INTERPRETATION

HC Deb 14 July 1987 vol 119 cc980-1002 3.47 pm

Mr. Tony Blair (Sedgefield)

I beg to move amendment No. 35, in page I, line 10, leave out 'or that part of an undertaking'. The first chapter of the Finance Bill deals with profit-related pay and a number of amendments on the Paper relate to the first 18 clauses. For the convenience of the Committee, I intend to adhere strictly, as no doubt, you Mr. Chairman, would want me to, to the wording of the first amendment and leave a more general debate on profit-related pay and its basic principles to a clause stand part debate.

The amendment would omit from clause 1, line 10, the words or that part of an undertaking". That will define an employment unit as an undertaking to which a profit-related pay scheme relates, not an undertaking, or that part of an undertaking, to which a profit-related pay scheme relates". The amendment has been tabled to probe the Government's intentions in defining an employment unit for the purpose of deciding how profit-related pay is to be administered. I raise those particular words because they crop up in many areas of the law, and, indeed, have given rise to considerable and significant legal confusion over the years. Since we are about to administer a large tax relief on the basis of a profit-related pay scheme, it is right that we should be sure of the scope of the profit-related pay scheme so that we can adequately determine the scope of the fiscal incentive towards profit-related pay.

Among the legislation in which the words "part of an undertaking" occur, are the Redundancy Acts and the transfer of undertakings orders which transfer the rights and obligations of employees and employers in certain employment situations where one firm takes over another. I assume—perhaps the Minister will confirm this—that the definition of part of an undertaking is supposed to be the same in the Act as it is in the industrial relations legislation more generally.

I want to give the Minister one or two examples, so that we can see the scope of what is involved. If a firm wants to introduce a profit-related pay scheme, and has its own canteen staff. do such staff form a self-contained unit such that they are part of an undertaking? For example, would the clerical side of a firm, as opposed to the shop floor shide, form a part of an undertaking? In other words, there are certain legal cases in relation to the industrial relations laws in which part of an undertaking is sometimes defined as a self-contained part—in the sense that it could even have its own profit and loss accounts. Presumably that would not arise in relation to the clerical side of a firm; could it be included? If so, could that apply merely to the white collar staff and not to the shop floor staff? What are the requirements that go to make up the definition of "part of an undertaking"? Has consideration been given to that? Is the Treasury satisfied that no one will be excluded from the ambit of the profit-related pay schemes by an over-tight definition of an undertaking or part of an undertaking?

We intend to vote against the general principle of profit-related pay and a fiscal incentive, but it is important that if we are to have profit-related pay, it is accepted on a clear basis and no-one is excluded from the ambit of profit-related schemes who should properly be within it, once the initial principle is accepted. I hope that I have adequately canvassed the difficulties that we foresee. I stress that this is a probing amendment that is designed to secure an explanation from the Government.

The Paymaster General (Mr. Peter Brooke)

It may be helpful if I refer to the general subject that the hon. Member for Sedgefield (Mr. Blair) has raised. In the design of our PRP proposals, we have sought, wherever it is consistent with policy objectives, to build in as much flexibility as possible. One choice that we are allowing employers to make when preparing their PRP schemes is the nature of the employment unit. We recognise that some employers will want to have a single scheme covering the whole enterprise under which PRP is related to the profits of the whole, be it a company or group of companies, a partnership or other unincorporated business. Any employer who makes that choice may do so because he considers that his employees are likely to be better motivated if they are identified with the business as a whole. He may conclude in any event that, in his own circumstances, there would he particular disadvantages or difficulties in breaking the business down into profit centres, each with it own profit and loss account prepared in accordance with paragraphs 19 and 20 of schedule 1.

On the other hand, some businesses already operate on a basis that provides a measure of autonomy at a level lower than the whole business. They find particular advantages in such decentralisation and we have therefore provided that the employment unit need not be the whole group, company or business but can be a sub-unit of any of those. We recognise that in some businesses employees see themselves as belonging to a particular part of a business. That may be one division or even one factory. It is right that if profit figures that meet the statutory requirements can be produced for that part of the undertaking it should he permissible for that unit to be an employment unit with its own PRP scheme. It would be wrong to require that each company in a group had to belong to a group scheme despite the fact that each company made a different product and that each employee thought of himself—and was encouraged to think of himself—as employed by his own company rather than by the group.

The tax relief that we are providing is intended to encourage the widespread adoption of PRP schemes. In our judgment, removing the choice of size of employment unit would deter some employers from adopting PRP; but the essential condition, about which the hon. Member for Sedgefield asked, is the requirement that a unit should have its own profit and loss account prepared in accordance with paragraphs 19 and 20 of schedule 1.

Mr. Blair

I am grateful to the Minister for his reply. I am attempting to be helpful and to do that I need to probe a little further. Some units of an undertaking might be colloquially thought of as self-contained and would not have their own separate profit and loss account. The canteen or clerical staff in a company might not have profit and loss accounts hut could form self-contained parts. The reason for our amendment is to probe whether the Government have given sufficient thought to the definition of "part of an undertaking". These words are widely used in industrial relations legislation and have given rise to considerable confusion. The Government should be clear about their legislative intent, or they will find that companies will be unduly restricted in bringing in these schemes.

Mr. Brooke

It may be helpful if I respond further to the hon. Gentleman's remarks. I should add to what I said earlier that the Bill has no specific relationship to other legislation. There is no natural read-across but, as I said before, the touchstone will be the employer's ability to produce a profit and loss account for an employment unit of the undertaking. The hon. Gentleman used the example of canteen staff. If the employer can produce accounts it is for him to make an application for a scheme. The hon. Gentleman will know from reading the rest of the legislation that it requires 80 per cent. employee participation, although I think the hon. Gentleman has another amendment about that.

Mr. Blair

Again I am grateful to the Minister. Perhaps I could ask him to give this matter further consideration. I do not think that it is a matter of controversy between us. I appreciate what he says, that these are different parts of the legislation, but I can tell him, and no doubt his advice will he to the effect, that the words in this statute will be defined and construed by a court in the same way as words are interpreted in other pieces of legislation. Therefore, the industrial relations definitions in the redundancy and transfer of undertakings regulations about an undertaking and part of an undertaking will he the same.

Situations can arise in which it is not possible to produce a separate profit and loss account but in which one could think in colloquial terms of a self-contained part of an undertaking. It may be worth paying some further attention to this to ensure that certain parts of undertakings will not be excluded from the ambit of these profit-related pay schemes. I can think of examples in my own constituency where for parts of a factory floor it would be impossible to produce a profit and loss account. However, they might well respond in different ways to a profit-related pay scheme. I ask the Minister to at least give some further attention to this. Otherwise, there will be difficulties that we both want to avoid. Subject to that, I am prepared to withdraw the amendment.

Mr. Brooke

The issue that the hon. Gentleman raises was, of course, considered during the fairly lengthy gestation period that led up to this legislation. I repeat that a scheme employer will need to make an application to the board of Inland Revenue and that one of the conditions that he must satisfy under this legislation in order to be registered is the production of a separate profit and loss account. That of itself will be a determining factor.

Mr. Blair

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

Mr. Blair

As I said when I spoke to the previous amendment, the debate on clause 1 is an appropriate time to have a debate on the principle of profit-related pay and whether it is in our interests to accept as a whole the scheme that the Government intend to introduce. Profit-related pay has been much discussed among academics, and various representations were made to the Government when they first mooted this scheme. The advantages and disadvantages can be said to be in some sort of balance. We cannot be certain that the balance of advantage comes down on one side or the other.

4 pm

The Bill will introduce tax relief on profit-related pay for up to one fifth or £3,000 of an employee's wage—whichever is the lower—provided that that part of the wage is paid on the basis of the employer's profits. Will the Minister confirm that the effect would be to give up to £20 a week tax-free to a person who wished to take up the full benefit of the scheme? Such a person would be likely to be a senior executive or manager, although in these days he might be working on the shop floor. At first blush. that £20 a week tax cut would be given to the person taking the maximum benefit for doing no extra work whatever. It would go straight into that person's hand; he would have produced nothing more and done no extra work.

