HC Deb 14 July 1981 vol 8 cc1106-15

For the purpose of section (Profit sharing schemes) of this Act, section 75 of the Finance Act 1972, Schedule 1 to the Finance Act 1974, section 58 of the Finance Act 1978 and schedule 19 to that Act and section 46 of the Finance Act 1980, a "job ownership company" shall be a company that:

  1. (a) is incorporated under the Companies Act 1948 as a company limited by shares.
  2. (b) contains provisions in its Memorandum of Association which limits its membership to:
    1. (i) individuals bona fide employed by or whose income is substantially derived from working upon the business of the company or its subsidiaries and
    2. (ii) trustees for such persons as are specified in the definition of an "employee share scheme" contained in section 87(1) Companies Act 1980 and which prohibit the alteration of such provisions and
  3. (c) contains provisions in its Articles of Association which are in force throughout the accounting year of the company in question which provides: —
    1. (i) for each member to have one vote only (excercisable in person or by proxy) at meetings of members of the company irrespective of the number 1107 of shares in the capital of the company held by such members and that such vote cannot be excluded from consideration or disregarded and
    2. (ii) that each member of the Board of Directors is elected by a simple majority of company and that any casual vacancy is filled by the Board for a temporary period only not to exceed two months that Articles of Association may provide for any person who is a member of the company by virtue of his trusteeship pursuant to sub-clause (a)(11) above to be ex officio directors.
    3. (iii) that the Managing Director (if any) is appointed and removable by a single majority of the general meeting of the company and
    4. (iv) that no money shall be borrowed or obtained by a Job Ownership Company (other than upon the issue of shares to a member or to an individual on becoming a member) upon terms that allow the rate of interest on return thereof of any premium on repayment over the net amount lent to vary or be calculated by reference to the rate of sales income profit or the value of any asset of the company provided that this paragraph shall not prevent a Job Ownership Company from taking a lease or lease back property on terms which relate to the income from sub-letting or to the underlying value of any superior or inferior interest in the property in question of factoring its debts on normal commercial terms and
    5. (v) that when an individual ceases to be a member (whether on death, retirement, expulsion or otherwise on his or her qualification to be a member of the company ceasing) the share or shares of such former member in the capital of the company and any other security issued to such member by the company shall be purchased or otherwise immediately vested either in the Company in an individual or in trustees qualified to be members under the Memorandum of Association and that (subject to anything in the Articles of Association in the case of expulsion) an appropriately calculated value or price is to be paid for such purchase or vesting.
    6. (vi) enables persons qualified to be members under clause 2(b)(1) above to become members.
  4. (d) is not an excluded company as defined in section 37 Finance Act 1980.
  5. (e) is controlled by a majority of the persons falling within the meaning of clause 2(b)(1) above.
  6. (f) is not controlled by either
    1. (i) such persons as directly or indirectly controlled the company at any time with a twelve month period before the company purported to qualify or would otherwise first have qualified as a job ownership company or
    2. (ii) such persons as directly or indirectly controlled a company which transferred all or part of its business to the company at any time within a twelve month period before the issue of shares in the company to the persons in question or
    3. (iii) such persons as directly or indirectly transferred to the company a business or all or part of the assets of a business formerly carried on by them whether in conjunction with others or not unless such transferring company has itself a Job Ownership Company.'.

Mr. Grimond

I am glad to see that the Financial Secretary to the Treasury is to reply. The right hon. Gentleman on previous occasions has shown himself sympathetic to the purpose that my right hon. and hon. Friends and I have in mind. That purpose is to make it easier for workers to acquire and run their companies. It surely must be desirable that we should spread the ownership of industry more widely. It must be desirable that more workers should own and run the companies in which they work. As an industrialist has said, Management by confrontation cannot go on indefinitely. As another one has said, We should be moving towards a company-owning democracy. The schedule would create a new class of company, a job ownership company. The essentials of that company are defined in the schedule. It would be a company with no absentee owners. It would be owned by those who worked in it or by trustees on their behalf. It would elect or appoint its own management, and in the determination of the affairs of the company every worker would have one vote.

