sproat, Iain
Hurd, Douglas	Morris, Michael (Northampton S)	Stainton, Keith
Hutchison, Michael Clark	Morrison, Charles (Devizes)	Stanbrook, Ivor
Irving, Charles (Cheltenham)	Morrison, Hon Peter (Chester)	Stanley, John
James, David	Neave, Airey	Steen, Anthony (Wavertree)
Jenkin, Rt Hon P. (Wanst'd & W'df'd)	Nelson, Anthony	Stewart, Ian (Hitchin)
Jessel, Toby	Neubert, Michael	Stokes, John
Johnson Smith, G. (E. Grinstead)	Newton, Tony	Stradling Thomas, J.
Jones, Arthur (Daventry)	Normanton, Tom	Tapsell, Peter
Jopling, Michael	Nott, John	Taylor, Teddy (Cathcart)
Joseph, Rt Hon Sir Keith	Onslow, Cranley	Tebbit, Norman
Kaberry. Sir Donald	Osborn, John	Thatcher, Rt Hon Margaret
Kellett-Bowman, Mrs Elaine	Page, John (Harrow West)	Thomas, Rt Hon P. (Hendon S)
Kilfedder, James	Page, Rt Hon R. Graham (Crosby)	Townsend, Cyril D.
Kimball, Marcus	Page, Richard (Workington)	Trotter, Neville
King, Evelyn (South Dorset)	Parkinson, Cecil	van Straubenzee, W. R.
King, Tom (Bridgwater)	Pattie, Geoffrey	Vaughan. Dr Gerard
Kitson, Sir Timothy	Percival, Ian	Viggers, Peter
Knight, Mrs Jill	Peyton, Rt Hon John	Wakeham, John
Knox, David	Pink, R. Bonner	Walder, David (Clitheroe)
Lamont, Norman	Prentice, Rt Hon Reg	Walker, Rt Hon P. (Worcester)
Langford-Holt, Sir John	Price, David (Eastleigh)	Walker-Smith, Rt Hon Sir Derek
Latham, Michael (Melton)	Prior, Rt Hon James	Warren, Kenneth
Lawrence,Ivan	Pym, Rt Hon Francis	Weatherill, Bernard
Lawson, Nigel	Raison, Timothy	Whitney, Raymond
Le Marchant, Spencer	Rathbone, Tim	Wiggin, Jerry
Lester, Jim (Beeston)	Rees, Peter (Dover & Deal)	Winterton, Nicholas
Lewis, Kenneth (Rutland)	Rees-Davies, W. R.	Wood. Rt Hon Richard
Lloyd, Ian	Renton, Rt Hon Sir D. (Hunts)
Loveridge, John	Renton, Tim (Mid-Sussex)	TELLERS FOR THE AYES
Luce, Richard	Rhodes James, R.	Sir George Young and
McCrindle, Robert	Ridley, Hon Nicholas	Lord James Douglas-Hamilton.
NOES
Abse, Leo	Callaghan, Jim (Middleton & P)	Davis, Clinton (Hackney C)
Allaun, Frank	Campbell, Ian	Deakins, Eric
Archer, Rt Hon Peter	Canavan, Dennis	Dean, Joseph (Leeds West)
Armstrong, Ernest	Carmichael, Neil	de Freitas, Rt Hon Sir Geoffrey
Ashley, Jack	Carter, Ray	Dell, Rt Hon Edmund
Atkins, Ronald (Preston N)	Carter-Jones, Lewis	Dempsey, James
Atkinson, Norman (H'gey, Tott'ham)	Cartwright, John	Dewar, Donald
Bagier, Gordon A. T.	Castle, Rt Hon Barbara	Doig, Peter
Bates, Alf	Clemitson, Ivor	Dormand, J. D.
Bean, R. E.	Cocks, Rt Hon Michael (Bristol S)	Douglas-Mann, Bruce
Bidwell, Sydney	Cook, Robin F. (Edin C)	Dunnett, Jack
Bishop, Rt Hon Edward	Corbett, Robin	Dunwoody, Mrs Gwyneth
Blenkinsop, Arthur	Cowans, Harry	Eadie, Alex
Booth, Rt Hon Albert	Cox, Thomas (Tooting)	Edwards, Robert (Wolv SE)
Boothroyd, Miss Betty	Craigen, Jim (Maryhill)	Ellis, John (Brigg & Scun)
Bottomley, Rt Hon Arthur	Crawshaw, Richard	English, Michael
Boyden, James (Bish Auck)	Cronin, John	Evans, Fred (Caerphilly)
Bradley, Tom	Crowther, Stan (Rotherham)	Evans, Gwynfor (Carmarthen)
Bray, Dr Jeremy	Cryer, Bob	Evans, John (Newton)
Broughton, Sir Alfred	Cunningham, G. (Islington S)	Ewing, Harry (Stirling)
Brown, Hugh D. (Provan)	Cunningham, Dr J. (Whiteh)	Fernyhough, Rt Hon E.
Brown, Robert C. (Newcastle W)	Dalyell, Tam	Fitch, Alan (Wigan)
Brown, Ronald (Hackney S)	Davidson, Arthur	Flannery, Martin
Buchan, Norman	Davies, Bryan (Enfield N)	Fletcher, Ted (Darlington)
Buchanan, Richard	Davies, Rt Hon Denzil	Foot, Rt Hon Michael
Callaghan, Rt Hon J. (Cardiff SE)	Davies, Ifor (Gower)	Fowler, Gerald (The Wrekin)

