HC Deb 23 January 1996 vol 270 cc191-230
Mr. Alistair Darling (Edinburgh, Central)

I beg to move amendment No. 7, in page 69, line 37, leave out 'subsections (2) and (3) below' and insert 'subsections (1A), (2) and (3) below'.

The First Deputy Chairman

With this, it will be convenient to discuss also amendment No. 6, in page 69, line 38, at end insert—

'(1A) After paragraph 27 there shall be inserted the following paragraph— 27A(1) Subject to paragraph 8 above, the following shall apply:

  1. (a) Every person eligible to participate in the scheme must be able to do so on similar terms;
  2. (b) Every person who meets the following conditions must be eligible to participate;
    1. (i) The person must be an employee or a director of the company, or in the case of group scheme, of a participating company, and
    2. (ii) The person must be chargeable to tax in respect of his office or employment under Case 1 of Schedule E.
(2) For the purposes of sub-paragraph (1) above the following shall apply;
  1. (a) A person participating in a scheme is a person who obtains and exercises rights under the rules of the scheme.
  2. (b) The fact that the rights obtained and exercised by a person participating in the scheme vary according to the levels of their remuneration, the length of their service or similar factors shall not be regarded as meaning that they are not eligible to participate in the scheme on similar terms.".'.

Mr. Darling

Amendment No. 7 is a drafting amendment: it is necessary for the incorporation of amendment No. 6.

The purpose of clause 105 is to allow the Government to implement their new company share option plans, which we broadly welcome. The plans replace the existing share option schemes introduced in the mid-1980s. The new relief involves two essential conditions. The first is the placing of a £20,000 limit on the value of shares that may be held by an employee at any one time. Secondly—perhaps I could attract the Financial Secretary's attention for a moment as I wish to press him on this—the options must be granted at an exercise price not manifestly less than the market value of the shares at the date of grant. In other words, they must not be granted at a discount, which contrasts with the present position. That second condition appears in clause 105(3).

It would help both the Committee and those who will have to interpret the provision if the Financial Secretary would tell us exactly what "manifestly" means in this context, and what measure we are to apply to it. "Manifestly less" clearly implies more than "slightly less" or "marginally less". Paragraph 29 of schedule 9 of the present scheme provides for a discount of up to 15 per cent. It might be useful if, speaking in percentage or similar terms, the Financial Secretary could tell us whether "manifestly less" means less than 15 per cent. Presumably it does; otherwise, the Government's argument that they are restricting the scope for discount would fall apart.

I assume that that point will need to be the subject of a guidance note from the Inland Revenue. Otherwise, it will be left to the interpretation of the courts. That is very unsatisfactory. Companies will want to get new schemes under way fairly early, but they might have to wait two to five years, if not longer, for a judicial interpretation. When I saw the words "not manifestly less", it occurred to me that the Government might be saying that they were going to close a door while using a form of words which would result in that door being left as wide open as it is now.

Before I come to the central issue, I should like the Financial Secretary to deal with a point which arises in the Inland Revenue notes on clauses circulated to members of the Committee. It relates to the old discount of up to 15 per cent. Those who have read the notes, and those who are familiar with the legislation, will know that that discount was available if the company scheme was available to all employees, but if the company subsequently restricted share availability to certain employees, the discount could still be applied.

Two questions arise from that. First, am I correct in assuming that, along with the 15 per cent. discount, all those arrangements will go? Secondly—here I return to my point about the phrase "manifestly less"—are we to understand that some variability is involved? The position is extremely uncertain.

Lest the Committee think that I am spending undue time on what might be considered a comparatively small point, let me add that it is necessary to examine the Government's track record on share option schemes to understand our concern. We were told in the Budget statement that the Chancellor wanted to end abuses of the present scheme, as we have pressed the Government to do for many months. Far from closing an avenue for abuse, however, it seems that such an avenue is being opened. Given that many people have ruthlessly exploited and, I believe, abused the present scheme, it would be wrong for us to allow further opportunities for such exploitation and abuse.