We have deliberately drawn the schedule with some flexibility. It does not insist that all workers in the company should own the same proportion of the shares of the company. However, it ensures that the company should be controlled by its workers. There are certain safeguards that no doubt will please the Treasury.

The new clause is designed to make it easier for workers to take over companies either in the private sector or in the public sector. There are many developments. Several groups of workers are negotiating with the present owners of companies to take them over. There are family companies where the families wish to divest themselves of ownership. There is a great variety of companies throughout the country in which this type of negotiation is going on. It is also taking place in sections of the nationalised industries.

In the National Freight Corporation and at the airports it has been suggested that the staff or workers should take over some of the functions now dealt with by the nationalised corporations. We read in the newspapers that there are groups of directors and groups of senior staff who are anxious to buy out the present owners and take over the companies.

Surely the Government and every hon. Member should favour these developments. If the Government are proceeding with their proposals for hiving off some parts of the nationalised industries and returning to some form of private ownership, they should at least favour returning them to the workers in the industries where the workers are showing an interest in acquiring them.

Why is it necessary to form a new type of company? The answer to that question—my hon. Friend the Member for Colne Valley (Mr. Wainwright), who is an accountant, will be able to explain the technicalities—is that one of the present alternatives is to set up a co-operative under the old Co-operative Acts, which are strict about the handling of shares and the type of business that can be established. Candidly, they are not altogether suitable for the operations that I have mentioned.

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The other possibility is to set up an ordinary limited liability company. We do not deny that these procedures could be carried out under the existing laws on limited liability, but I am advised that to get the full advantages of the tax proposals it would have to be a closed company. Either this would have to be limited to very few people or all the members would have to be directors, which is clearly impossible.

New clause 10 would extend the advantages given to a profit-sharing scheme under the 1978 Finance Act and raise the figure from £1,000 to £3,000. If that were done, and the increased figure written in, it would become far more worth the while of workers to join this type of company and out of this profit-sharing on pre-tax profits to buy out the previous owners. That is the purpose of the new clause. Without it, it will be much more difficult to push through this type of company, although we do not deny that in theory it could be done.

I draw the attention of the Government, as I have done before, to the fact that when this matter was debated in another place industrialists such as Lord Seebohm, Lord Caldecote, Lord Rochester and Lord Boyd-Carpenter, all of whom have great experience in industry, said that this type of company was necessary and that the operation could not be conveniently carried out under existing legislation. They were supported by accountants and lawyers such as Lord Lloyd of Kilgerran and Lord Diamond. We may therefore take it that there is authoritative advice on record that this type of company is necessary.

We do not pretend that the drafting of our proposal will necessarily suit the Government, but we have been pressing the Government for a long time to deal with this. We have raised the matter on both the Companies Bill and the Finance Bill. We constantly get encouraging remarks from Ministers, but so far we have had no action. I hope that we shall now get some.

It must be apparent to anyone looking round this country that the more we can get local people to put their local savings into the companies in which they work and in which they will have an interest, the better it will be for all of us, the better it will be for industry and the better it may be for the cities and other places where too many people feel totally frustrated by the present state of the economy.

I hope that I shall not be told that the Government cannot do this because of the possibility of tax evasion. If in the nineteenth century Governments had looked only at tax evasion, the limited company would never have been set up. No change in legislation can be absolutely guaranteed to allow no evasion. To refuse what is widely accepted as a necessary and useful reform because a few people may conceivably take advantage of it—no more advantage, I should have thought, than of many other aspects of our legislation—to me is absurd.