I may be wrong, but it seems to me also that it could be possible for the £3,000 to be taken off the top rate of tax so that the person's tax relief could be greater, but at any rate a person who took the maximum could receive up to £20 a week tax-free.

The cost of the proposal has been estimated in various ways by academic bodies as well as the Treasury. The Treasury says that the costs for the full year 1988–89 will be about £50 million, but by then the scheme will just be starting up. Sam Brittan, writing in the Financial Times about the earlier limit of £1,000, thought that the cost could be anything up to £850 million to £950 million per year if profit-related pay were taken up on a large scale. Saul Estrin, writing in The Guardian, reckoned that the cost could be anything up to £1,000 million per annum. I think that it is accepted on all sides that, if profit-related pay is taken up on the scale that the Government wish, considerable fiscal incentives will attach to it. It is clear beyond argument—the Treasury accepts this—that we are talking about a fiscal incentive that could be worth hundreds of millions of pounds.

Therefore, before we accept the benefits of profit-related pay, we need to be sure that the scheme represents the best way of obtaining the benefits the Treasury seeks. Basically, the Government make three claims for profit-related pay. The first is that it would encourage a greater identification between workers and management; in other words, that it would eradicate what is popularly called the "them and us" attitude. The second claim is that employees will not be made redundant in times of recession. They will simply take lower wages because of lower profits, and unemployment will thus be avoided. The third claim is that the marginal cost to the employer of hiring staff will be diminished because the profit-related pay element will mean that, as more workers are hired, the profits will simply be spread more thinly. Therefore, it will be in the interests of management to hire more staff and produce more goods. As I remarked on Second Reading, that theory is propounded by Professor Weitzman of the Massachusetts Institute of Technology.

Let me take each of those claims in turn and add some further objections. When the Financial Secretary replied to my Second Reading speech, he said, I thought rather unkindly, that I had barely mentioned the Bill. In fact, I find that my remarks on profit-related pay run to two or three columns of Hansard. I did not get an answer to any of my points, so I must apologise if I appear to be repeating myself.

The Government argue that there will be greater identification between workers and management. In its submission to the Government, the Institute of Personnel Management said, with some justification: Profit-related pay is just one, and in our view, not particularly good, method of introducing flexibility into pay structures and it hardly seems equitable to grant it tax relief that is denied to other, perhaps better, approaches, like output-related productivity schemes or merit pay. That is an important point. We tend to be given the idea that profit-related pay schemes have some magic attendant upon them and that they are different from other schemes. In fact, profit-related pay is a sophisticated form of bonus payment: the more profit there is, the more pay an employee gets. In that respect the scheme is not dissimilar from a bonus productivity scheme, which gives the equivalent identification between management and work force and thus provides the essential ingredient of removing the "them and us" attitude. As the Institute of Personnel Management asked, why should profit-related pay be singled out for a tax incentive? I would be grateful if the Minister would deal with that point.

The Institute of Personnel Management and the British Institute of Management made a further point. The main purpose of the profit-related pay scheme is said to be to reduce unemployment. It is very difficult to understand how the best way of reducing unemployment can be to give what could be up to £500 million to £1,000 million-worth of tax incentives for profit-related pay. There could be many better ways of spending that sum of taxpayers' money to secure a reduction in unemployment or an increase in employment. On 27 October last year, the Financial Times reported that there was no hard evidence to suggest that the profit-related pay scheme represented a good method of reducing unemployment. We are entitled to ask the Government whether they have hard evidence or empirical studies to suggest that profit-related pay will reduce unemployment, because that macroeconomic argument lies at the heart of their claims.

Given that there are to be fiscal incentives, a further point arises. Treasury Ministers have been telling us for years that, if something is to be given away, someone must pay for it. The truth is that the general body of taxpayers will pay for profit-related pay. It will be particularly inequitable because, on the highest estimates that I have seen, 12 million workers—half the work force—will be covered by the profit-related pay scheme. That means that approximately half the work force will not be covered, and the public sector accounts for most of that. The public sector, in particular will have to finance the tax relief for the private sector schemes eligible for profit-related pay.

On the identification of managers and workers, we have also to consider the whole question of employee share ownership plans. These have been used effectively in the United States and are being pioneered in this country by Unity Trust, the trade union banking institution. It is difficult to understand why profit-related pay should be singled out. When the British Institute of Management considered the employment-creating potential of profit-related pay, it said that nearly 47 per cent. of its respondents thought that the pressures to limit recruitment and investment would not be easily resisted. In other words, almost half of those responding to the British Institute of Management survey said that, so far from increasing employment, the profit-related pay scheme would limit recruitment and investment.

The reason is not difficult to find. This was highlighted by Professor Meade, who is an acknowledged expert on these matters and to whom I pay attention, despite the fact that he is an adviser to the SDP. There seems to be a good deal of truth in his view that a profit-related pay scheme means that those already employed by a company will have a vested interest in resisting further recruitment because it will spread the jam more thinly. If more workers are taken on, the proportion of the profit going to each worker will be diminished. Professor Meade therefore suggested a different scheme, in which a distinction was made between insiders and outsiders coming in, the latter receiving a lower return in profit-related pay.

The marginal cost of hiring workers may be reduced for the employer, but existing employees will have an interest in resisting further recruitment so as to maximise their own slice of the profits. It may be argued that management rules and will wish to take advantage of the lower marginal cost of hiring staff, but despite some people's fantasies about the way in which firms are run, most of us appreciate that in the majority of firms there is a fairly common identity between workers and management. The "them and us" attitude can be overplayed, and the notion that workers and management will automatically take opposing views seems highly academic and unreal. In reality, management and workers—-whether unionised or not—will consider the matter together.

It should be remembered, too, that managers are not precluded from participating in the scheme. Indeed, they will almost certainly be involved in it, so both they and the shop floor will have a community of interest in resisting further recruitment. At the very least, therefore, it is difficult to see how anyone can state with certainty that profit-related pay will reduce unemployment, because there is a clear counterweight to that proposition.

Finally, it is argued that in a recession a profit-related pay scheme will mean that workers will take a smaller share of the profit rather than being made redundant, but I am not entirely sure that it will work like that in practice. People might well go for voluntary redundancies so as to keep the same amount of profit per worker. Moreover, from the Government point of view it is not even clear that the results that they claim will be desirable. If profits are reduced and a firm gets into difficulties, it may not necessarily be a good thing to stagnate the work force in that way. Looking at the macro-economy as a whole, the only effect of profit-related pay in a recession is to produce wage cuts. That is not a novel proposition. It was tried in the 1930s and it failed. The recession then becomes deeper. I am therefore not persuaded that profit-related pay is the panacea that it is claimed to be.

Before agreeing to the introduction of such a potentially large fiscal incentive as would be involved, therefore, we must be extremely sure that we are going down the right route. We are far from convinced that it will diminish unemployment or increase investment. We are also not convinced that it will deal with the underlying problems of the economy. In particular, we are totally unpersuaded that this is the best way to spend the potentially very large sums involved.

Mr. Tim Smith (Beaconsfield)

In my view, the speech of the hon. Member for Sedgefield (Mr. Blair) was thorougly dull, unimaginative, negative stuff.

Mr. Austin Mitchell (Great Grimsby)

You have not heard anything yet.

Mr. Tim Smith

I cannot wait to hear the contribution of the hon. Member for Great Grimsby (Mr. Mitchell). We have just heard the spokesman from the Opposition Front Bench pouring cold water on what he claims others—presumably the Government—have described as a panacea. No one has described profit-related pay as a panacea, but it is one of a number of measures that could help reduce inflexibility in the labour market. Various schemes with the same objective are already in place, including employee share schemes and the Finance Act 1978 and other schemes which seek to bring together workforce and management.

It was good to hear from the Labour party spokesman that there is not a great divide or a "them and us" situation in industry, as Labour Members generally spend most of their time playing on that. Nevertheless, in some companies there are divisions and we need to bring the two sides together. Profit-related pay, with other schemes, could go some way towards that, because employees who participate will take a new interest in the overall profitability of the company. The argument for greater identification is thus an important one and I certainly find it attractive.