I have raised that issue at the outset because the Financial Secretary's reply will influence our judgment of what the Government have to say about the rest of the legislation. The Government have said that they do not just want to simplify legislation; they want clarity as well. If one is interested in clarity, one should avoid putting into legislation words that are open to 57 different interpretations. The Financial Secretary seems to agree with the spirit of what I have said, as he is nodding vigorously, although he may be doing that simply to pass the time.

Amendment No. 6 is designed to ensure that the new company share option schemes are open to all employees, from the board room to the shop floor. That is essential if we are to encourage workers to have a stake in the company that employs them. Everyone must be motivated and feel that they are part of the enterprise in which they are employed. All the evidence suggests that companies have recognised the essential truth that the employees who are motivated and intimately involved with their place of work are the ones who will succeed, while those who insist on relying on the old "them and us" approach to industry are likely to fail.

I have referred to the notes issued by the Inland Revenue in regard to the end of the present discount. I am relying on the information contained there that the discount was available only where there was an all-employee share ownership scheme on offer and that that apparently is to end. The assumption that I and, I believe, many people therefore make is that the new company share option scheme need not be offered to all employees at the workplace. For the reasons that I have stated, it is essential that it should be.

7.30 pm

I have been told on numerous occasions that people in senior management and in the boardroom need to receive incentives to make them perform. I am usually told that by the same boardroom members who stand to benefit from these schemes, but I have always believed that, if incentives are good for some people, they are probably good for everyone, and that it is good if people think that by working hard and doing something different—a restructuring in a company, perhaps—they, too, stand to gain. Hon. Members should encourage that.

Mr. Lofthouse, the history of this matter is relevant to the debate. It entitles us to consider the Government's proposals with a degree of scepticism, although everyone is entitled to take a different view and to change their mind, as the Government did after vehemently opposing any idea that the existing share option scheme was being abused, especially by people in the boardrooms of the privatised utilities. The Prime Minister had a sudden change of heart, which took many of his colleagues by surprise. When one considers the abuses that have taken place, especially by people who sit on the boards of the privatised utilities, we are entitled to ask whether the Government have indeed changed their mind and ensured that such abuses will end.

It upset many people that the same people, doing the same job, received hugely increased salaries only a few weeks after their enterprise had been privatised. They saw those individuals being granted huge amounts of share options. Share prices increased in the privatised utilities, not because of improved performance by people in the boardroom, but because of the way in which those utilities were privatised. Bluntly, they were sold off at knock-down prices. It would have been difficult for anyone appointed to the boardroom of a privatised utility not to receive a substantial windfall gain, not because of anything they did, but as a result of sheer chance.

Those people did not stop there. Many of them, using current tax laws, as they are entitled to do, ensured that their wives also benefited indirectly from the scheme. That is grossly unfair, when most people have had to face 21 different tax rises since 1992. The burden of taxation for most people has increased. It seemed that there was no limit to the greed of some members of the privatised utilities. As I have said, the Government and the Prime Minister in particular did absolutely nothing until the pressure on them became so great that they had to go along with the Confederation of British Industry's decision to set up the Greenbury committee.

It has always seemed to me, Mr. Lofthouse, that, in relation to the privatised utilities and sell-offs, the Government were never really bothered about Sid, but were far more bothered about looking after Cedric, which is exactly what the Government did. It was only after pressure that they forced to set up the Greenbury committee.

Clause 105 resulted from the Chancellor of the Exchequer's reaction to the Greenbury report. It was, as ever, a bungled reaction. On 17 July, the Government announced that they were going to shut down executive share option schemes immediately, but 10 days later the Chancellor had to change his mind as he realised that, in addition to shutting down schemes that many of us would criticise, he was also shutting down schemes that had been used to benefit a majority of employees, which the Government may not have intended.