I remember as a boy at boarding school asking to have a bottle of water at night because I was thirsty and being told by the schoolmaster that if he gave me one he would have to give one to every boy, somebody would break it and the water would run over the table. I therefore had to go thirsty for many years in case some boy broke a bottle and had to mop the water up. Let us not approach this subject with that mentality.

I do not pretend for one moment that this measure will put all our industrial relations right or that it will put our economy right, but I suggest that this is the direction in which we must move. We must get away from the conflicts of industry. We must interest more people in the running of it and spread the assets of it more widely. Above all, we must give people in industry the feeling that they have more control over it. Even if that can be done in only a small way, and even if this proposal is only a small step towards it, I suggest that it is a step in the right direction and should be supported by the Government.

Mr. William Waldegrave (Bristol, West)

I support the right hon. Member for Orkney and Shetland (Mr. Grimond). I take it that it is at the heart of the Government's industrial policy that there should be no centralised pattern either of industrial activity or of the method by which production is organised. I take it that at the heart of the Government's policy is the belief that we are, in the industrial sense, a plural society and the hope that a thousand flowers will bloom. In a number of ways we have taken a series of radical initiatives to help the generation of new, small conventional companies.

The right hon. Gentleman's initiative is in addition to that and is, I take it, fully in accordance with the Government's approach to these matters. In this instance we are saying not that we are concerned to aid small companies as against large ones but that we want to help the generation of new forms of social organisation in production and in service industries.

The lawyer's strict answer to the proposal is, as the right hon. Gentleman said, that it is possible to set up such a company now. But when in the future we want in this House, as no doubt we shall, further to help initiative in this direction, it will be useful to have on the statute book a definition of a company of this kind. We should find it easier to extend help to job ownership companies, as we extend it to easily defined conventional small businesses, if the clause were law.

There are a number of good historical and other reasons why the traditional co-operative does not meet in every case the needs of those wishing to buy out part of an existing company or to start a new company. But even those who are great partisans of the traditional co-operative should see no threat in our attempts to introduce yet another industrial pattern. The future shape of industry, its products and its technology are in a state of flux. It is difficult to predict in a whole range of activities the best pattern for the future.

The clause is an insurance policy, a method of opening up yet another range of options. If it were only to attract the commitment of quite a small number it would be a commitment worth obtaining. That such commitment can be forthcoming is proved by the often-quoted example of the Mondragon co-operatives in Spain. That is not unlike the pattern for which we are arguing tonight in the clause and the schedule.

Undoubtedly there are objections from taxation and other points of view to the introduction of what, by definition, is an anomaly. But I hope that that will be used not as an argument against the idea but as an argument in favour. By the nature of our argument we are saying that we should add another method which may attract the commitment of some of our citizens who wish to proceed in this way; by this nature, such innovation will be anomalous.

I hope that we shall not be advised that this will set dangerous precedents. We should be striving constantly to provide the widest possible range of options in industrial and service industries for those who wish to start new enterprises. I do not know whether these proposals can be accepted in their present form, but I hope that the Minister will not only make a friendly response but will go a little further and offer the help of his great Department. If he says that our proposal is defective, will he tell us the best way forward?

At the heart of the free industrial society is the right of those who have products to sell to determine for themselves their method of production within the market. What matters is that they should sell their products at the right price and find a market for them. We in the Conservative Party and in the House generally should have no objection to any form of organisation for that production and should have no preference for one over the other.

What we are interested in is production, without waste, at the right price, of goods that can find a market. If there is another way, not yet established in this country, whereby such goods and services can be provided, let us welcome it and experiment with it. There can be little cost to such an experiment and it might lead to something that could produce, as it has in Spain, interesting and productive results. I hope that, even if the clauses are technically defective, the Minister's response will be friendly and positive.

Mr. Richard Wainwright

I am happy to follow the hon. Member for Bristol, West (Mr. Waldegrave) in his eloquent defence of a pluralist industrial society, particularly that part of it in which he asked that many flowers should bloom. This flower of workers owning their jobs has blossomed for many years, and blossomed abundantly in the Mondragon area of Spain, on the experience of which these proposals are based by the job ownership organisation in this country.