4.15 pm

With regard to the argument that there will be fewer redundancies, I am not sure that the hon. Member for Sedgefield has any experience in industry but when wage costs become excessive there are very few solutions available. At present, employers simply cut the number of employees by 5 per cent., 10 per cent. or whatever percentage is deemed necessary to keep the company afloat. Redundancy is a very blunt, crude instrument to deal with the problem and I should not have expected the Labour party to find it attractive. If a tax-related scheme goes some way to meeting the difficulty and providing other possibilities for employers in that situation, I should have thought that it would be welcome.

It was interesting to hear the various figures suggested for the cost of the scheme. They varied from £50 million by the Treasury to about £1,000 million by Sam Brittan, who apparently commented before the relief was made more attractive. If the take-up is anything like as big as that, the scheme will be a runaway success because it will mean that every eligible company is taking part. I do not believe that the costs will be anywhere near £1,000 million, but I believe that the experiment is worth trying. No one claims that the scheme will be an overnight success, but many companies have already expressed interest in it. If it encourages employees to take a greater interest in the overall welfare of the company or of the part of the company in which they work, I believe that we should pursue it. I shall therefore support clause 1 and the following clauses.

Mr. Ronnie Fearn (Southport)

My question to the Minister relates to the incentive aspect of the scheme. The alliance is basically in favour of the scheme and will support it. To provide an incentive to set up the administrative and negotiating machinery needed to begin such a scheme and to promote its beneficial effects, would it not be wise to provide for a rebate of employer national insurance contributions, not just on the qualifying profit-related pay but on the basic pay? Employers will be looking for such an incentive. If the Minister can show that it exists, we shall fully support the clause.

Mr. Austin Mitchell

I do not know a great deal about the scheme, but I have read Professor Weizman's book—I occasionally read items of SDP literature—with great interest and attended his meeting in the House of Commons. Prior to that, I had thought that profit-related pay was something to do with the Ayatollah Khomeini.

I was not immediately attracted to the scheme by the way in which it was presented by the Government. Clearly, anyone in his right mind is sympathetic to a proposal that will produce greater involvement by workers in their firms and greater identification with the future of those firms, but we must ask whether the proposed scheme is the best way to bring about the identification that we all wish.

The principle has widespread support. The problem is whether this proposal is the best way of serving that principle. Therefore, it is unrealistic to brush aside the objections in the way that the hon. Member for Beaconsfield (Mr. Smith) has sought to do. The question is whether, by spending a similar amount of money or even less money—the amount that we will spend has not been measured—we could get even greater benefits and produce the identification that is wanted by all sides of the House.

The idea within the proposal springs from a half-baked analysis of the reasons for Japanese industrial success. The Japanese firms that were considered are the biggest, those that dominate a third of the economy. The smaller firms have not been considered yet it is from those that all the sacrifices are demanded when economic difficulties arise. What we are discussing is the identification between workers and management in the biggest firms that dominate a third of the Japanese economy. The argument is that, in times of economic difficulties, Japanese workers are prepared to take cuts in pay. That is true. It has been a formula for success in Japan. However, that formula for success exists because Japanese firms accept responsibility for the workers on a far wider scale than British firms.

In Japan, indentification and commitment can be built up because firms are prepared to carry the workers through lean times. They are prepared to take risks, to diversify, to provide the work force with the real bond of identification—a successful company. The bond of identification is provided by a company that is going places and one that is attempting to provide a future for its workers. Therefore, the whole system is much more integrated than in Britain. It is unrealistic to take one aspect—wage and salary cuts in times of economic difficulty—and ask how we can achieve that in the United Kingdom.

The Government believe that the answer is profit-related pay. They believe that that will provide the formula for success that has been used by Japan in the past. That idea is totally unrealistic and half-baked. Either we accept the total commitment of firms to workers or we accept that the present proposal is inadequate.

Although we support the principle of involvement, it is perfectly reasonable for us to raise doubts about the way in which the principle is propounded in this country. The true aim of this measure is to cut earnings. I believe that this is a proposal from a Government that have run out of solutions for Britain's economic difficulties. The Government's economic policies have ground to a halt and they are seeking a new beginning. They are clutching at straws. In the 1970s, when the Conservatives had run out of ideas, they clutched at the work of one American economist. Lo and behold, along came Friedman and all the disasters that followed. Now, the Government are clutching at another American economist, Weizman and suggesting that he holds the key. This proposal accords with a deep and distinctive prejudice on the Tory Benches—to cut wages and earnings.

The Government speak with two tongues. In the run-up to the election it was useful that earnings and wages were increasing ahead of inflation. Indeed, I remember the mysterious advertisement with 23 reasons for voting Conservative—the Conservatives dredged round, but all they could get were 23 reasons, not even 24 and indeed, most of those were wrong—and one of those reasons was that earnings had increased by 26 per cent. or 24 per cent.—the figures are not important. The fact was that earnings had increased ahead of inflation. Then, of course, it was a cause for congratulation and a useful weapon to win the election. Now, it has become an anathema.

Our costs, inflation rate and earnings are increasing faster than most of our competitors. For that reason, it makes it incomprehensible that the Government are now trying desperately to peg the exchange rate to the deutschmark. The Government are attempting to join the European monetary system without declaring for the EMS. The Government have said that the pound will be held to 2.80 or 3 DM. The Government's decision to peg the pound means that every time our inflation increases ahead of our competitors—each day it edges ahead of our competitors—the real exchange rate, given that the nominal exchange rate has been pegged in that fashion, increases. Our real exchange rate is now 10 per cent. up on what it was last October. We are gradually squeezing our competitors—

The Chairman of Ways and Means (Mr. Harold Walker)

Order. We are a long way away from profit-related pay.

Mr. Mitchell

I am glad that you have brought me back, Mr. Walker. I was arriving at my point via West Germany—a most interesting excursion. However, my point was germane.

In the Government's eyes the reason for the proposal is that it holds down wages. That is why the Government are so enthusiastic about it. However, I must point out that, if the Government are, at the same time, holding down the exchange rate as wages go up, they will be putting British industry in a squeeze that will remove the last vestige of our competitiveness and strangle British industry. Therefore, there will not be any profits to be distributed as a result of the profit-related pay proposal. If competitiveness is eroded in this manner, profits will go out the window. However, at your behest, Mr. Walker, I shall return to the argument.

This proposal is not what the Chancellor had in mind when he set out to be the great reforming Chancellor when he took over the office in 1983. Then, he wanted to be a tax reformer and wished to make the whole system neutral. This proposal does not represent neutrality. A fairly large tax concession has been produced, but the extent of that tax concession is unknown. The estimate of the cost of the scheme for 1988–89 has been put at £50 million, but the Treasury has accepted that the final cost could be substantially greater.

As my hon. Friend the Member for Sedgefield (Mr. Blair) has already said, Sam Brittan estimated in the Financial Times that the final cost could be £800 million. The hon. Member for Beaconsfield was wrong when he suggested that Sam Brittan put the final cost at £1 billion. It was The Guardian that estimated that the final cost would be £ 1 billion, so it must be true. The Guardian's assessment is more realistic than that contained in the Financial Times. However, whether the cost is £800 million or £1,000 million it is far greater than the estimates we have had from the Government or from the Treasury.

We are signing a blank cheque for a proposal that is not neutral in the manner in which the Chancellor set out to be neutral. There are far better ways of spending this money for the purposes of the economy—for instance, on job creation. However, for a Chancellor who wants to encourage identification between workers and firms there are far more effective ways of spending this money.

We must also consider whether firms, given their ability under this scheme to cut wages, will keep jobs. It is interesting to consider what the Government are now putting forward as this country's future. Will we face a situation in which firms, having already shed 28 per cent. of manufacturing jobs in the period 1979–83, and gone through that bloodbath, will, in all probability, shed more jobs in the future? Is this the future that the Government arc preparing for us?