At Asda, for example, the executive share option scheme was used to benefit most of the work force. Of course, if the Chancellor's original announcement had been implemented, those people, who were wholly innocent and were simply taking advantage of a scheme that they had been offered—certainly it was small-scale stuff—would have been hit, so the Chancellor had to change his mind.

I assume that the clause was introduced by the Government in an effort at least to get rid of some of the abuses that Greenbury had identified. If that ending of abuses is to proceed hand in hand with a genuine move to extend opportunities to acquire shares in an enterprise, however, amendments Nos. 7 and 6 must be accepted by the Government. Otherwise, options will be offered only to a small class of people—probably those sitting in the boardrooms, whose behaviour has so incensed people, not just in the House, but throughout the country.

The amendment provides that the option under clause 105 must be made available to all people who are employed in an enterprise and on similar terms—not identical terms, because that is clearly inappropriate. That would ensure that people would see that they too had an opportunity to benefit from whatever option schemes were available in the company. They too would know that any success in the company would be shared. On this point, it is important that all schemes should ensure that there is reward after success, rather than reward in anticipation of success, which is where British Gas went badly wrong.

Despite our amendment and clause 105, the abuses in the system will continue and are continuing, not only because powerful voices are determined to block the full implementation of Greenbury, but because—unless the Financial Secretary tells us that we are wrong—the present schemes will continue to operate as unapproved rather than approved schemes. If a company wants to fund a scheme, it can do so. If the Financial Secretary can tell us that we are wrong on that, it will be interesting to hear what he says. Unapproved schemes will be able to continue. In a private company, that does not matter—that is its concern—but in the privatised utilities, it does matter. Concerns will remain about that.

Mr. Lofthouse, we are dealing here with one clause. When the Committee sits upstairs, we shall have an opportunity to consider other aspects of the Government's reform—profit-related pay, and so on. This clause, however, implements the new company share option plan, which most people would broadly welcome, but only if it is a genuine attempt to expand share ownership and participation to the whole work force. In many companies, the opportunity will be taken to offer schemes across the board because many employers are keen to do that. I am concerned, however, that unless this amendment is accepted the people who took part in the abuses that the public, Labour Members and perhaps a smattering of Conservative Members want to stop, will drive a coach and horses through any attempt to reform the system.

Sir Geoffrey, I have just realised that I have been guilty of a great insult to you for the past 20 minutes: I have overlooked the fact that you are now Sir Geoffrey rather than Mr. Lofthouse. I hope that that is why you were glaring at me, and not because I was straying out of order. Having apologised so fulsomely, I trust that you will not mind if I do stray, although I will do my best not to.

It is important that we have a new culture in this country and encourage companies genuinely to involve the work force in the enterprise. There are some encouraging signs in many regions, where companies are ensuring that their employees receive genuine share ownership. As I said, I should like those options to be open to everyone from the boardroom to the shop floor. That is what our amendment would achieve.

I hope that making shares available to more employees will encourage a long-term outlook within a company and therefore a long-term culture, which is something that far too many companies do not have. If that encourages savings, in addition to a pensions scheme and other savings options, it should be welcomed. Shares should reward success, but we must ensure that the success comes before the reward. We should avoid the problems that have bedevilled parts of British industry where the reward has been paid willy-nilly and has had nothing to do with success.

I hope that the Government will accept the amendment. If they do not, that will show people that yet again the Government are concerned with the few in the boardroom and not the many who work in British industry. It will be a touchstone of where the Government stand on the wider case for spreading share ownership to as many people as possible. We believe that it is important to involve people and to change the culture of British industry because that is where future success will lie.

If the amendment is technically deficient, I am sure that the civil service or the newly privatised draftsmen will be able to produce something better for us. However, if the Government object to the amendment in principle, many people following these proceedings and listening to what the Government have to say will reach the view that although the Government say that they want to end the abuses, in fact they are just continuing them under another name.

I hope that at the end of the debate the majority in the House will see the merit of ensuring that share ownership schemes are spread to as many people as possible, so that there is genuine participation. We must stop the abuses which benefit a tiny, greedy minority.