How right the hon. Member was to make it plain that no one is suggesting, in proposing the new clause and the amendments, that this pattern of job ownership is everyone's cup of tea. There will always be many workers, and no disrespect to them, who are quite content to do a day's work in someone else's organisation, so long as they are reasonably paid and have no cares or responsibilities once the hooter goes at the end of the working day. Likewise, there will always be fewer people—but there are some—who are so altruistic that they are happy to work in a common ownership, where there is no individual ownership and where everything is thrown into a common pot. This type of organisation, which requires its own legal arrangements and which cannot be fitted to a procrustean bed of existing legislation, caters for people who are sufficiently individualistic to want to have the ownership of their jobs but who want to work in a fairly large, well-organised and expertly managed concern, producing top-quality products.

As I hope I have made clear, it is a condition of a job ownership company that everyone working for the company, after a short qualifying period, must acquire an appropriate share in the company. The only shareholders are the workers in the company, or, temporarily, the trustees who hold the pot of shares in the transitional period between some people leaving and being paid for their shares and others joining the company. There are, therefore, no outside holders and at the same time there are no workers who are without a share. It is on this basic and distinctive principle that Mondragon goes from success to success.

I emphasise that some of these proposed changes in the law are to assist the transition of a business, and there are examples in this country of family businesses that want to take this step. The idea is to facilitate the transfer of a family owned company, at the wish of the family, into a job ownership company.

Most hon. Members must be aware of the unhappy results when a family has run out of members, out of steam or interest, has not wished to continue in family proprietorship and has allowed itself to be swallowed up by some vast conglomerate. How unhappy have the majority of those absorptions proved to be. All kinds of glib assurances are always given that the style of the company will continue as before and that the tone of the company and the workers, will be protected. It is within the experience of many of us—certainly it was ray experience when I was in practice—that after a year or two the horror descends and new and unpalatable regimes are applied. The atmosphere of co-operation is often lost, and the whole enterprise ends on a sour note. Most industrialists now realise that that period of wholesale absorptions and mergers was a misguided one.

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How much better and desirable it is that the family which feels that it can no longer provide adequate direction from its own members should say "Let us now turn this business over on realistic terms—not as a gift or an act of pure philanthrophy—to the workers who have been loyal to this concern and have played a considerable part in building it up and keeping it going." That transition from a family company to a job ownership company requires some structural assistance in the law as well as some tax assistance.

It is simply to provide those two facilities for what would be an important transition that the new clause, the new schedule and the amendment are proposed.

Mr. Lawson

We have listened to three speeches, from the right hon. Member for Orkney and Shetland (Mr. Grimond), my hon. Friend the Member for Bristol, West (Mr. Waldegrave) and the hon. Member for Colne Valley (Mr. Wainwright), on a subject with which all of us have a great deal of sympathy and about which we shall rightly hear a great deal more in the future.

I begin by paying tribute to the great deal of work which I know the right hon. Member for Orkney and Shetland has put in to pursuing the translation of the Mondragon idea into the British system. He has had a number of meetings with my hon. and learned Friend the Minister of State on this matter, as well as meetings with other Ministers. The right hon. Gentleman has been most assiduous.

I should also like to pay tribute to my old friend, Robert Oakeshott, who in many ways has been the guiding spirit behind this. More than 20 years ago, when I was features editor of the Financial Times, Robert Oakeshott was one of my feature writers and a good one, too. He was always full of ideas then, and I am glad that he is still as creative today.

The idea of the diversification of corporate structures, and in particular job ownership, is one with which most Conservative Members, and I suspect Labour Members as well, have a great deal of sympathy. However, we are now discussing three specific aspects of this—the new clause, an amendment and a new schedule. The new schedule seeks to define the job ownership company, and to some extent the new clause and amendment turn on that.