Are the Government saying that, in the years ahead, the economy, under their management, will be so difficult that there will be a great need for firms to face the choice between shedding labour or keeping labour on lower earnings? If that is to be the future, it is rather different from the one that the Government were projecting before the general election, which took place only a few weeks ago. During the election campaign, the Conservative party offered a future of almost limitless expansion, with the British economy competing effectively with the German economy. The picture that the Government have presented is entirely unrealistic and I am sure that the Government are right when they say now that economic difficulties lie ahead. I am sure that that will be the position under their management.

4.30 pm

Old habits do not change overnight. If we find ourselves in economic difficulties, firms will shed everything that can be thrown overboard. That has happened in the past and it will happen again. Everything that makes for non-price competitiveness will be thrown out, including research, design work, investment and labour. If life becomes difficult economically, the old bloodbath will be repeated, and a profit-related pay system will not obviate the need, as some perceive it, for that to happen. That will be the position if economic difficulties develop, and I am sure that they will.

I do not wish to appear churlish in my response to profit-related pay, but it is the responsibility of the Opposition to ask the necessary questions. Our questions are a reaction to the high hopes that the Government have reflected in their propagation of the scheme. If the Government are selling the scheme as an answer to the economic difficulties that they will create in future, they have a responsibility to ensure that the prospects that they are presenting will become reality.

The scheme has been oversold, as monetarism was oversold in the 1970s. There has been overselling by the Social Democratic party and the Liberal party, which have seen the scheme as a substitute for an economic policy. The Government have taken it on for the same reason.

Mr. Archy Kirkwood (Roxburgh and Berwickshire)

At the beginning of his remarks the hon. Gentleman said that there was a real interest across the Floor of the Chamber in trying to relate the interests of employees with those of their employers within their place of work. Unfortunately, the hon. Gentleman has not advanced any of the new thinking of the Labour party to explain how this will be achieved. Instead, he is attacking the Government. Does he intend to end his speech with some positive and constructive proposals?

Mr. Mitchell

rose—

The Chairman of Ways and Means

Order. If the hon. Member for Great Grimsby (Mr. Mitchell) were to take up the invitation of the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood), I would have to remind him that we are discussing profit-related pay within the terms of clause I.

Mr. Mitchell

It is interesting to hear that there is new thinking going on in the Labour party as against the overacting and over-emoting that is taking place within the alliance. It is surely possible to say on the basis of rational calculation that clause I is not the best approach to implementing and encouraging the greater involvement that we all wish to see. It is true that the Government see involvement as share options that are focused on top management and on the board of directors, but we want involvement within firms, which means democracy, consultation and giving unions and workers a legitimate place in the decision making that takes place within a firm. It involves also the profit-sharing proposals that Liberals have advanced for years and which were implemented only by a Labour Government during 1977–78, when the first great advance in that direction was made. I support the concept and I am sympathetic to it. I am merely saying that that is the right road and the way forward, and not the one that the Government have overpraised and for which they have made too many claims. The Government's scheme will not live up to the prospects that have been held out for it to us. It is characteristic of a Government and an alliance who have run out of ideas.

Mr. John Redwood (Wokingham)

Having listened to the hon. Members for Sedgefield (Mr. Blair) and for Great Grimsby (Mr. Mitchell), I feel that the Opposition have run out of problems to allege that the Government are running into and not that the Government have run out of solutions to problems. It is extraodinary that profit-sharing pay should be represented as a scheme to cut wages. It is a scheme to allow employees to participate in the success of their enterprise. Profits are rising substantially because demand is good and because industrialists and those in commerce are responding to that demand. There are profits, and if the scheme is introduced employees will be better off. I am staggered that Opposition Members wish to deny people the opportunity to participate in such a scheme.

The Opposition tell us that a different lesson should be drawn from the Japanese experience than the one that the Government have presented. The Opposition always take a selective view of the Japanese experience. They focus on the few large firms at the top of the Japanese economy that account for about 20 per cent. of output and activity and not on the 80 per cent. that is represented by small and medium-sized enterprises in a highly competitive environment without the many protections that are accorded to the privileged few who work in the large companies at the top. I think that the Opposition would be well advised to study the Japanese economy rather more thoroughly before drawing hasty conclusions from the Japanese experience.

The Opposition tell us that it would be better to offer tax relief for merit pay than to introduce profit-related pay. Merit pay is a scheme that enables individual managers to say to individuals within the work force, "You are worth this much extra and you are not." Accordingly, a manager would have tremendous power and control over individual employees or groups of employees under that scheme. Is that really what the Opposition wish to write into the statute book? Do they not accept that merit pay would be difficult for the Treasury to control? Without firm limits it would be possible to allege that all parts of an individual's remuneration were related in some way to his merit. It would be extremely difficult to tie the net tightly around such a scheme to ensure that judgment was not involved. One of the advantages of profit-related pay is that it is relatively easy for those who frame legislation to produce a scheme that does not allow people to bend the rules too often or too regularly.

I am delighted that the Opposition now understand the value of employee share option-type schemes. They should do a little more homework, however, because the ESOP schemes in the United States of America have produced many drawbacks for the employees who have been part of them who wish to change their jobs or who find that values are problematic when they come to value their stake when there is no ready market.

I hope that the Government will introduce more proposals in the next Budget to strengthen share ownership for all employees in all companies. I hope, however, that they will not introduce a simple clone of the ESOP scheme. Instead, we should have a good British scheme that does not have the weaknesses and injustices that ESOPs perpetrate on employees.

Mr. Robert Maclennan (Caithness and Sutherland)

The contributions from the Opposition Benches of the hon. Members for Sedgefield (Mr. Blair) and for Great Grimsby (Mr. Mitchell) were united only in their deep conservatism. Their diagnosis of the condition of British industry and companies produced different results. The hon. Member for Sedgefield, who spoke from the Opposition Front Bench, alleged that there was no problem to be dealt with, because British firms were united and that it was artificial to talk about bringing forward a scheme to deal with the "them and us" problem. The hon. Member for Great Grimsby claimed that the position was entirely opposite to that, and that firms were so divided and managers so remote from the interests of their employees that they could not proceed along the lines of Japanese companies. It seems that there is a need for Labour Members to get together to try to work out a common approach to these problems. They do not speak with one voice.

Profit-related pay is not a panacea for industrial relations difficulties. I should be interested to know why the Institute of Personnel Management took the view that it did. Is it defending its members' interests? Does it think that the only way to overcome management problems is through its beneficent intervention? I find its unsubstantiated arguments rather unpersuasive. The reality is that profit-related pay is not advanced as a means of resolving industrial relations difficulties or as a means of tackling unemployment. It is not a back-door method of reducing pay. It is a system that relates rewards to the returns of a business, which seems to be a profoundly sensible approach. Indeed, if one puts that proposition conversely—that pay should be unrelated to profit—the ridiculousness of opposition to that suggestion becomes obvious.

I should like to ask the Government a more factual question about take-up.There have been suggestions that the scheme might cost about £50 million per annum from the Treasury, which seems a modest amount. If that were to be the case, will the Government reveal some of their premises about the extent of take-up? How many firms and employees do they envisage as being affected in the first years that the scheme is in operation'? That is an important question because of the range of estimates that have been canvassed in the debate and outside the House.

The wilder suggestions by the hon. Member for Sedgefield on Labour's Front Bench have not been supported by the Government. However, I should be happier if the figures were somewhat more substantial than those that have come from the Treasury because they are not altogether satisfactory if this is purely a token scheme.

As I said on Second Reading, the scheme seems an attractive idea. Not only would it offer encouragement to the employees through tax relief: it would also encourage the employers to go through the complexities of establishing the schemes and participating in the negotiations that will be necessary to make those schemes a success. I am not sure that the somewhat abstract advantages that the Government have deployed in support of their view that the employers will find the scheme attractive are sufficient, in practice, to make many take the initiative in setting up profit-related pay schemes.