Mrs. Helen Jackson

I hope that the Government accept the amendment, which would widen the meaning of the clause. It is a genuine attempt to be helpful. My hon. Friend the Member for Edinburgh, Central (Mr. Darling) might even have said that the Labour party believes that all those working in an enterprise should have a stake in it. That is important throughout industry. We support employee share ownership in all sectors and commend those where such schemes have been developed.

The Central Statistical Office share register survey at the end of 1992 clearly shows that, although individuals held about 20 per cent. of all shares—80 per cent. are held by large institutional shareholders—the figure for shares in privatised utilities was 24 per cent. At the time it was said that, after all the publicity given to privatisations, it was surprising that the differential between the two was only 4 per cent. Nevertheless, 4 per cent. represents about 7 million shareholders.

A National Opinion Poll survey the following year of individual shareholdings in privatised utilities—including those held by lower-grade employees in those utilities—showed a number of token holdings of just one or two shares. However, those token shareholdings gave those employees a stake in their company and allowed them to say their bit at the annual general meeting, which is important. In fact, only a quarter of individual shareholders in the utilities held more than a token number of shares.

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I stress that it is not just the major shareholders who need to be encouraged to take a full interest in an enterprise, especially in the privatised utilities. With public service utilities such as the water industry, it is important that all those involved in the business feel that they are playing their part in delivering a quality service to the public. Employees and members of the public are entitled to hold token shareholdings, and that should be welcomed. The Opposition recognise that shareholding is not simply about money-making; it is about someone participating in the enterprise where he works.

There has been a significant increase in individual shareholders in Yorkshire following the water problems in the summer. People saw it as a means to enable them to make their point about what happened. We support any Government measures to increase shareholding and to limit the excesses of industry's fat cats and the executives of the privatised utilities. However, it is still not clear that the Government really want to extend the rights and responsibilities of individual shareholders in those companies.

I draw the Government's attention to a recent example of where their intentions might have seemed to be good, but in reality they were not interested in listening to individual shareholders. A major public inquiry held on 14 November was attended by individual shareholders, many of them employee shareholders, in Yorkshire Water. The inquiry lasted three days. It is only tonight that the report of that inquiry has been published, even though it was on the desk of the Secretary of State for the Environment on 23 November.

Individual, including employee, shareholders in Yorkshire Water were concerned about the running of their enterprise. The Government need to ask themselves whether they are hypocritical—a word already used tonight—because they obviously did not recognise those shareholders as important people in that company. They refused to recognise their real concerns, even though they gave evidence to the inquiry over three days. That is unforgivable.

While the Minister is not responsible for that matter, I am sure that he will take note of this as a good get-out clause. The report went out with a covering letter, in which one must be aware of the double negatives. The letter states: If the Secretary of State had not decided, in the light of Yorkshire Water's request, to defer taking a decision on the application and the report, it would have been necessary to address the many points raised in that report. Since the applications have now been withdrawn, it would now serve no useful purpose to go further into those questions. It is disgraceful and arrogant to say to the employees and shareholders in Yorkshire Water who spent three days in Dewsbury giving their evidence that that evidence is not even worthy of consideration. In order to rescue the Government from such hypocrisy, I am sure that the Minister will be keen to accept the amendment. The Government will then make it clear that the measures that they want to put in the Bill will benefit all employees and all shareholders, whatever their position in a company. I look forward to the Minister's response.

The First Deputy Chairman

I call Mr. Quentin Davies.

Mr. Quentin Davies (Stamford and Spalding)

Thank you, Sir Geoffrey—it is a great pleasure to use those last two words.

I have listened with great interest to the hon. Members for Sheffield, Hillsborough (Mrs. Jackson) and for Edinburgh, Central (Mr. Darling). There is no doubt that, at first sight, the notion of all share options schemes being automatically available on the same terms to all employees is attractive and appealing. All employees like to feel that they are part of a firm and that they are committed to that firm's success, and such morale is essential if a company is to be successful. But I fear that that appeal—while very obvious—is a little superficial.