Fraser, John (Lambeth, N'w'd)	MacFarquhar, Roderick	Ryman, John
Freeson, Rt Hon Reginald	McGuire, Michael (Ince)	Sandelson, Neville
Freud, Clement	MacKenzie, Rt Hon Gregor	Sever, John
Garrett, John (Norwich S)	McMillan, Tom (Glasgow C)	Shaw, Arnold (Ilford South)
Garrett, W. E. (Wallsend)	McNamara, Kevin	Sheldon, Rt Hon Robert
George, Bruce	Madden, Max	Shore, Rt Hon Peter
Gilbert, Rt Hon Dr John	Magee, Bryan	Short, Mrs Renée (Wolv NE)
Ginsburg, David	Mahon, Simon	Silkin, Rt Hon John (Deptford)
Golding, John	Mallalieu, J. P. W.	Silkin, Rt Hon S. C. (Dulwich)
Gould, Bryan	Marshall, Dr Edmund (Goole)	Silverman, Julius
Gourlay, Harry	Marshall, Jim (Leicester S)	Skinner, Dennis
Graham, Ted	Maynard, Miss Joan	Smith, Cyril (Rochdale)
Grocott, Bruce	Meacher, Michael	Smith, Rt. Hon. John (N Lanarkshire)
Hamilton, James (Bothwell)	Mikardo, Ian	Snape, Peter
Hamilton, W. W. (Central Fife)	Millan, Rt Hon Bruce	Spearing, Nigel
Hardy, Peter	Miller, Dr M. S. (E Kilbride)	Spriggs, Leslie
Harrison, Rt Hon Walter	Mitchell, Austin (Grimsby)	Stallard, A. W.
Hart, Rt Hon Judith	Mitchell, R. C. (Soton, Itchen)	Steel, Rt Hon David
Hattersley. Rt Hon Roy	Molloy, William	Stewart, Rt Hon M. (Fulham)
Healey, Rt Hon Denis	Moonman, Eric	Stoddart, David
Heffer, Eric S.	Morris, Alfred (Wythenshawe)	Stott, Roger
Hooley, Frank	Morris, Rt Hon J. (Aberavon)	Strang, Gavin
Horam, John	Mulley, Rt Hon Frederick	Summerskill, Hon Dr Shirley
Howell, Rt Hon Denis (B'ham, Sm H)	Murray, Rt Hon Ronald King	Swain, Thomas
Howells, Geraint (Cardigan)	Newens, Stanley	Taylor, Mrs Ann (Bolton W)
Hoyle, Doug (Nelson)	Noble, Mike	Thomas, Dafydd (Merioneth)
Huckfield, Les	Oakes, Gordon	Thomas, Jeffrey (Abertillery)
Hughes, Mark (Durham)	Ogden, Eric	Thomas, Mike (Newcastle E)
Hughes, Robert (Aberdeen N)	O'Halloran, Michael	Thomas, Ron (Bristol NW)