If one took only the evidence of the inquiries that have been made, it would be quite encouraging. I understand that between 50,000 and 60,000 inquiries have been made of the Inland Revenue. However, those are initial probing inquiries to see what lies behind the scheme. Therefore, we cannot assume that those inquiries will necessarily be followed up by firm commitments to introduce the schemes. Perhaps the Minister can give us a little more information about the premises upon which the Treasury has based its estimate of the expected take-up.

Mr. John Browne (Winchester)

I rise briefly to urge my hon. Friend the Paymaster General not to accept the amendment. I understand the argument of the hon. Member for Sedgefield (Mr. Blair). On the question of cost, the figures that he gave were roughly between £50 million and, at the top limit, £100 million, but one must consider net cost and the real cost that will affect the Inland Revenue. One hopes that, with such a scheme, activity, enterprise and productivity will increase. Therefore, profit will increase and the corporation tax take will increase in total. In his speech—I am afraid that I had to leave at the end of it—the hon. Gentleman asked for empirical evidence. Surely the evidence of the past two years, and of the past year especially, is that, despite decreasing the income tax rate, the total income tax take has increased. I hope that that will happen with this scheme.

On the relationship between profit-related pay and bonuses, it is important for people to see the clear identification between them. This scheme would be strictly related to profit, whereas a bonus is often related to merit and sometimes involves quite a large element of subjective judgment. However, this scheme hits a different section of the market than do bonuses and would play, therefore, an important part in motivation. It would be in the interests only of the management or of the group concerned to ensure that it is successful and that it has a motivating, as opposed to a demotivating, effect.

Therefore, I urge my hon. Friend not to accept this amendment. I know that it is a probing amendment and I do not mean to be hostile in saying this, but I feel that my points are relevant.

Mr. Tim Boswell (Daventry)

I wish to take up the remarks of Opposition Members about the benefit, or the denial to the rest of the community of the benefit, of individual profit-related pay schemes. Perhaps we shall have an opportunity later to discuss the omission of the public sector from the proposals, which we understand, and on which hon. Members have already commented. It would be dangerous and churlish—perhaps characteristically churlish of certain hon. Members—to assume that, just because the benefits of such a proposal are not available to everyone—either as a matter of choice, definition or exclusion—the scheme would not, benefit the community.

4.45 pm

My belief, which is based on study and work that I have completed over a number of years and on my continuing interest in the subject, is that the introduction of profit-related pay could be of positive benefit to the economy. Therefore, it is directly of benefit to those who participate in it. Equally, it is indirectly of benefit to those in the public and private sectors who are not signed up on the scheme. It is in that spirit that I add my support to the proposals and hope that they will form the basis of a new look at the way in which we give new life and further stimulation to the expansion of our economy.

Mr. Brooke

I rise to respond to the debate which, I advise my hon. Friend the Member for Winchester (Mr. Browne) is on clause I stand part, rather than on the amendment. It may be easiest if I respond in the order in which various points were made, which means that I begin with the hon. Member for Sedgefield (Mr. Blair).

The hon. Member raised a specific arithmetical question at the beginning, in the context of £3,000 or £20 a week. To make certain that there is common cause between us and that we are singing from the same hymn sheet, I advise him that profit-related pay would of course apply to half that figure. The application would be on the basis of £1,500 and if a person is on the top rate of tax, we should be talking about a figure of £20 a week. Profit-related pay would not apply to all the £3,000 because the relief is available on only half that figure.

In answer to his question about a specific individual who is on that income—such a person would need to be on a particular salary level for that to apply—the hon. Gentleman knows that the purpose of the scheme is to embrace, in principle, all the people in a particular employment unit, provided that that is above the 80 per cent. figure that is required for qualification.

The purpose of the scheme is to stimulate commitment to the activities of the business on the part of the entire work force and to stimulate also their interest in its profitability. It would be wrong to generalise in any way about specific experience, hut, having been profit-accountable for a business for 18 years, having lived in a profit-related environment during those 18 years, and having seen the payroll for which I was responsible in that capacity rise a thousandfold in cash terms during that period, I am conscious that one can achieve a community of endeavour in a business in which there is a relationship to profitability in the pay of those involved.

The hon. Member for Sedgefield went on to ask me about costs. As the hon. Member for Great Grimsby (Mr. Mitchell) said, the hon. Gentleman was referring specifically to the quotation that appeared in The Guardian. Cost will obviously depend on take-up. The incidence of costs in financial years will depend on the growth over time in the number of employees who are covered by registered schemes, and by the amount of profit-related pay that they receive. There will be a lead time before new schemes can be operational and it is expected that costs will grow over time. Therefore, on that count alone, the estimate given in the "Financial Statement and Budget Report" of a negligible cost in 1987–88, and a cost of £50 million in 1988–89, cannot reflect the costs in the long term. I am the first to acknowledge that.

The incidence of costs between years will depend also on the pattern of take-up between the schemes that make profit-related payments continuously, perhaps with weekly or monthly payments, and those that pay sums less frequently. As the schemes must be registered in advance of the start of the first profit period for which tax relief profit-related pay will he paid, and as firms are likely to align profit-related pay periods with their normal accounting periods, the start date of the accounting periods among the participating firms will also affect the pattern of cost between the financial years.

For those reasons, the cost in 1988–89 is also likely to underestimate annual costs in the long term. If 2 million employees taking 10 per cent. of their pay as profit-related pay, for example, were covered by registered schemes by the end of 1988–89, the full annual tax costs would be about £300 million, but costs in 1988–89 would be much less, as many of the schemes would not make payments until the following year or later. Long-term costings must be highly speculative and if the tax relief cost is high, it will be because there has been a valuable major change for the better in our pay systems. A tax relief which secured that would be money well spent.

An intention of the legislation, to which the hon. Member for Sedgefield also referred, is that of greater identification, to which I have in part alluded from my personal experience. He asked about the circumstances where there was a downturn in a business and asked about the marginal cost involved. I noted that the hon. Member for Caithness and Sutherland (Mr. Maclennan) drew attention to the difference of opinion between the hon. Members for Sedgefield and for Great Grimsby, about employee identification. I do not want, the words of the hon. Member for Great Grimsby, to oversell the issue of a downturn, but imagine a business in which labour costs account for 70 per cent. of value added. Let us say that profit-related pay is 10 per cent. of labour costs which makes it 7 per cent. of value added. I find it inconceivable that it is not helpful to that business to have that margin of 7 per cent. flexibility, that it will not give some room for manoeuvre on output prices if input prices rise, and that that manoeuvring with output prices will not help to sustain output. It goes without saying that profit-related pay could be a higher proportion of pay than that, which would give more flexibility. The benefits are not just about downturns; pay flexibility can give more confidence about expansion in an upturn because of the security which it gives in a downturn. Again, I can endorse that from personal experience.

The hon. Member for Sedgefield quoted from the Institute of Personnel Management and the British Institute of Management, as he did on Second Reading. I congratulate him on having read the submissions in response to the consultative document. I shall not remotely accuse him of selective quotation, because I am confident that he has read all the submissions. He will know that there were a large number of submissions on a whole series of different points, some of which contradicted the ones which he quoted.

On motivation which is already secured from bonus schemes and, indeed, from share ownership, we are already encouraging share ownership successfully, but we need complementary incentives for cash profit-related pay. Bonus schemes not involving profit do not bring the external benefits that profit-related pay can. There is a need to get employees to identify with the overall commercial success of the business, and profit is the best measure of that.

My hon. Friend the Member for Beaconsfield (Mr. Smith) made a helpful speech on flexibility in the labour market and the whole supply side issue. The hon. Member for Sedgefield had cast doubt on this issue and argued, drawing on Sir James Meade, that there would be the danger of insiders preventing extra recruitment. He will know that schemes will be able to exclude new recruits from profit-related pay until they have served for a time if that is desired. However, I doubt whether the hon. Gentleman is arguing that a union would be prepared to organise resistance to extra recruitment. I doubt if any union would argue that as an objective. Business expansion, which is what this legislation is about, is not a zero sum game; it benefits everybody.

