HC Deb 09 July 1985 vol 82 cc1053-8

'(1) This section has effect where an individual, who throughout a year of assessment is resident in the United Kingdom, incurs expenditure on acquiring eligible securities.

(2) For the purposes of this section eligible securities consist of:—

  1. (a) shares or stock which at the time acquisition by an individual to whom the provisions of this section apply (or, if later, on 5th April 1986) form part of the ordinary share capital of a company resident in the United Kingdom and are quoted on a recognised stock exchange; and
  2. (b) units in such authorised unit trusts as the Board may by regulation prescribe.

(3) An individual to whom the provisions of this section apply and who has, in any year of assessment, incurred expenditure on acquiring eligible securities may, by notice in writing given within six months after that year, make a claim for relief from income tax on an amount of his income equal to so much of such expenditure as does not exceed £500.

(4) The Treasury may by order made by statutory instrument increase the amount of £500 in subsection (3) of this section to such amount as shall be specified in that order.

(5) The following provisions shall have effect as respects relief under this section—

  1. (a) the amount of any expenditure in respect of which a claim for relief might otherwise be made under this section as regards any year of assessment shall be reduced by the aggregate amount of the proceeds of any disposals of eligible securities made during that year by the individual concerned;
  2. (b) in the event that an individual to whom relief has been given under this section as regards any year of assessment disposes of eligible securities in any subsequent year of assessment (being a year of assessment ending on or before 5th April 1986) and does not in such subsequent year of assessment incur expenditure on acquiring eligible securities in an amount equal to or exceeding the proceeds of all such disposals, then he shall forfeit so much of such relief as is equal to the amount by which such expenditure falls short of such proceeds, or, if there is no expenditure so much of such relief as is equal to such proceeds;
  3. (c) a claim for relief may require it to be given only by reference to the income of the individual without extending to the income of his spouse;
  4. (d) subject to paragraph (c) above, relief shall be given by treating the expenditure as reducing first the earned income of the individual, then his other income, then the earned income of his spouse and then his spouse's other income;
  5. (e) the relief shall be given in priority to relief under section 168 of the Taxes Act or section 30 of the Finance Act 1978.

(6) Where the Board is of opinion that any acquisition or disposal of eligible securities which is material for any of the purposes of this section is not at arms' length and accordingly directs that this subsection shall apply, then for the purposes of this section there shall be substituted—

  1. (a) in the case of an acquisition of eligible securities, for the expenditure on such acquisition; or
  2. (b) in the case of a disposal of eligible securities, for the proceeds of such disposal; the market value of such securities at the time of such acquisition or disposal.'.—[Mr. Kirkwood.]

Brought up, and read the First time.

Mr. Archy Kirkwood (Roxburgh and Berwickshire)

I beg to move, That the clause be read a Second time.

The provenance of the new clause was provided by the speech made by the Chancellor on 11 June 1985 at the Maurice Macmillan memorial lecture, which he delivered to the Wider Share Ownership Council in the Grand Committee Room. The terms of the new clause are neither original nor entirely new to the House. In 1981 my hon. Friend the Member for Colne Valley (Mr. Wainwright) introduced a similar measure. The idea behind the new clause was pioneered in France, where the scheme has been in operation for some years. The scheme has been extended to Belgium, Sweden and Norway. It has found great favour abroad and has produced economic and financial benefits in other European countries. I suggest that it has friends not only abroad but in the House, including Conservative Members.

The scheme involves giving tax relief on acquiring securities in certain circumstances. The details of the maximum limit to the amount of relief in the period of the tenure and the other terms of the scheme would all be open to negotiation and discussion. The key feature is that the money that would be granted relief would be wholly additonal investment. Life assurance and pension funds have tax advantages — why not equity acquisition as well? Tax neutrality is a worthwhile goal at which to aim, but in today's fiscal conditions why not have an element of equity purchase too?

The main purpose of the relief is to arrest and reverse the tide of investment in corporate form, in contradistinction to the sad decline in the personal sector of investment. Under the heading "Wider Share Ownership" the Chancellor said: In the 1950s, for example, private investors accounted for two-thirds of all transactions on the Stock Exchange. The proportion is now probably below a quarter. And until very recently the decline was accelerating. The proportion of UK shares owned directly by individuals fell from 37 per cent. in 1975 to 28 per cent. by the end of 1981. The opportunity is there for the Government to do a great deal more to encourage the private sector to return to the stock market. I accept that they have done something by reducing stamp duty and that a certain amount has been done under the employee share ownership scheme, but a scheme of the sort that is proposed in the new clause would produce a great increase in turnover in the stock market and would lead to a strong market performance in future. I urge the Government strongly to consider the scheme.