Hunter, Adam	Orme, Rt Hon Stanley	Thorne, Stan (Preston South)
Irvine, Rt Hon Sir A. (Edge Hill)	Ovenden, John	Tierney, Sydney
Irving, Rt Hon S. (Dartlord)	Owen, Rt Hon Dr David	Tilley, John
Jackson, Colin (Brighouse)	Padley, Walter	Tinn, James
Jackson, Miss Margaret (Lincoln)	Palmer, Arthur	Tomlinson, John
Janner, Greville	Pardoe, John	Torney, Tom
Jay, Rt Hon Douglas	Park, George	Urwin, T. W.
Jeger, Mrs Lena	Parker, John	Varley, Rt Hon Eric G.
Jenkins, Hugh (Putney)	Parry, Robert	Walker, Harold (Doncaster)
John Brynmor	Pavitt, Laurie	Walker, Terry (Kingswood)
Johnson, James (Hull West)	Pendry, Tom	Ward, Michael
Johnson, Walter (Derby S)	Penhaligon, David	Watkinson, John
Johnston, Russell (Inverness)	Phipps, Dr Colin	Weetch, Ken
Jones, Alec (Rhondda)	Prescott, John	Weitzman, David
Jones, Dan (Burnley)	Price, C. (Lewisham W)	Wellbeloved, James
Judd, Frank	Price, William (Rugby)	White, James (Pollok)
Kelley, Richard	Radice, Giles	Whitehead, Phillip
Kerr, Russell	Rees, Rt Hon Merlyn (Leeds S)	Whitlock, William
Kilroy-Silk, Robert	Richardson, Miss Jo	Willey, Rt Hon Frederick
Kinnock, Neil	Roberts, Albert (Normanton)	Williams, Rt Hon Alan (Swansea W)
Lambie, David	Roberts, Gwilym (Cannock)	Williams, Rt Hon Shirley (Hertford)
Lamond, James	Robertson, George (Hamilton)	Wilson, William (Coventry SE)
Latham, Arthur (Paddington)	Robinson, Geoffrey	Wise, Mrs Audrey
Leadbitter, Ted	Roderick, Caerwyn	Woodall, Alec
Lever, Rt Hon Harold	Rodgers, George (Chorley)	Woof, Robert
Lewis, Ron (Carlisle)	Rodgers, Rt Hon William (Stockton)	Wrigglesworth, Ian
Litterick, Tom	Rooker, J. W.	Young, David (Bolton E)
Loyden, Eddie	Rose, Paul B.
Luard, Evan	Ross, Stephen (Isle of Wight)	TELLERS FOR THE NOES:
Mabon, Rt Hon Dr J. Dickson	Ross, Rt Hon W. (Kilmarnock)	Mr. Donald Coleman and
McCartney, Hugh	Rowlands, Ted	Mr. Frank R. White.
McElhone, Frank