The amendment relates to a clause that gives further assistance to co-operatives, which shows that the Government are fulfilling their words with deeds. We are seeking to help co-operatives. I realise that job ownership companies are different from straightforward co operatives, but in clause 25 we have sought to give further assistance to workers' co-operatives. The right hon. Member for Orkney and Shetland seeks to extend that to job ownership companies.

The right hon. Gentleman referred to a recent announcement of a possible privatisation of the National Freight Corporation by means of a massive management buy-out. If that comes to pass, it will do so very much with the Government's blessing. It may well be a precursor of further such developments.

Even under present legislation, entities of this kind can exist. Therefore, we must come to the question whether they need legal and fiscal assistance, and in particular what are the merits of the new clause, the amendment and the new schedule.

The schedule defines the job ownership company. I hope that the right hon. Gentleman will not think that I am being evasive when I say that a more appropriate place for a statutory definition, should we decide to have one, would be a Companies Act rather than a Finance Act. That is the normal place in which we define various kinds of company or business entities. I do not blame the right hon. Gentleman for taking this opportunity to try to insert a definition here, but it is an unusual place. The House will have a further opportunity to consider the matter when it considers the Companies Bill.

The version of the definition that is before us is different from the draft definition put forward by Job Ownership Ltd. in the discussions with my hon. and learned Friend the Minister of State last year. This shows that the matter is still in a state of flux. There is still some evolution of the thinking of Job Ownership Ltd. about the correct definition.

Mr. Nicholas Baker (Dorset, North)

Is it not the case that the job ownership company as defined now is entirely organisable within the framework of company law as it is, and requires no amendment of company law? In fact, the concept of a job ownership company is a tax concept, and therefore it is appropriate that it should be discussed in the context of this Bill.

Mr. Lawson

I shall come to the fiscal points. The right hon. Member for Orkney and Shetland and his hon. Friends are seeking to insert by a schedule a definition of a job ownership company, and that matter is really more appropriate for a Companies Act.

There are various reasons why this definition, whether or not it is in the right Bill, is not right. It is not apparent, for example, why the tax concessions that are argued for should be denied in respect of a company set up largely in conformity with job ownership principles which permitted the managing director to be appointed by the board, or voting rights to be related to the length of service, or a debenture holder to appoint a director. I understand that there are other, rather more technical, defects that make the schedule unsuitable.

There is also the matter of purchases by a company of its own shares. This is covered by the Companies Bill, but it is not yet part of company law. The taxation consequences of the new rules for the purchase of own shares are still being examined. The Government will produce a consultative document, with a view to making proposals in next year's Finance Bill.

Mr. Crouch

I do not think that there has been mention of a matter that is fundamental to the definition. It is not mentioned in the amendment or the schedule either. Underlying the whole proposition is the fact that members of a job ownership company would be contributing, because they are working for themselves. The schedule refers in paragraph (b)(i) to: individuals bona fide employed by or whose income is substantially derived from working upon the business of the company or its subsidiaries". That is another way of saying that the underlying theme is a lesson in productivity, or an approach to more productivity. I should have thought that my right hon. Friend would like to pick up that point. We have the germ of a good development. I am sure that he will not brush it aside.

Mr. Lawson

I am not trying to brush anything aside, particularly improvements in productivity and the whole idea of the job ownership company. I am trying to address myself to the new clause and to the amendments. Much thought has gone into the detail and, therefore, it is only right that I should pay it some attention. I am certainly not brushing aside the concept.