2.45 am
Mr. Wrigglesworth

As my hon. Friend the Member for Roxburgh and Berwickshire (Mr. Kirkwood) has said, the new clause is an attempt to implement in the United Kingdom a scheme to encourage share ownership purchase similar to that pioneered in France by Rene Monory in 1978. The French scheme was subsequently amended by Mr. Mitterrand's Minister, Mr. Delors. As my hon. Friend said, such schemes have been introduced with considerable success in other European countries such as Belgium, Sweden and Norway. A similar scheme is proposed in the Netherlands.

The Government might claim that their privatisation programme will lead to much wider share ownership, but that is questionable. The extensive programme of asset sales — it is estimated to average about £2.5 billion annually for the next three years — will not necessarily build a large base of private shareholders. By comparison with the United States or Japan, the British record of individual shareholding is poor. Less than 4 per cent. of individuals in Britain hold shares compared with almost 20 per cent. in the United States and almost 17 per cent. in Japan. Even the 8 per cent. of the adult population to which share ownership in Britain rose as a consequence of the BT flotation has fallen to 7 per cent. as a result of subsequent share disposals.

The unprecedented campaign and the incentives to attract small investors may again be emulated by the sale of British Gas but it will be hard to sustain in future issues. The evidence of British Aerospace is not encouraging. Of the 44,000 who held up to 99 shares each on that sale immediately after flotation, only 3,279 remained a year later. That was a staggering reduction. Of the 80,000 who held between 100 and 500 shares, only 13,000 remain. The total number of shareholders fell in a year from 157,829 to a mere 27,175. It will not be until the end of the voucher incentives for the larger shareholders in BT — those who hold 3,000 shares or more — that a full picture of the concentration of share ownership in BT will become possible.

It is clear that the take-up of employee share options in the privatised companies has been extremely limited. A parliamentary answer on 9 January gave the proportion of shares held initially by employees. It was 3.6 per cent. in British Aerospace, 1.4 per cent. in Cable and Wireless, 3.7 per cent. in Amersham International, only 0.1 per cent. in Britoil, 4.3 per cent. in Associated British Ports, 0.03 per cent. in Enterprise Oil, 1.3 per cent. in Jaguar and 1.9 per cent. in BT. These are minute percentages of the employees.

Even though the privatisation programme has not yet resulted in wider share ownership and employee share ownership on the scale that was claimed for it, it has undoubtedly kindled interest in the concept of share ownership among many who would not previously have contemplated it, and that is to be welcomed. The number of employee share ownership schemes approved by the Inland Revenue since the fiscal incentives were promoted in the Finance Act 1978 has grown impressively from 33 in 1979–80 to about 433 now. There are nearly 800 if employee share ownership schemes are included. It shows a substantial growth on the basis of the scheme introduced in 1978 that bears some resemblance to this new clause.

Even if these schemes can be viewed as a form of deferred profit sharing, like other forms of wider share ownership they are transforming the character of the market economy and conferring the benefits of capital ownership upon a wider number of people than entrepreneurs and those who are fortunate enough to have a substantial accumulation of capital. The time is opportune to provide incentives through the tax system to give a new impetus to these developments and to stimulate the rapid growth of an industrial third force, the co-operative sector, and radical innovations such as employee buy outs to revive companies which have failed through incompetent management rather than through adverse market conditions.

The new clause would build on the modest take-up of the 1978 profit-sharing scheme which, although it started well, still covers fewer than 2 per cent. of employees. It provides the framework for stimulating these developments as well as boosting the equity base of companies and stimulating savings. It would help us to move away from the inbuilt discrimination in the taxation system which channels 70 per cent. of our savings into safe institutional investment in building societies, insurance companies and pension funds, compared with only 50 per cent. in the United States.

The variants on the Loi Monory scheme and the Delors scheme which have been introduced in Europe have helped to promote an inflow of cash which, according to the Investors Chronicle, has been an important factor in limiting the extent of market setbacks and contributing to a further substantial rise in prices. The introduction of schemes such as that contained in new clause 43 has taken place in combination with the creation of equity funds, which in Sweden showed a phenomenal growth from £13 million in 1979 to £165 million in 1983 and made a significant contribution to the buoyancy of the Swedish stock market.