Amendment accordingly negatived.

Amendment made: No. 88, in page 74, line 40, after "concerned", insert or, in the case of a group scheme, a participating company".—[Mr. Robert Sheldon.]

Mr. Robert Sheldon

I beg to move amendment no. 66, in page 74, line 47, at end insert— (2) For the purposes of sub-paragraph (1) above, the fact that the number of shares to be appropriated to the participants in a scheme varies by reference to the levels of their remuneration, the length of their service or similar factors shall not be regarded as meaning that the participants are not eligible to participate in the scheme on similar terms.". The amendment deals with those who are eligible for approved profit-sharing schemes and clarifies the words "on similar terms". It ensures that all employees are able to join profit-sharing schemes without any partiality being shown to certain of them.

Allowable schemes must be open to all employees on similar terms. This does not mean that the same number of shares has to be allocated to each of the employees. They can be apportioned on the basis of length of service or the salary of the employee, for instance.

What we want to avoid—this has been possible under previous schemes—is a position when £500 could be paid to one higher-paid employee and perhaps only £50 to another with almost the same salary. We want to avoid that type of discrimination. The amendment makes this clear and fulfils a commitment made by the Chief Secretary in Committee.

Mr. MacGregor

I am grateful for this amendment, which certainly clarifies what is meant by "on similar terms". As the Financial Secretary will recall, I pointed out during the Committee debate on schedule 8 that there was confusion among a number of people whether "on similar terms" meant that there had to be the same number of shares for each employee. Clearly, if that had been the case it would have been a considerable damper upon the value of profit-sharing schemes in many companies.

There was just one sentence which the Financial Secretary used in introducing the amendment which worried me. He said that the purpose of the amendment was to avoid the position which might arise when a company might wish to discriminate between two employees on the same salary. I have welcomed the fact that in the profit-sharing schemes as a whole, as far as possible, discretion has been given to companies to interpret the schemes for themselves, ensuring that they best fit their own purposes. I am a little concerned if the Chief Secretary is hinting that the Inland Revenue will not approve schemes if there is any option for the company to give a different number of shares to employees on the same salary.

Mr. Robert Sheldon

I am sorry if I have misled the hon. Gentleman and did not make myself clear. The position is that, if one employee were to be given the opportunity of receiving substantially more when there were relatively small differences in salary between him and another employee, that would not be an approved scheme. It is approved as long as the conditions are the same. The membership of the approved schemes must be available on similar terms.

Mr. MacGregor

I would have preffered that that condition was not written into the approval to be given by the Inland Revenue. I can well see, given that this is not only a scheme to encourage people to have shares but is meant to encourage certain people in a company, that some companies may wish to discriminate between people on certain salaries. I would have preferred that that was left to the companies. I hope that the condition will be used with great discretion and flexibility by the Revenue.

By and large, I welcome the amendment because it removes uncertainty. It makes clear that people with different salaries will be entitled to different numbers of shares. There are two points to be made in that respect. As the Financial Secretary will recall, concern was expressed in Committee about the fact that the £500 limitation might be inadequate for middle to senior management. I remember my hon. Friend the Member for Chichester (Mr. Nelson) raising this point. I still have that concern to a certain extent. The amendment makes it clear that where a company can give only a certain amount of shares it will be able to give rather more to its middle to senior management. That is a help. We have to watch the operation of these schemes carefully. If we find that the £500 limitation is too small for middle to senior management, I hope that it can be raised.

I have a question for the Financial Secretary. It is clear that there can be variability in the number of shares which individual employees can have, related to their salary. This means, particularly if, as we hope, these schemes grow, that they will eventually be regarded as part of the overall remuneration package given to employees. I remember that my hon. Friend the Member for Blaby (Mr. Lawson) made this point in our earlier debates.

I would expect that fairly soon such a scheme would be regarded as part of the overall remuneration package by many employees and, therefore, by the trade unions in their negotiations. We have read today in the newspapers that the Prime Minister is talking about a 5 per cent. limit next year in whatever pay policy is to come forward. Is it the Government's intention that these schemes will be regarded as part of any future pay policy, if there be one? If this is so, I believe that it will kill such schemes because it will mean that they will be unable to get off the ground. It is obvious that employees will be looking for an immediate return, shown up in their wage packet, from any pay policy. This means that there will be no scope for introducing these schemes in the immediate future.

Will these schemes be regarded at any time in the near future as part of the pay policy or will they, as I hope, be regarded as a long-term incentive for employees and, therefore, separate from pay policy?

Mr. Nelson

I support the comments of my hon. Friend the Member for Norfolk, South (Mr. MacGregor) and give a cautious welcome to this amendment, which follows assurances given in Committee. It helps to clarify the situation, but there is still in my mind a slight uncertainty over the words "or similar factors" in the amendment.