The purpose of the new clause is to increase the £1,000 per annum limit on shares under the profit-sharing provisions, which are embodied in our Finance Acts, to £3,000 in the case of members of the job ownership scheme. I am not persuaded that that is necessary. Of course, right hon. and hon. Members will be aware that that limit was only £500 until we increased it, in last year's Finance Act, to £1,000 for employees in any type of company. However valuable job ownership companies may be, they are not of exclusive merit. It is difficult to justify increasing the sum in their case to £3,000, particularly when they can take full advantage of the present £1,000 limit. They can have two schemes side by side: one an approved scheme under the 1978 Act, as amended, which goes up to £1,000, and one a non-approved scheme, for the purposes of the 1978 Act, which would enable them to have the extra £2,000, thus bringing the sum up to £3,000. Therefore, I am not satisfied that it is justifiable to make a special concession to job ownership companies that is not open to other companies that might wish to have employee share schemes. They can take full advantage—up to the £1,000 limit—of existing legislation.

I turn to the amendment. I apologise for the complexity of the issue. The amendment seeks to extend a concession in arrangements for co-operatives in clause 25 to job ownership companies. Job ownership companies are not discriminated against by clause 25. The purpose of clause 25(3) is to help those who have hitherto been excluded from relief, namely, members of small businesses organised as co-operatives. Hitherto the relief has been available only to certain members of partnerships and to members holding a material interest. That means roughly more than 5 per cent. of the equity in closed companies.

Members of job ownership companies are not necessarily excluded from the relief available to material shareholders in close companies. We have looked into this matter carefully and we are not satisfied that there is any disadvantage. However, I make this offer in good faith. If the right hon. Member for Orkney and Shetland is prepared to withdraw the new clause, I shall be prepared to reconsider the need for special relief for members of job ownership companies that are not close companies, provided that examples can be produced to demonstrate that the absence of such a relief is causing difficulties.

I shall go further than that and repeat the offer that was made to the right hon. Gentleman in general terms in a letter that he received from my hon. and learned Friend. Although we do not think that the proposed tax changes are fundamental or essential to the successful launching of job ownership companies, if Job Ownership Ltd. is able to point later at examples of difficulties in practice, we shall be happy to look at them or at any new proposals that Job Ownership Ltd. or the right hon. Gentleman may seek to introduce.

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Mr. Grimond

I thank the Minister for the kind words he said about Robert Oakeshott. I should declare an interest in that I am chairman of the small organisation of which Robert is the main instigator. It is a non-profit-making organisation and I have declared my interest in it frequently before.

I am a little frustrated. When I suggested that the Liberal Party wanted to table an amendment to the Companies Bill, I was drawn aside courteously by the Government and told that the right Bill was the Finance Bill. The hon. Member for Dorset, North (Mr. Baker) told us that we were talking about taxation and that the Companies Bill really was not the right medium. We tabled an amendment to the Finance Bill and the Minister told us with great courtesy that the Government were delighted but that the amendment was a matter for the Companies Bill.

I understand that the Minister will consider the matter again. I hope that he will read the letter written by the Minister of State about close companies which said that all the members of a job ownership company would have to be directors. I may be wrong, but I am sure that the Chief Secretary will look that up.

As I understand it, the Minister has come some way to meeting us. We are told by industrialists, accountants, lawyers and Lord Oram that if we are to pursue the matter of getting companies and their workers to set up companies we must have a definition of a job ownership company. Accountants throughout the country find it extremely difficult to draw up the necessary documents unless they can refer to a definition.

I agree with and emphasise the point made by the hon. Member for Bristol, West (Mr. Waldegrave) and my hon. Friend the Member for Colne Valley (Mr. Wainwright) that we want to see in being all sorts of companies and co-operatives. This is not an exclusive move. Therefore, I hope that the Government will go further still. We are slowly making progress. I understand that we have not been chucked out of the Finance Bill and told to return to the Companies Bill. I suppose that that is a step forward.

On the Minister's undertaking that he will write to us explaining his proposals to relieve us of any tax disadvantage and, I hope, making more proposals and incorporating a definition of job ownership companies, which everyone admits is necessary, I beg to ask leave to withdraw the clause.

Motion and clause, by leave, withdrawn.

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