My hon. Friend the Member for Beaconsfield supported the Government on flexibility and I join him in not wishing to make exaggerated claims for what the legislation will do and in believing that it will make a difference in terms of flexibility and on the supply side. We are envisaging the same sort of steady growth that has been seen in the share schemes which go back to the Finance Act 1978—that scheme was a product of the Lib-Lab pact and I pay tribute to the Liberal party for its influence on the then Labour Government—and to the all-employee share option scheme that we introduced in 1980. There are 666 schemes signed up under the 1978 Act and 647 under the 1980 Act. That is an increase which has occurred during the past decade and I envisage that we shall see the same sort of steady growth in the schemes that we are introducing on this occasion.

The hon. Member for Southport (Mr. Fearn) raised specific questions that arise from alliance policy. Employers should need no persuading or reminding of the importance of relating pay to profits, but some encouragement—that is what this scheme is about—is appropriate to help employees see the value of linking a part of their pay to the success of the enterprise. The hon. Gentleman asked about national insurance contributions and suggested that there should be a relief from them. However, national insurance contributions are not a tax; they determine a benefit entitlement, so they are not an appropriate instrument to encourage the spread of profit-related pay.

The hon. Member for Great Grimsby has read Professor Weitzman; I congratulate him on that. The hon. Member for Sedgefield was somewhat disparaging about American economists on Second Reading, but I remember growing up when Professor Galbraith, who started as a Canadian and only later became an American, was frequently quoted by Opposition Members. It would be a mistake if any anti-Americanism in academic thought were to creep into our affairs. We welcome suggestions from wherever they come.

The hon. Member for Great Grimsby took up an issue which was less present in the speech of the hon. Member for Sedgefield and argued that this was a plan to cut wages and not to help profits rise and pay with them, as we intend. Certainly I would deny the hon. Gentleman's comments that the issue has been oversold. He denounced clause I as the bedrock of the legislation, but I am not sure whether he has looked at it, because clause I simply relates to interpretation. It was a slight piece of overselling to build the whole Opposition attack on that.

The hon. Member for Caithness and Sutherland (Mr. Maclennan) asked specifically about take-up. In 1985 the organisation Industrial Facts and Forecasts carried out a survey for the Department of Employment on the use of profit-sharing and share ownership schemes by large companies. It showed that 6 per cent. of respondents had a cash-based profits scheme. It has since estimated that 8 to 9 per cent. of employees in these companies had some profit-related element in their pay in 1985.

I have already referred to the make-up of the cost estimates. However, of the £50 million, perhaps one half may derive from companies which already have cash payment profit-related schemes. About 1 million employees out of 15 million in the private sector are in existing schemes which might be altered for purposes of registration as profit-related pay schemes and one third of those brought into the tax relief in 1988–89 could account for the one half of the £50 million estimate that I referred to earlier. I also alluded to how we expect the figures to expand.

5 pm

In these matters as in others, the Social Democratic party is a little over-optimistic. The Inland Revenue received something in excess of 20,000 inquiries rather than the 60,000. However, I am delighted to say that more than 300 of The Times 1,000 largest companies in the country have shown interest at some level or another in the scheme. That is encouraging.

My hon. Friend the Member for Wokingham (Mr. Redwood) made several most thoughtful comments in support of the scheme. My hon. Friend the Member for Daventry (Mr. Boswell) joined my hon. Friend the Member for Winchester in support of the Government's proposals. In essence,. we are aiming for an economy with high performance, high employment and high living standards. That will be achieved through a combination of measures and it is important that we get the total environment right. The proposals in the 17 clauses in the Bill and schedule 1 are a contribution to that process.

Mr. Maclennan

Will the Minister address directly the question about inducements for employers? He has only said that he believes employers will see the advantages of profit-related pay and that they need no inducement to enter into such schemes. Does he really believe that the only obstacle to the entry to such schemes is the employees' reluctance?

Mr. Brooke

The hon. Gentleman's question relates to an issue that was raised by the official Opposition. As the hon. Member for Sedgefield asked earlier, if profit-related pay was so beneficial, why did we need tax relief? I know that the hon. Member for Caithness and Sutherland will agree that plenty of companies run profit-related pay schemes already. The purpose of providing tax relief to secure employee interest and demand is to encourage employees to take up such schemes. Employees may be unfamiliar with the benefits. The emphasis throughout the proposals is on encouragement rather than imposition. We do not believe in dictating incomes policies and—I direct this remark to the hon. Member for Dagenham—we do not believe in the apparatus of a command economy. however disguised.

Mr. Blair

We have had an interesting and wide-ranging debate. The hon. Member for Beaconsfield (Mr. Smith), in his usual way made an offensive point because he was unable to make a telling point. He began by saying that the scheme would bring about greater identification between employees and employers. He never satisfactorily explained what great advantage this scheme has over others. His central argument was based on the cost of the scheme. That is the heart of the argument between us.

We are not debating whether profit-related pay is good or bad. People can enter into profit-related pay schemes now; many companies have such schemes, and their employees are free and entitled to enter them. As I explained to alliance Members, the question that we are debating is whether this scheme is the best use of public money. Is this the best way to make use of this tax incentive?

The hon. Member for Beaconsfield unwittingly put his finger on the dilemma. If the take-up of the scheme is low and the scheme is inexpensive, it has failed because the basis of the scheme's success must be that it is taken up in sufficiently large numbers to make an impact on the macroeconomy. That is the claim that has been made for the scheme. It is claimed that it will make an impact on the nation's economy. If the take-up is low and expense is low, it has failed. We are only debating the success of the scheme if the take-up is high and therefore—-by its very nature—the expense is high. If the scheme is successful, we will be talking about hundreds of millions of pounds, not £50 million.

Conservative Members wanted to know Labour's ideas for spending the money. We have put those ideas forward constantly. Indeed, the alliance has put forward similar schemes for spending public money to create employment. We can agree or disagree about those ideas, but they exist.

The question is whether this fiscal incentive will have the desired effect. I repeat that I remain completely unconvinced about it. This is not a question of modern ideas versus backward ideas. We should not simply take the first idea off the peg and use it just because it has a modern sounding ring to it, like profit-related pay. We should inquire—as it is our duty to inquire in the House—when debating the Finance Bill whether public expenditure is being made wisely. We remain unconvinced by the proposals.

The hon. Member for Wokingham (Mr. Redwood) made some telling points. However, at the beginning of his speech he made a point that I must not allow to pass without comment. He said that the Opposition had run out of problems with which to tax the Government on the economy. I appreciate that the position in Wokingham is different from that in Sedgefield, but it does not lie in the mouth of any hon. Member to say that we do not have economic problems to deal with when there are 3 million unemployed.

Being lectured on the virtues of unity by what is left of the Liberal-SDP alliance is a bit like being lectured on the virtues of being a recluse by the under-Secretary of State for Health and Social Security, the hon. Member for Derbyshire, South (Mrs. Currie). The notion that the Liberal-SDP alliance put forward any convincing argument for profit-related pay is comic. The alliance did not even deal with the objections made by its principal economic adviser, Sir James Meade, who has criticised the Government's plans for profit-related pay on the basis that I outlined.

The hon. Member for Caithness and Sutherland (Mr. Maclennan) asked me on what basis the Institute of Personnel Management or the British Institute of Management could come forward with objections to profit-related pay. They did that on the basis of experience, and we should listen to those organisations.

When we discuss profit-related pay and its obvious and self-evident advantages, we are told by the Treasury Minister that he cannot understand how any trade union could possibly resist recruitment to a firm on the basis that profits were to be spread more thinly. The trade union officials will not be the focus of that resistance. As anyone knows who has seen the large amount of overtime worked even in certain factories in my constituency, there is definitely a clear perception by many workers of their vested interests on the inside as against those on the outside.

We do not claim that profit-related pay is bad. I would not make that case. I know companies in my constituency that operate profit-related pay schemes and I wish them the best of luck. The question we are debating is whether this scheme, taken on the basis of it being a success—and on that basis it must be expensive—is the best way to spend public money. Unless we are persuaded of that, we will vote against the profit-related pay scheme. I must say from Labour's Front Bench that we are unpersuaded; we will therefore vote against it.