We are told in schedule 8(2) that the board must be satisfied that at any time every person who fulfils certain defined conditions will then be eligible to participate in the scheme "on similar terms". Those similar terms are qualified by this amendment to allow a variable for employees depending on their length of service, level of remuneration "or similar factors". It seems that if the Government are anxious to define the position, so that companies know exactly what their rights and liabilities are in terms of getting authorisation for an employees' scheme, the "similar factors" should be spelt out a little more clearly by the Financial Secretary.

My hon. Friend the Member for Norfolk, South has raised the question of the extent to which such schemes will be included within the negotiated packages within or without the Government's pay policy for the next year. This is an important matter. My inclination would be to support my hon. Friend's approach —namely, that it would certainly be prejudicial to the chances of any of these schemes getting off the ground if they were to be included within the packages.

7.0 p.m.

It seems to me that logically they should not be included, because one is concerned with the incomes policy and with the extent to which income during the year will influence the level of inflation and the Government's economic policy generally. As this is not taxed income, as it cannot be disposed of and as an employee who enters into a scheme has no option for the first five years even to have the benefit of the taxed money which has gone into the trust, it seems to me that this has no bearing whatsoever on the gross or net remuneration of the employee during that year, or even during the first five-year period, and that, therefore, it certainly should be outside the terms of any pay or productivity deal which might be affected by the Government's pay policy.

Clearly, such schemes might be of direct relevance to the level of productivity. Indeed, I think that hon. Members on each side will hope that the schemes will have exactly that sort of effect. But the fact that such schemes must apply on similar terms to all employees clearly to some extent does not make them a productivity deal. A productivity deal is more likely to link the efforts of the individual or of certain individuals within a company to particular financial aspirations or forecasts. The fact that all employees must receive the benefit of such schemes on similar terms means once more, in my view, that it should not be regarded as part of a remuneration package which should he included for the, purposes of considering whether a company does or does not comply with the Government's economic policy.

I hope that the Financial Secretary will be able to clarify the definition of "all similar factors" and that he will underline our understanding that these will not be included in remuneration packages for the purposes of the Government's incomes policy.

Mr. Robert Sheldon

On the matter of incomes policy, the hon. Member for Chichester (Mr. Nelson) has already replied to his hon. Friend the Member for Norfolk, South (Mr. MacGregor), and I agree with what he said.

Profit sharing is a means of investment by employees in their own companies. It increases employees' capital, and it is certainly not income. We do not consider it as such. In fact, as we know, the whole purpose of these profit-sharing schemes is to give employees an interest in the long-term future of their companies. That is what it is all about. Clearly, share capital is not the same as the pay on which employees live, and the five-year locking-in period is obviously an essential part of this distinction. I see no problems there.

With regard to the definition of "similar factors", I think that it is right to have legislation in these matters not too precisely defined. Of course, we can all look at our own industrial experience and consider similar factors such as length of service and remuneration, depending on the industry concerned. But I would wish to see as large an amount of flexibility at the introduction of this new scheme as we can reasonably accept and defend. It is open to us to keep a watch on the way in which the schemes develop. The difficult aspect of the introduction of these new schemes and the legislation which allows them to be born is guessing at the way in which they may develop. For that reason, I think that we need to leave them as free as we possibly can.

That is why we have found ourselves able to accept some of the valuable suggestions which have been put forward by the hon. Member for Norfolk, South in these matters. His ideas were directed in the main to increasing flexibility, which we accepted, and because we accepted that flexibility originally we were also pleased to accept his further suggestions on the same basic point.

Mr. Lawson

As the Financial Secretary intimated, my hon. Friend the Member for Norfolk, South (Mr. MacGregor) is to be congratulated on the immense amount of work he has done on improving the Government's scheme. The Government also deserve the congratulations of the House on having accepted and incorporated a number of the improvements that my hon. Friend has proposed.

