§ Mr. Tim SmithI beg to move amendment No. I, in page 3, leave out lines 41 and 42.
§ The Chairman of Ways and MeansWith this it will be convenient to take the following amendments: No. 32, in page 3, line 43, leave out paragraphs (c) and (d).
No. 2, in page 4, leave out lines 1 to 3.
§ Mr. SmithClause 6 deals with excluded employments and states that no person who has employment in an office 1008 under the Crown or in the service of the Crown, or is employed by an excluded employer, can participate in a profit-related pay scheme. Sub-section (2)(b) states that an excluded employer means
a body under the control of the Crown".Subsection 3(b) states that in the case of a body having a share capital—which is what I am interested in—control means thathe holds more than half of its issued share capital".It was put to me by Price Waterhouse, to whom I am an adviser, that that would cover any plc owned by the state. For example, it would include the Rover Group. I am not sure, but I think it would include Harland and Wolff and a number of other plcs owned by the state because the Crown controls more than half of their share capital. I can understand why the Government want to exclude certain employments. It seems that, in certain cases, it would be inappropriate for employments to qualify for a profit-related scheme.That is not the only way in which a scheme can be excluded. To qualify, a scheme must be with an employer who is in the business of making a profit in the first place. Obviously, that would exclude many employments under the Crown. I ask my hon. Friend the Minister to look at the matter. If I am right about the matter, it is quite wrong that, just because people happen to work for plcs that are owned by the Crown, they should be excluded from the scheme.
§ Mr. BlairI have some sympathy with the amendment moved by the hon. Member for Beconsfield (Mr. Smith). Similar related points were raised in the debate on the amendments that are tabled in my name and have been taken together. Of course it is the case that, on the whole the public sector will be excluded from profit-related pay. Indeed, if clause 6 is passed as it stands at present, it will be totally excluded. One of the things that Professor Weitzman put forward—I confess that I did not totally understand the basis upon which he managed to do it—was some profit-related pay scheme for the public sector as well as the private sector. I hesitate to recommend that the Government turn their minds to that matter at this stage.
It is of course the case that the public sector will have no such profit-related pay scheme at all and will be unable to participate in it. One of the traditional reasons for that is that the public sector has much greater security of tenure than the private sector has and, therefore, profit-related pay is a more intelligent way of rewarding in the private sector rather than in the public sector, quite apart from the fact that, obviously, public sector profits have to be made. I am not entirely sure that that traditional argument would apply so much nowadays.
As I understand it, the question raised by the hon. Member for Beaconsfield concerns bodies under Government or local authority control with a fairly autonomous existence which can make profits. I join him in his question to the Minister about the purpose of excluding a body under central or local government control which makes profits and is therefore susceptible of engaging in a profit-related pay scheme. Why, if we wish for efficiency in the public sector and believe that that is the method of obtaining it, and if there are public sector bodies that are susceptible of being in these schemes, should not we allow them to participate?
As well as the point raised by the hon. Member for Beaconsfield, my amendment deals with, for example, 1009 local authorities' direct labour organisations which can tender for and perform contracts, and which, in certain circumstances, may be able to participate in these schemes. Once we have accepted, as the Committee has by its decision earlier, that profit-related pay schemes are to be encouraged, the net should be cast as widely as possible. If the Government believe that that is a good idea which will encourage productivity at the work place, the burden is upon them to show why certain categories of people should he excluded. At present, there seems to be doubt over at least those two categories.
§ Mr. BoswellI want to associate myself with the amendment of my hon. Friend the Member for Beaconsfield (Mr. Smith) and substantially with many of the remarks made by the hon. Member for Sedgefield (Mr. Blair).
We have a real problem here which goes to the heart of any analysis or attempt to help stimulate profit-related pay. Where profit does not exist it is difficult, by definition, to contrive some profit-related pay scheme. Nevertheless, it gives me some concern that about one quarter of the labour force which remains within the public sector under its different heads is excluded from what is a substantial advance.
Earlier, I had an opportunity to speak about the fact that I do not believe that the benefits of profit-related pay are purely internal to the schemes of the beneficiaries thereof. Nevertheless, an anomaly is created to which we should address ourselves. My purpose in rising is not in any sense to solve the problem, but to invite the Government to put down a marker to see what can be done in subsequent years to balance the position as far as it can be.
There are some grades of Government-controlled bodies at rather different levels. One is the plc with a largely public shareholding, such as the Rover Group. The next level would be Government trading funds, going through to organisations partly or entirely identified with public sector bodies, such as local authorities or the Civil Service. I have recently had the privilege of working alongside the Civil Service and I see the importance of encouraging motivation. However, one or two Opposition Members have shown a marked lack of interest in the Government's attempts to introduce incentive schemes for efficency in the public sector. Without solving these problems, I invite the Government to address themselves to them and to see whether, in a subsequent Finance Bill, they can bring forward some measures which would shadow profit-related pay.
As hon. Members have mentioned earlier, there is the problem of creating a personal incentive because of the difficulty of allocation and the invidiousness which that may sometimes bring. That may go to some of the anxieties that some hon. Members have mentioned about incentive schemes in the public sector. Nevertheless, it is unfortunate if about a quarter of the labour force cannot participate in these schemes. I understand the reason for that and the accountancy principles which make it impossible at this stage, but I hope that it will be possible to find a way to extend the benefits of what is a considerable social advance to other groups of employees in subsequent Finance Bills.
§ Mr. BrookeI am grateful to my hon. Friend the Member for Beaconsfield (Mr. Smith) for his amendments 1010 and for the manner in which he moved them. He asked me a specific question about the Rover Group and I can confirm that such a body would be excluded by the legislation as it is now composed.