Question put, That the clause stand part of the Bill:—

The Committee divided: Ayes 316, Noes 197.

Division No. 16]	[5.10 pm
AYES
Adley, Robert	Cartwright, John
Alexander, Richard	Channon, Rt Hon Paul
Allason, Rupert	Clark, Hon Alan (Plym'th S'n)
Alton, David	Clark, Dr Michael (Rochford)
Amery, Rt Hon Julian	Clark, Sir W. (Croydon S)
Amess, David	Colvin, Michael
Amos, Alan	Conway, Derek
Arbuthnot, James	Coombs, Simon (Swindon)
Arnold, Jacques (Gravesham)	Couchman, James
Arnold, Tom (Hazel Grove)	Currie, Mrs Edwina
Ashby, David	Davies, Q. (Stamf'd & Spald'g)
Ashdown, Paddy	Devlin, Tim
Aspinwall, Jack	Dickens, Geoffrey
Atkins, Robert	Dicks, Terry
Atkinson, David	Douglas-Hamilton, Lord James
Baker, Nicholas (Dorset N)	Durant, Tony
Baldry, Tony	Emery, Sir Peter
Banks, Robert (Harrogate)	Evans, David (Welwyn Hatf'd)
Barnes, Mrs Rosie (Greenwich)	Evennett, David
Batiste, Spencer	Fallon, Michael
Beaumont-Dark, Anthony	Farr, Sir John
Beith, A. J.	Favell, Tony
Bendall, Vivian	Fearn, Ronald
Bennett, Nicholas (Pembroke)	Fenner, Dame Peggy
Benyon, W.	Finsberg, Sir Geoffrey
Bevan, David Gilroy	Forman, Nigel
Biffen, Rt Hon John	Forsyth, Michael (Stirling)
Biggs-Davison, Sir John	Forth, Eric
Blackburn, Dr John G.	Fowler, Rt Hon Norman
Body, Sir Richard	Franks, Cecil
Boscawen, Hon Robert	Freeman, Roger
Boswell, Tim	Fry, Peter
Bottomley, Mrs Virginia	Gardiner, George
Bowden, A (Brighton K'pto'n)	Garel-Jones, Tristan
Bowden, Gerald (Dulwich)	Gill, Christopher
Bowis, John	Glyn, Dr Alan
Boyson, Rt Hon Dr Sir Rhodes	Goodhart, Sir Philip
Braine, Rt Hon Sir Bernard	Goodson-Wickes, Dr Charles
Brandon-Bravo, Martin	Gow, Ian
Brazier, Julian	Gower, Sir Raymond
Bright, Graham	Grant, Sir Anthony (CambsSW)
Brittan, Rt Hon Leon	Greenway, Harry (Ealing N)
Brooke, Hon Peter	Greenway, John (Rydale)
Brown, Michael (Brigg & Cl't's)	Gregory, Conal
Browne, John (Winchester)	Griffiths, Sir Eldon (Bury St E')
Bruce, Ian (Dorset South)	Griffiths, Peter (Portsmouth N)
Bruce, Malcolm (Gordon)	Grist, Ian
Buchanan-Smith, Rt Hon Alick	Grylls, Michael
Buck, Sir Antony	Hamilton, Hon A. (Epsom)
Budgen, Nicholas	Hamilton, Neil (Tatton)
Burns, Simon	Hampson, Dr Keith
Burt, Alistair	Hannam, John
Butler, Chris	Hargreaves, A. (B'ham H'll Gr')
Butterfill, John	Hargreaves, Ken (Hyndburn)
Carlile, Alex (Mont'g)	Harris, David
Carlisle, John, (Luton N)	Haselhurst, Alan
Carlisle, Kenneth (Lincoln)	Hawkins, Christopher
Carrington, Matthew	Hayes, Jerry
Carttiss, Michael	Hayhoe, Rt Hon Sir Barney

Hayward, Robert	Mitchell, David (Hants NW)
Heathcoat-Amory, David	Montgomery, Sir Fergus
Heddle, John	Morris, M (N'hampton S)
Heseltine, Rt Hon Michael	Morrison, Hon C. (Devizes)
Hicks, Mrs Maureen (Wolv' NE)	Morrison, Hon P (Chester)
Hicks, Robert (Cornwall SE)	Moss, Malcolm
Higgins, Rt Hon Terence L.	Moynihan, Hon C.
Hill, James	Mudd, David
Hind, Kenneth	Neale, Gerrard
Hogg, Hon Douglas (Gr'th'm)	Needham, Richard
Holt, Richard	Neubert, Michael
Hordern, Sir Peter	Nicholson, David (Taunton)
Howard, Michael	Nicholson, Miss E. (Devon W)
Howarth, Alan (Strat'd-on-A)	Onslow, Cranley
Howarth, G. (Cannock & B'wd)	Oppenheim, Phillip
Howell, Ralph (North Norfolk)	Owen, Rt Hon Dr David
Hughes, Robert G. (Harrow W)	Page, Richard
Hughes, Simon (Southwark)	Paice, James
Hunt, David (Wirral W)	Patnick, Irvine
Hunt, John (Ravensbourne)	Patten, John (Oxford W)
Hunter, Andrew	Pawsey, James
Hurd, Rt Hon Douglas	Peacock, Mrs Elizabeth
Irvine, Michael	Porter, Barry (Wirral S)
Irving, Charles	Porter, David (Waveney)
Jack, Michael	Powell, William (Corby)
Janman, Timothy	Price, Sir David
Jessel, Toby	Raffan, Keith
Johnson Smith, Sir Geoffrey	Raison, Rt Hon Timothy
Johnston, Sir Russell	Rathbone, Tim
Jones, Gwilym (Cardiff N)	Redwood, John
Jones, Ieuan (Ynys Môn)	Renton, Tim
Jones, Robert B (Herts W)	Rhodes James, Robert
Jopling, Rt Hon Michael	Rhys Williams, Sir Brandon
Kellett-Bowman, Mrs Elaine	Riddick, Graham
Key, Robert	Ridley, Rt Hon Nicholas
King, Roger (B'ham N'thfield)	Ridsdale, Sir Julian
Kirkhope, Timothy	Rifkind, Rt Hon Malcolm
Kirkwood, Archy	Roberts, Wyn (Conwy)
Knapman, Roger	Roe, Mrs Marion
Knight, Greg (Derby North)	Rossi, Sir Hugh
Knight, Dame Jill (Edgbaston)	Rost, Peter
Knowles, Michael	Rowe, Andrew
Lamont, Rt Hon Norman	Ryder, Richard
Lang, Ian	Sackville, Hon Tom
Latham, Michael	Sainsbury, Hon Tim
Lawrence, Ivan	Salmond, Alex
Lawson, Rt Hon Nigel	Sayeed, Jonathan
Lee, John (Pendle)	Shaw, David (Dover)
Leigh, Edward (Gainsbor'gh)	Shaw, Sir Giles (Pudsey)
Lester, Jim (Broxtowe)	Shaw, Sir Michael (Scarb')
Lightbown, David	Shelton, William (Streatham)
Lilley, Peter	Shephard, Mrs G. (Norfolk SW)
Lloyd, Sir Ian (Havant)	Shepherd, Colin (Hereford)
Lloyd, Peter (Fareham)	Shepherd, Richard (Aldridge)
Lord, Michael	Shersby, Michael
Luce, Rt Hon Richard	Sims, Roger
McCrindle, Robert	Skeet, Sir Trevor
MacKay, Andrew (E Berkshire)	Smith, Cyril (Rochdale)
Maclean, David	Smith, Sir Dudley (Warwick)
Maclennan, Robert	Smith, Tim (Beaconsfield)
McLoughlin, Patrick	Soames, Hon Nicholas
McNair-Wilson, M. (Newbury)	Speller, Tony
McNair-Wilson, P. (New Forest)	Spicer, Jim (Dorset W)
Madel, David	Spicer, Michael (S Worcs)
Major, Rt Hon John	Stanbrook, Ivor
Mans, Keith	Stanley, Rt Hon John
Maples, John	Steel, Rt Hon David
Marland, Paul	Steen, Anthony
Marlow, Tony	Stern, Michael
Marshall, John (Hendon S)	Stevens, Lewis
Marshall, Michael (Arundel)	Stewart, Allan (Eastwood)
Martin, David (Portsmouth S)	Stewart, Andrew (Sherwood)
Mates, Michael	Stewart, Ian (Hertfordshire N)
Maude, Hon Francis	Stradling Thomas, Sir John
Mawhinney, Dr Brian	Sumberg, David
Maxwell-Hyslop, Robin	Summerson, Hugo
Michie, Mrs Ray (Arg'l & Bute)	Taylor, Ian (Esher)
Miller, Hal	Taylor, John M (Solihull)
Mills, Iain	Taylor, Matthew (Truro)
Mitchell, Andrew (Gedling)	Taylor, Teddy (S'end E)

