FINANCIAL ASSISTANCE FOR EMPLOYEES' SHARE SCHEMES (Hansard, 11 June 1986)

§ The Parliamentary Under-Secretary of State for Trade and Industry (Mr. Michael Howard)
I beg to move, That the clause be read a Second time.

§ Mr. Deputy Speaker
With this it may be convenient to discuss amendment No. 10, in Schedule 1, page 134, line 28 at end insert— '(1A) Paragraphs 12 to 16 do not apply to anything done by or on behalf of a body corporate, or a body corporate connected with it, or trustees appointed by a body corporate, for the purpose of or in connection with the establishment, operation or administration of an employees' share scheme (as that expression is defined in section 743 of the Companies Act 1985).'.

§ Mr. Howard
In response to the point of order raised by hon. Friend the Member for Croydon, South (Sir W. Clark), I should like to say that the vast majority of the Government amendments to which he referred emanate from points made in Standing Committee and from correspondence, often from Back Benchers. I hope that he accepts that, in large measure, they represent an attempt by the Government to respond to various anxieties that have been expressed.
New clause 1 springs out of a largely technical matter. As I said when we discussed a related point in Committee, the Government support the introduction of employee share schemes. One incentive that companies might wish to offer with such schemes might be the provision of facilities to allow beneficiaries of the scheme and their dependants to trade easily between themselves. There is room for doubt about whether the provisions of section 153(4)(b) of the Companies Act 1985 are wide enough to allow such facilities to be provided. This clause is intended to put it beyond doubt that they may be provided, up to the limits prescribed in section 154.
Amendment No. 10 concerns an issue that was not raised in Committee. Although I can sympathise with the concerns underlying it, I am not convinced that it is necessary. The Government are strongly in favour of employee share schemes and it is not our intention that employers who introduce such schemes should be required to be authorised. I believe that the existing exclusions in part III of schedule 1 are sufficient to achieve the desired result. I hope that, with that assurance, the hon. Member for Yeovil (Mr. Ashdown) will find it unnecessary to press his amendment.

§ Mr. Bryan Gould (Dagenham)
I cannot help but notice that the new clause is tabled in the name of the Secretary of State, and I cannot continue without expressing, on behalf of, I am sure, the whole House, our most sincere condolences to him on his tragic loss today.
I was interested by the Minister's response to the point of order raised by the hon. Member for Croydon, South (Sir W. Clark) and I was grateful to him for conceding that the length of our agenda and many of the amendments reflect the success of the Standing Committee in persuading the Government that some substantial amendments were required. That is a tribute to my right hon. and hon. Friends and other members of the Committee.
New clause 1 is curious. The Minister conceded that it is technical. It has little to do with the central purpose of the Bill. It is more a matter of company law than 388 authorisation for investment business. I was grateful to the Minister for his brief explanation of what the new clause is meant to achieve.
The Minister was right to say that we debated employee share schemes in Committee. I expressed the clear view of the Labour party that we favour such schemes in principle. The Minister and others will recall, however, that we argued that the exclusion of such schemes, as provided by paragraph 19 of schedule 1, was rather far-reaching as employees in those circumstances were likely to be inexperienced investors and in a vulnerable context, as they would be subject to all of the pressures of superiors at work. They are also potentially at risk from people with some form of inside information. On that basis, we argued and divided the Committee, when we had the support of the hon. Member for Yeovil (Mr. Ashdown). He voted in favour of an Opposition amendment which suggested that some form of independent advice ought to be provided in an employee share shop.
The Government opposed the amendment, partly on the ground that it would cost more money than was thought acceptable. I imagine that one of the purposes of new clause 1 is to authorise expenditure on setting up a share shop and I wonder whether the Minister has had a moment to reconsider his objection to our earlier amendment. Is he able to enlighten us? Is there anything implicit in the new clause which goes some way to removing his objections to what seemed to many of us a sensible limitation of employers' complete freedom when selling shares in their companies to their work force?

§ Mr. Paddy Ashdown (Yeovil)
Amendment No. 10 was not intended to make a substantial change but to clarify a point. I am advised that paragraph 19 of schedule 1 is not clear enough about whether employee share schemes are included. It seems that the Government's intentions are clear but I am advised that the wording is rather too broad. Perhaps the Minister would be kind enough to explain why he believes that the matter is covered elsewhere to give us some argumentation.
Employee share schemes ought to be covered because a company which operates arrangements for employees or trustees who subscribe to or purchase shares, whether at the outset or on an exercise of options later, seems to fall clearly within paragraphs 12 and 13 of schedule 1. Paragraphs 15 and 16 would seem to apply to other activities which such a share scheme might require. The matter is not defined in the exclusions in clause 67, as is the case with occupational pension schemes.
We believe that if employee share schemes are to be included in paragraph 19 of schedule 1 that should be clear so that there can be no argument about it later. I should be satisfied if the Minister would explain why he thinks the matter is covered elsewhere.

§ Mr. Howard
Perhaps I may give the hon. Member for Yeovil (Mr. Ashdown) the explanation for which he has asked. We should consider, first, schemes which are operated by the company. The company may, for instance, create new shares to issue to its employees, or arrange for the transfer to them of existing shares, or grant them options. The first case is excluded from the definition of investment business by paragraph 23(3) of schedule 1. which covers the issue by a company of its own shares. The other two cases would both be covered by the exclusion in paragraph 19. This paragraph disapplies paragraphs 12 389 and 13 generally when the purpose is to facilitate transactions in shares between or for the benefit of employees and their dependants. Given the broad definition of "disposal" in paragraph 23(2), the allotment of shares to employees following the exercise of an option in this context would seem to be a transaction in shares for their benefit. It would therefore be excluded from the definition of investment business under the terms of the paragraph.
When a scheme is run by trustees, they will not benefit from the exclusion in paragraph 19, but unless the trustees are operating the scheme by way of business, the Bill will not apply to them, and no exclusion is necessary. That is why I asserted earlier that amendment No. 10 is not necessary.
I accept, however, that uncertainty is undesirable. The amendment would go too far, but I am prepared to consider whether the clause covers the hon. Gentleman's