CANCELLATION OF REGISTRATION (Hansard, 14 July 1987)

§ Mr. Blair
I have a small point to make about clause 10 that is important for anti-avoidance purposes. It may be dealt with in schedule 1. If so, I apologise for raising it here. Clause 10(4) provides: If the scheme employer, by written notice, requests the Board to cancel the registration of the scheme with effect from the beginning of a profit period specified in the notice, the Board shall comply with the request. It seems to me that a major part of the Government's case on profit-related pay must be that the scheme exists in bad times as well as in good. There is not much point in having a profit-related pay scheme if it exists only in the good times. It must exist in the bad times, too. That is what is supposed to give firms the benefit of not needing to make redundancies when recession hits them and profitability drops. When those bad times come, what is to prevent an employer saying that he intends to cancel the profit-related pay scheme? In other words, employers obtain the benefit when times are good and profits are rising, but, as soon as profits go down, they cancel the scheme, and thus avoid any of the microeconomic benefits that are supposed to accrue under the scheme. Is that provided for anywhere else? If not, does clause 10(4) open that scheme of avoidance to them?

§ Mr. Brooke
At first blush, I do not see what the attraction of making such a change would be from the point of view of the employer. Of course, there may be circumstances that call for the cancellation of the registration that arise out of the economic performance of the company, but those are dealt with in terms of the legislation as a whole. As the Government argued that potential benefits to employers and employees flow from having profit-related pay schemes at a time of downturn, I do not understand why there would be a benefit for the employer in effecting such a change at such a time.

§ Mr. Blair
I appreciate that there is perhaps a difference between us as to how great a community of interest there will be between the workers and management in these profit-related pay schemes. However, if the profits of the firm drop under a PRP scheme, so the wages of the workers drop. It may be agreed between the workers and management that, rather than let their pay drop, which is the effect at present, they will engage in voluntary redundancies and keep paying at the same level and cancel the profit-related pay scheme for that reason. When it is so easily cancelled by the employer, it might be in the interests of employers and employees to do that. That would militate against the better purposes of the scheme. 1013 Will the Minister give consideration to the problem of those scheme employers who decide that it is in their interests to engage in a PRP scheme for a limited period and then, if it is clear that profits will accrue only over a limited period, halt that scheme and move into a different scheme with a different company? When the scheme can he easily cancelled, there is surely a risk that it will be entered into not for the benefit of the official purpose of PRP but for purposes of avoidance.

§ Mr. Brooke
I have a continuing problem with the hypothesis advanced by the hon. Member for Sedgefield (Mr. Blair). The act of cancellation, just like the act of going into loss under one of the methods detailed in the schedule, produces a discontinuity of the scheme. If one found that things were improving fairly soon thereafter, one would not be able to maintain the benefit in the way in which one would if there had been continuity through the bad periods Clearly, it is possible for a company to make an application for cancellation of registration, and subsection (4) puts the board under an obligation to respond to that request.
It may be helpful if I say something about the consequences of cancellation of registration. It obviously depends on the rules of the profit-related pay scheme, but some companies might continue to provide profit-related pay to employees even in respect of periods after the effective date of cancellation, though entitlement to tax relief would no longer exist. Payments of profit-related pay made after the effective date of cancellation may continue to enjoy tax relief where they relate to profit periods preceding the cancellation date. In respect of any such periods, the scheme employer will remain obliged to account to the Inland Revenue for the operation of his scheme. Payments of profit-related pay made after the effective date of cancellation may not enjoy tax relief where they relate to profit periods after that date. If any tax relief had been given for such periods, the employer would be liable to repay it to the Inland Revenue under the provisions of clause 11, which we shall shortly be debating.