The potential for employee shareholding schemes is at present strictly limited by the requirements of the institutions' protection committees: that not more than 5 per cent. of a company's pre-tax profits can be used in any one year and not more than 1 per cent. of issued share capital can be subscribed in any one year. For a large British company with a turnover of £1 billion, a capitalisation of £200 million and profits of £50 million this would mean that no more than £2.5 million of equity could be purchased annually. It would take 20 years to build up an employee's stake of as much as 20 per cent. This is a most regrettable state of affairs. By accepting the amendment the Government should take this opportunity to review the obstacles that stand in the way of wider share ownership. We hope that the Financial Secretary will respond to that opportunity.

Dr. McDonald

I listened carefully to the speech of the hon. Member for Stockton, South (Mr. Wrigglesworth). He referred to employee share ownership schemes and to the promotion of co-operative share ownership. The Opposition might view the new clause with more favour if that was the purpose of the new clause, but it does not limit tax relief for employees or co-operative share ownership. Tax relief is to be made available to individuals and the maximum relief to be made available will be £500. However laudable its aim might be, the new clause provides yet more relief to those who already have. Even though the maximum amount of money that can be invested in shares in any one year is limited to £500, this comparatively small amount is beyond the means of many people. This would not be our first choice when considering how tax relief should be distributed.

Secondly, the richer the investor and the higher his rate of tax the more this relief is worth. Neither the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood), who moved the new clause, nor his hon. Friend the Member for Stockton, South gave an estimate of its cost. I hope that the Economic Secretary will refer to it so that we may have some idea of the size of the give away that the new clause envisages.

Mr. Ian Stewart

I compliment the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) on his patience in batting last in the order but on having nevertheless instituted an interesting debate at this hour on the proposals in the new clause, and his hon. Friend the Member for Stockton, South (Mr. Wrigglesworth), who spoke of the wider share ownership aspects.

I have considerable sympathy in principle with proposals which promote wider share ownership by individuals and which encourage investment in British industry. The record of the Government on wider share ownership is good. But with regard to investment in United Kingdom industry, we have felt it more appropriate to target relief for new investment where it is most needed—for example, through the business expansion scheme.

The hon. Member for Stockton, South referred in particular to the example of the Loi Monory, but the situation in France is, and has been, different from that in our stock market. One of the objectives of the French scheme was indeed wider share ownership, but they also wanted to strengthen their stock market and improve the capital base for French companies, which was much less developed than that in the city. They wanted to reduce the gearing of companies and provide funds for additional investment. It is not on all fours with the position in the United Kingdom.

The other French objectives, other than wider share ownership, are less relevant for us because of our larger stock market. They also have a different tax system in France and it is not possible, therefore, to make a direct comparison with that country, nor with the other countries mentioned in the Investors Chronicle article. Some of the growth in the stock markets of those countries has been due, in any event, to the increase in foreign investment.

The first questions to ask about the new clause are, as the hon. Member for Thurrock (Dr. McDonald) said, the cost and whether such a provision would represent a sensible use of those resources. We calculate that for every 1 million cases, the tax relief would cost about £150 million. It is not possible to predict in advance how many people would take advantage of such a scheme, but I have given the round figure of about £150 million.

The trouble is that such investment would not be wholly additional. The expectation is that, at least in the first year, and probably in other early years, much of the cost would derive from switching by people who already have share ownership. It would be bed and breakfast; they would sell and re-purchase or sell one and buy another. It would be difficult to isolate individual purchasers in that way.

Mr. Gerald Bermingham (St. Helens, South)

Does the hon. Gentleman agree that, as a result of the Budget, bed and breakfast has become legal again?

Mr. Stewart

Bed and break fast has never been illegal. It has sometimes been easier and sometimes less easy to do. It seems to be an ordinary stock exchange operation. I am not suggesting that we should provide an opportunity for it, with heavy cost to the taxpayer, which would not bring substantial funds into the market for the reasons that I have given.

It was pointed out that similar new clauses were debated four or five years ago. I am afraid that hon. Members will have recognised that the arguments that I am adducing are similar to those which may have been used on those occasions. I have sympathy with the objectives of the new clause, though I do not believe that this would be the way to achieve them, and the considerations that were put forward four of five years ago still apply. For those reasons, I cannot commend the new clause to the House.

Mr. Kirkwood

I refute everything that the Minister said about the application of the Loi Monory, but perhaps we should go there and investigate the position. I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

Further consideration adjourned. — [Mr. Archie Hamilton.]

Bill (not amended in the Committee, and as amended in the Standing Committee), to be further considered this day.