Tebbit, Rt Hon Norman	Warren, Kenneth
Temple-Morris, Peter	Wells, Bowen
Thompson, Patrick (Norwich N)	Wheeler, John
Thorne, Neil	Whitney, Ray
Thornton, Malcolm	Widdecombe, Miss Ann
Thurnham, Peter	Wiggin, Jerry
Townend, John (Bridlington)	Wigley, Dafydd
Townsend, Cyril D. (B'heath)	Wilkinson, John
Tracey, Richard	Wilshire, David
Tredinnick, David	Winterton, Mrs Ann
Twinn, Dr Ian	Winterton, Nicholas
Vaughan, Sir Gerard	Wolfson, Mark
Viggers, Peter	Wood, Timothy
Waddington, Rt Hon David	Woodcock, Mike
Wakeham, Rt Hon John	Yeo, Tim
Waldegrave, Hon William	Young, Sir George (Acton)
Walden, George	Younger, Rt Hon George
Walker, Bill (T'side North)
Wallace, James	Tellers for the Ayes:
Waller, Gary	Mr. Mark Lennox-Boyd and Mr. Stephen Dorrell.
Walters, Dennis

NOES
Abbott, Ms Diane	Eastham, Ken
Allen, Graham	Evans, John (St Helens N)
Archer, Rt Hon Peter	Fatchett, Derek
Armstrong, Ms Hilary	Faulds, Andrew
Ashley, Rt Hon Jack	Fisher, Mark
Banks, Tony (Newham NW)	Flannery, Martin
Barnes, Harry (Derbyshire NE)	Flynn, Paul
Barron, Kevin	Foot, Rt Hon Michael
Battle, John	Foster, Derek
Beckett, Margaret	Foulkes, George
Bell, Stuart	Fraser, John
Benn, Rt Hon Tony	Fyfe, Mrs Maria
Bennett, A. F. (D'nt'n & R'dish)	Galbraith, Samuel
Bidwell, Sydney	Galloway, George
Blair, Tony	Garrett, John (Norwich South)
Blunkett, David	Garrett, Ted (Wallsend)
Boateng, Paul	George, Bruce
Boyes, Roland	Gilbert, Rt Hon Dr John
Bradley, Keith	Golding, Mrs Llin
Bray, Dr Jeremy	Gordon, Ms Mildred
Brown, Gordon (D'mline E)	Gould, Bryan
Brown, Nicholas (Newcastle E)	Graham, Thomas
Buchan, Norman	Grant, Bernie (Tottenham)
Buckley, George	Griffiths, Nigel (Edinburgh S)
Caborn, Richard	Griffiths, Win (Bridgend)
Callaghan, Jim	Grocott, Bruce
Campbell, Ron (Blyth Valley)	Harman, Ms Harriet
Campbell-Savours, D. N.	Haynes, Frank
Clark, Dr David (S Shields)	Heffer, Eric S.
Clarke, Tom (Monklands W)	Henderson, Douglas
Clay, Bob	Hinchliffe, David
Clelland, David	Hogg, N. (C'nauld & Kilsyth)
Clwyd, Mrs Ann	Holland, Stuart
Cohen, Harry	Home Robertson, John
Cook, Frank (Stockton N)	Howarth, George (Knowsley N)
Corbett, Robin	Howell, Rt Hon D. (S'heath)
Corbyn, Jeremy	Hoyle, Doug
Cousins, Jim	Hughes, John (Coventry NE)
Cox, Tom	Hughes, Robert (Aberdeen N)
Crowther, Stan	Hughes, Roy (Newport E)
Cryer, Bob	Hughes, Sean (Knowsley S)
Cummings, J.	Illsley, Eric
Cunliffe, Lawrence	Ingram, Adam
Cunningham, Dr John	Janner, Greville
Dalyell, Tam	John, Brynmor
Darling, Alastair	Jones, Barry (Alyn & Deeside)
Davies, Rt Hon Denzil (Llanelli)	Jones, Martyn (Clwyd S W)
Davies, Ron (Caerphilly)	Kaufman, Rt Hon Gerald
Davis, Terry (B'ham Hodge H'l)	Kilfedder, James
Dewar. Donald	Lambie, David
Dobson, Frank	Leighton, Ron
Doran, Frank	Lestor, Miss Joan (Eccles)
Douglas, Dick	Lewis, Terry
Duffy, A. E. P.	Litherland, Robert
Dunnachie, James	Livingstone, Ken
Dunwoody, Hon Mrs Gwyneth	Lloyd, Tony (Stretford)
Eadie, Alexander	Lofthouse, Geoffrey

Loyden, Eddie	Rees, Rt Hon Merlyn
McAlhon, John	Reid, John
McAvoy, Tom	Richardson, Ms Jo
Macdonald, Calum	Roberts, Allan (Bootle)
McFall, John	Robertson, George
McKay, Allen (Penistone)	Rogers, Allan
McKelvey, William	Rooker, Jeff
McLeish, Henry	Ross, Ernie (Dundee W)
McNamara, Kevin	Rowlands, Ted
McTaggart, Bob	Ruddock, Ms Joan
McWilham, John	Sedgemore, Brian
Madden, Max	Sheerman, Barry
Mahon, Mrs Alice	Sheldon, Rt Hon Robert
Mallon, Seamus	Short, Clare
Marek, Dr John	Skinner, Dennis
Marshall, David (Shettleston)	Smith, Andrew (Oxford E)
Marshall, Jim (Leicester S)	Smith, C (Isl'ton & F'bury)
Martin, Michael (Springburn)	Snape, Peter
Martlew, Eric	Soley, Clive
Meacher, Michael	Spearing, Nigel
Michael, Alun	Steinberg, Gerald
Michie, Bill (Sheffield Heeley)	Stott, Roger
Millan, Rt Hon Bruce	Strang, Gavin
Mitchell, Austin (G't Grimsby)	Straw, Jack
Moonie, Dr Lewis	Taylor, Mrs Ann (Dewsbury)
Morgan, Rhodri	Thompson, Jack (Wansbeck)
Morley, Elliott	Turner, Dennis
Morris, Rt Hon A (W'shawe)	Vaz, Keith
Mowlam, Mrs Marjone	Wall, Pat
Mulhn, Chris	Walley, Ms Joan
Murphy, Paul	Wardell, Gareth (Gower)
Nellist, Dave	Wareing, Robert N
Oakes, Rt Hon Gordon	Welsh, Michael (Doncaster N)
O'Brien, William	Williams, Rt Hon A J
O'Neill, Martin	Williams, Alan W (Carm'then)
Orme, Rt Hon Stanley	Winnick, David
Pendry, Tom	Wise, Mrs Audrey
Pike, Peter	Worthington, Anthony
Powell, Ray (Ogmore)	Wray, James
Prescott, John	Young, David (Bolton SE)
Primarolo, Ms Dawn
Radice, Giles	Tellers for the Noes
Randall, Stuart	Mr Allen Adams and Mr Don Dixon
Redmond, Martin

Question accordingly agreed to.

Clause 1 ordered to stand part of the Bill.