AMENDMENT OF FINANCE ACT 1978 (Hansard, 16 July 1980)

§ Sir William Clark (Croydon, South)
I beg to move, That the clause be read a Second time.
The clause refers to profit-sharing schemes where trustees acquire shares. In many cases, the company in which the trustee holds the shares has a rights issue. That issue must be taken up within a 1612 certain time, and as the Tax Acts are currently worded, the trustees must ask all the participants of that scheme whether they wish to exercise their rights issue. That is impractical. If there is a profit-sharing scheme with 4,000, 5,000 or 6,000 participants it is ridiculous that the trustees should have to consult each of the participants. This new clause seeks to give the trustees discretionary power, and if they wish to take up the rights issue, they can do so, provided each participant is dealt with in the same way. This is a sensible amendment to the Finance Act 1978.
This matter was raised in Committee, not through an amendment, but during a discussion on clause stand part. I urge my hon. Friend the Financial Secretary to look at this matter, because the Government have extended the potential of share option schemes and profit-sharing schemes, with which most hon. Members 1613 agree. We are putting on the trustees of those profit-sharing schemes an onerous liability by saying that they must consult all the participants.
The amendment would give discretionary power to the trustees, provided that they act in a reasonable manner and act for the general benefit of each and every participant. I hope that the Government will accept it.

§ Mr. Richard Wainwright
I support the clause. My party conducted a survey of 170 companies which had successfully applied to the Inland Revenue for the operation of the Finance Act 1978 in respect of employee share ownership. There was an 86 per cent. response. Out of that 86 per cent., a significant number commented unfavourably on what they regarded as the over-complicated regulations with which they had to comply. Some of them made the telling point that the regulations were so complicated that they were impossible to explain to busy employees, who had much better things to think of. Therefore, a clause such as this, which very sensibly eliminates some of the quite unnecessary red tape, is to be commended.
When the House, from all sides, gave a fair wind to this part of the Finance Act 1978, I am sure that hon. Members wished it to succeed and not to be hobbled by a number of quite unnecessary regulations. The virtue of the new clause is that it would remove one of the most vexatious aspects, because rights issues at present are a nightmare to companies which have been far-sighted enough to operate the 1978 legislation.
I hope that the Government will be able to accept at least the spirit of the new clause, even if they have to attend to the drafting of it.

§ Mr. Lawson
With his customary acumen, my hon. Friend the Member for Croydon, South (Sir W. Clark) has hit on a real point. There is clearly a problem with rights issues and how they fit into the 1978 so-called profit-sharing schemes—it is more accurate to call them employee share schemes—of the Finance Act 1978.
The hon. Member for Colne Valley (Mr. Wainwright) will agree that in the 1614 Bill we have introduced a number of improvements to the 1978 schemes, but I accept that something needs to be done about the problem of rights issues. However, I do not think that the clause is the right way to deal with it.
This is not merely a drafting point. What my hon. Friend is suggesting is that the rights of the participants—rights in a technical sense—should, in effect be taken away from them and that the trustees should decide, rather than the participants. This creates a difficult problem of principle. We have, therefore, thought further about the matter and Revenue officials are at present looking at specific proposals which are directed to a more fundamental solution to the problems than the solution put forward in the new clause. The solution that is sought is one that would not fall foul of the objection that I mentioned a moment ago. Basically, it would involve taking rights issues made to scheme participants outside the profit-sharing scheme altogether. This is something that we are looking into very carefully.
Consultations should take place on a reasonably full scale, but it is hoped that our studies will be completed in good time for any legislative proposals to be included in next year's Finance Bill. I hope that with that assurance my hon. Friend will see fit to seek to withdraw the motion.

§ Sir William Clark
I am most grateful to my hon. Friend for that reply. I emphasise to him that it is quite impractical for trustees to deal with a rights issue if they have to consult all participants. Many profit sharing schemes involve 6,000 or 8,000 people. The trustees act for all the participants. How can a trustee circularise so many people about taking up the rights issue within the time limit.
I interpret my hon. Friend's remarks as meaning that this matter will be dealt with in the next Finance Bill, and that the rights of participants will not be removed. In view of my hon. Friend's categoric assurance, I beg to ask leave to withdraw the motion.