HC Deb 26 March 1980 vol 981 cc1480-2

I turn now to an area where the tax system can be used to involve the individual more closely in the workings of the economy. I refer to proposals which will encourage direct personal investment in the stocks and shares of British industry. In the last 20 years, the proportion of the equity of British companies, held in direct individual ownership, has been almost halved. This is a trend I should like to reverse.

It is generally agreed that share ownership and profit sharing can help in developing employees' understanding of, and commitment to, business and industry. I believe that share ownership can also spread a wider understanding of the role for risk-taking and initiative in the economic system.

I have two sets of proposals to make. First, I propose to make more generous the provisions which the last Government introduced two years ago to encourage profit-sharing. In passing, I would note that those provisions were based upon proposals originally put forward by my right hon. Friend the Secretary of State for Energy. They attracted all-party support. I propose to raised from £500 to £1,000 a year the value of shares allocated to any one employee which can qualify for tax relief; to reduce from five years to two the period after which employees can sell their shares; and to cut from 10 years to seven the period after which they can draw them out free of income tax.

Second, I propose to reintroduce legislation similar to that which Lord Barber introduced in 1973 enabling employees to be given options to buy shares in their companies without incurring liability to income tax. This scheme will have links, as in 1973, to a scheme for contractual savings. These measures will help to fulfil our promise to encourage employee share ownership and provide the incentive to save and build up capital.

There is one anomaly in the field of life insurance, which I propose to put right. The rate of life insurance relief used to be equivalent to half the basic rate of income tax. It has recently got out of line and I propose to restore the relationship by reducing it to 15 per cent. Because of the practical problems posed for the life insurance industry, the change will not take effect until 6 April next year. Steps will also be taken to deny life assurance premium relief to certain short-term bonds. This change will take effect from today.

Before I leave discussion of the capital markets I should add that I propose that traded options, which at present are anomalously treated as wasting assets for capital gains tax purposes, should in future be treated on the same basis as share warrants.

I hope that these measures will help to encourage the wider direct ownership of shares, by altering the relative attractions of investment through the institutions and through more direct means.