Amendment no. 66 is an important one. It leaves the situation imprecise, as the Financial Secretary conceded, and I envisage that there may be certain problems. Companies will not know whether their schemes will get Inland Revenue clearance. But I agree with the right hon. Gentleman that in an experimental scheme of this kind—this is new ground of a sort—it is perhaps sensible to leave it imprecise for the time being, despite these difficulties.

Many fears were expressed to me, and the important thing is that the amendment makes it absolutely clear that it is not the case that every employee has to have the same amount or else the scheme is invalid. It is very important to make that clear and to show that there can be all manner of variations which would be acceptable. Bearing in mind the last amendment, one of the variations might be, for example, that the part-timer working five hours a week might get only one-eighth of the allocation of the man working 40 hours a week. But that amendment was defeated, and we welcome this one.

We heard something very important a few moments ago, and it is much more important than the amendment itself. The Financial Secretary has given the House an assurance that any shares handed out to an employee in a profit-sharing scheme will not be taken into account for the purposes of phase 4 of the pay policy, the White Paper for which is awaited. That is a very important assurance indeed, because the schemes which are perhaps closest to these profit-sharing schemes are pension arrangements. There, too, there is no immediate income in the hands of the employee. But it was specifically stated in the last pay policy White Paper—and, indeed, in the White Paper of the right hon. Gentleman's predecessor—that an improvement in a pension scheme very much counted as an increase in remuneration for the purposes of pay policy. Indeed, we recall that the Government very nearly took the Sun Alliance Assurance Company to court on this specific point. The Government backed down because they decided that they would lose.

There is, therefore, a great change, which we welcome, towards greater flexibility, and it will help in the introduction of these schemes. The more flexibility we can have in pay, the better. We know that the Government said that their last pay policy would be flexible and that the 10 per cent. would be an average, but the 10 per cent. has become a rigid norm.

The Financial Secretary has given the House a very important assurance. It is one that we shall certainly remember when we come to debate the White Paper.

Amendment agreed to,

Mr. Robert Sheldon

I beg to move amendment no. 93, in page 75, line 3, leave out 'section 43(1)' and insert paragraphs (a), (c) and (d) of subsection (1) of section 43'.

Mr. Deputy Speaker

With this we may take Government amendments nos. 90 to 92 inclusive.

Mr. Sheldon

Amendment no. 93 and the other three amendments which are being taken with it form part of a series of changes in this part of the Bill. These amendments remove the power of the Board of Inland Revenue to withdraw approval of a profit-sharing scheme if one of the participants in the scheme disposes of his shares during the five-year period, that is to say, the period in which he has to have these shares retained with the trustees.

The second aspect of the amendments is that they make sure that if a participant sells his shares during the five-year period—or his interest in the shares, because the shares are held by the trustees—he will have to pay tax on the full market value at the date of disposal of the shares.

The first part of the amendments meets the point which the hon. Member for Norfolk, South (Mr. MacGregor) made in Committee. He suggested that it was unfair to give the Inland Revenue power to withdraw approval of the entire scheme if just one of the participants disposed of his interest in his shares. In the ordinary case, neither the company nor the trustees would know that the disposal had taken place. This would clearly be unfair.

The second part is to make sure that there will still be a disincentive to disposals of share interests during the retention period. Obviously, the two must go together—the eligibility of the schemes to continue despite individual withdrawals and the disincentive to make transfers of beneficial interest.

Mr. MacGregor

I welcome this group of amendments. I echo the words of my hon. Friend the Member for Blaby (Mr. Lawson) in thanking the Financial Secretary for the constructive way in which he has responded to many of the points that were made in Committee. He is quite right to draw attention to the fact, as I did in Committee, that, as the Bill originally stood, companies might be placed in the impossible position of finding their schemes made invalid if one employee did something of which they had no knowledge. This group of amendments, so far as I understand them, puts this situation right.

It is a pity that this possibility was there in the first place. I hope that it was a drafting mistake rather than an intention to tie up the schemes in so much red tape that they would never get off the ground. As a result of our debates in Committee we have managed to remove many restrictions of this type. We have removed many of the fears, and made it much more possible that the schemes will be a practical possibility for companies.