The exclusion of the bodies addressed in the amendment is not a reflection of prejudice but of a careful consideration of the economic merits and consequences of profit-related pay in this sector of the economy. As my hon. Friend said, many of the employees concerned would, in any event, be excluded from access to the tax relief by other profit-related pay provisions. Those provisions require that the undertaking is carried on with a view to profit; they also exclude tax relief in respect of losses. The hon. Member for Sedgefield (Mr. Blair) made similar points in the context of local authorities and I give the same observations in response.
Some trading bodies covered by the amendment show an accounting profit and compete directly with the private sector, but even those are not generally wholly comparable with the private sector. Some public concerns can achieve profit targets by raising prices in situations where the absence of other suppliers means that they are comparatively less vulnerable to losing business. Even where conditions are similar, there are often cultural differences. The full benefits of profit-related pay will flow where a concern operates fully in the disciplines of the market economy, as, if I may remark in parenthesis, privatisation shows.
We take the view that, wherever it can be done, such bodies should be freed from Government control through privatisation, after which they are fully exposed to the benefits and disciplines of the market, including the benefits of a registered profit-related pay scheme.
The matter has been carefully considered. In general, the potential benefits of profit-related pay schemes in the concerns covered by the amendment are likely to be significantly less than in the private sector, and the concentration of an innovative tax relief, such as profit-related pay, on the private sector, where the benefits of pay flexibility are most likely to have the greatest impact, has been regarded as the first priority by the Government.
The hon. Member for Sedgefield referred to local authorities. What I said about other aspects of this scheme to my hon. Friend the Member for Beaconsfield applies equally to local authority employees. There are areas in the local authority sector where there are similarities with the private sector. I am not suggesting that it is possible to make simple straightforward distinctions. But while there are similarities, there are important differences of culture and of competitive tendering in the local authority sector for all the work cannot yet be said to have been achieved.
I said in the debate on clause I stand part that we shall be watching with interest the evolution of profit-related pay. We expect it to be a gradual process. I hope that it will be a success. We shall certainly look at its evolution, not simply in the private sector, in terms of what is achieved there, but in terms of its potential application elsewhere. I hope that in the spirit of that response my hon. Friend will feel able to withdraw his amendment.
§ Mr. Tim SmithI can see the difficulties that arise with trading funds and, to a lesser extent, with direct labour organisations of local authorities, although they are not necessarily insuperable. After all, they would have to meet various requirements in schedule I in order to qualify. Their accounts would have to show a true and fair view.
1011 There would have to be an independent accountant's report and they would have to be profit-making in the first place.
But when it comes to plcs in the public sector, I am a little disappointed by my hon. Friend's reply. I was expecting him to say not that he disagreed with me in principle, but that the Government had looked at the matter and had not been able to find a practical way to deal with the problem. In most cases there would be no question of profit-related pay. For a plc such as the Rover Group, or a nationalised industry in receipt of a Government subsidy that is loss-making, the question does not arise. If it is a nationalised industry, or a plc, which has advanced beyond that and is being prepared for transfer to the private sector and making a profit, it stands wholly apart from Government; it is not in receipt of Government subsidy. Apart from ownership, I cannot see the distinction between that plc and one in the private sector or one that is listed on the Stock Exchange. I do not wish to press this, but will my hon. Friend re-examine the sector of plcs that are 100 per cent. owned by the Crown?
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§ Mr. BlairI understood a part of the Minister's speech; then there was a part that lapsed into pure ideology. That brought to mind what I believe the noble Lord Ross said when welcoming the shadow Secretary of State for Scotland during the period of the 1974–79 Government. He said that he had read his first speech; he had not read it well; and it had not been worth reading anyway. That summed up the part in which the Minister was talking about trading plcs.
I would put the case of Austin Rover differently from the hon. Member for Beaconsfield (Mr. Smith). If an organisation is not making a profit, the issue hides itself and there is no question of profit-related pay. However, if Austin Rover moves into profit, or if other organisations in the public sector are in profit, why on earth should they not participate in the schemes? It is extremely difficult to see how one can justify excluding bodies from profit-related pay merely on the basis that they operate in the public sector.
We voted earlier against the principle of profit-related pay, but now that it has been accepted, it is our duty to make it as effective as possible. At the moment, those in the public sector who have to operate on the basis of profit along commercial lines will feel aggrieved if they are unable to obtain the tax perk that arises from profit-related pay while others in the private sector can do so.
So I did not find the Minister's explanation wholly convincing. Will the Treasury keep the matter under review and bend some of its considerable resources to finding a way around the problem?
§ Mr. BrookeI say to my hon. Friend the Member for Beaconsfield (Mr. Smith) and to the hon. Member for Sedgefield (Mr. Blair) that it goes without saying that if companies such as those that were the concern of my hon. Friend can be privatised, that will of itself resolve the problem. I do not want to imply that that is the sole objective of privatisation, because the benefits that can be secured through privatisation are common cause on this side of the House.
I tried to answer my hon. Friend the Member for Daventry (Mr. Boswell) by saying that the Government 1012 would keep the matter under review. It would be pleasing if, by the time we came to discuss this issue next, the problem had been solved by the privatisation of the companies concerned, but I said that we sought to take a balanced view, and that is what we shall continue to do when examining what both sides of the House have admitted is a difficult problem.
§ Amendment, by leave, withdrawn.
§ Clause 6 ordered to stand part of the Bill.
§ Clauses 7, 8 and 9 ordered to stand part of the Bill.