Amendment agreed to.

Mr. Robert Sheldon

I beg to move amendment no. 160, in page 75, line 31, at beginning insert 'date on which the'.

Mr. Deputy Speaker

With this we may take Government amendment no. 161.

Mr. Sheldon

These are drafting amendments which make sure that the Board of Inland Revenue will not have the power to take away approval of a profit-sharing scheme on the basis that newly issued shares do not rank for the next dividend on the same basis as shares of the same class already in issue.

Amendment agreed to.

Amendment made: No. 161, in page 75, line 32, leave out 'period began' and insert 'date'.—[Mr. Robert Sheldon.]

Mr. Robert Sheldon

I beg to move amendment no. 192, in page 76, line 1, leave out from "which" to first "a" in line 2 and insert either is or has control of a company which—(i) is". This amendment removes a restriction on the type of shares used for profit-sharing schemes which can be utilised by companies which are owned by a consortium. Perhaps I can explain. If there were a number of companies, all members of a consortium, some of which were quoted and some of which were not, the shares of the quoted companies could be used in a profit-sharing scheme for the consortium. But shares in the ones which were not quoted could not be used in the scheme for the consortium. However, if an unquoted consortium member company was held by a holding company, which itself was a quoted company, the shares of that quoted company could be used in the schemes of the consortium. The position is that under the Bill as drafted the shares of the quoted company holding an unquoted company which forms part of a consortium can be used in a scheme, provided that that quoted company has three-twentieths of the shares in the consortium. What we have done here is to remove the three-twentieths qualification entirely. I think that that will commend itself to the House.

Amendment agreed to.

Amendment made: no. 89, in page 76, line 34, at end insert or, if the scheme is a group scheme, a participating company".—[Mr. Robert Sheldon.]

7.15 p.m.

Mr. Robert Sheldon

I beg to move amendment no. 82, in page 77, line 16, leave out from beginning to "subsection" in line 18.

Mr. Deputy Speaker

With this we may take Government amendment no. 83.

Mr. Sheldon

Paragraph 11 of this schedule provides: An individual shall not be liable to have shares under a profit-sharing scheme if in the preceding 12 months he has had: a material interest in a close company which is—

1. (a) the company whose shares are to be appropriated; or
2. (b) a company which has control of that company or is a member of a consortium which owns that company."

In the Bill as originally published, a material interest was defined as broadly a 5 per cent. interest in the company held by the individual and his relatives. We debated this in Committee, and a commitment was given to increase the 5 per cent figure for profit-sharing purposes. This has now been increased to 25 per cent.

Mr. MacGregor

The Financial Secretary has explained in factual terms what the amendment does. It would be right to underline that this is a very important amendment, admittedly for a comparatively small group of companies. However, it is very important for them. I again welcome the fact that the Financial Secretary has responded to the points made in Committee.

It is worth putting on record that the two types of people who will particularly be helped by this change in the definition of "material interest" are, first, family companies, where it was unfair that those who had just over 5 per cent. of the shares in that family company would be excluded from the profit-sharing schemes from now on. The second group, again in close companies, relates to situations where families may wish to bring in young key executives to play a leading part in the company, and in order to give them an incentive seek to reward them with more than 5 per cent. of the equity. In that case, they too would have been prevented from benefiting from the profit-sharing schemes.

The point is that because of the actions which this Government took in their 1974 Finance Act, any other form of share incentive scheme was also hit, so that this very important group of people would find that they were actually disadvantaged and prevented from getting any benefit out of the tax reliefs in the profit-sharing scheme. I therefore believe that this is a significant amendment, and I am grateful to the Government for tabling it.

Amendment agreed to.

Amendment made: No. 83, in page 77, line 19 at end insert 'shall have effect, with the substitution of a reference to 25 per cent. for any reference therein to 5 per cent., for the purpose of determining whether a person has or had a material interest in a company'.—[Mr. Robert Sheldon.]