Once again, Labour has not thought through what the consequences would be of implementing a populist policy—in this case, a policy using taxation to achieve certain political purposes relating to the way that industry is run. It is clear that, if share options are ultimately exercised, the existing shareholders will be diluted. In a sense, the whole object of the scheme is that employees and directors who benefit from share option schemes will share in the profits, all of which would otherwise be attributable to the shareholders alone.

It may be in the interests of the shareholders to make sure that those who contribute specifically to increasing the share price—thereby increasing the value available to the shareholders—do share in that benefit. It is therefore essential that there should be an element of selectivity in the application of the schemes, which are not appropriate as a firm-wide or universal way of remunerating employees. There are many other ways of doing that, including tax-efficient ways provided for by the Government, such as the company employees share scheme, which has been in operation for 10 years or more.

When one gives employees an option, by definition one is giving them an incentive to increase the value of the shares of the company concerned. The shareholders are saying that they believe that the employees have it in them to make a real contribution. If they increase the value of the shares, the shareholders will give them some benefit or allow them to share in the equity interests of the firm. Such an incentive must be selected and targeted on those employees or directors who are in a position to contribute directly in that way.

While in some cases it would be quite right to have several different schemes with different rules and amounts for the options in the same company, it would be inappropriate to have share options as a universal scheme. The amendment does not make much sense in terms of achieving the management and motivating objectives of a good share option scheme.

Mr. Darling

The hon. Member is falling into the old ways of the Conservative party, which hold that the only people who need incentives and to be encouraged and handed out largesse are those at the top, while those at the bottom do not really matter. While it is okay to hand baubles to those at the bottom, it is only those at the top who need tax breaks and other such benefits.

Does the hon. Gentleman accept that the amendment specifies that schemes have to be made available on similar—not identical—terms? The amendment would make sure that, if the tax system is to be used—in other words, if taxpayers' money in terms of tax forgone is to be used—the maximum number of people should benefit. If company shareholders want to provide benefit to certain individuals over and above that, there is nothing to stop them from doing so, but not through a system subsidised by the taxpayer.

Mr. Davies

The object of a share option scheme is not that the maximum number of people should benefit but that the maximum benefit should be achieved for the shareholders of a company by those who are being asked for their share equity interest. The hon. Gentleman may find some difficulty in following that distinction, but it is a real one. If he had any experience of running a company, I am sure that he would accept it.

The hon. Member for Edinburgh, Central used the word "top"—no doubt demagogically. I was not suggesting at all that only the top people or top management should benefit from a share option scheme. Far from it. In many cases, a quite disproportionate contribution to the success of an enterprise can be made by someone who is not particularly highly ranked in the hierarchy of a company. For example, someone employed in a research-based or hi-tech company might make a fundamental contribution to the future prosperity of that enterprise by inventing a new product or substantially improving an existing one. Perhaps an employee may find some new technique of manufacturing.

Such people have made a quite exceptional contribution, and it is right that there should be a mechanism available to reward them proportionately. It would not make sense to extend that benefit to every other employee in the company. The same applies to a salesman, who may be quite junior in the hierarchy of a company but who may produce a major contract that may have an enormous impact on the company's prosperity, on the value created for shareholders and—in a case such as that—on the job security of all of his fellow employees.

The hon. Gentleman has introduced an extraneous element—a total red herring. He may have done so to try to throw sand in the eyes of Conservative Members, but he must know us well enough to know that that would not succeed. He may, on the other hand, be genuinely confused about the matter, in which case I hope that the debate will give him an opportunity to reflect on it.

Mr. Malcolm Bruce

I have been listening carefully to the hon. Member. Does he acknowledge that the wording of the amendment takes care of his argument? The hon. Gentleman suggests that, because people have different levels of remuneration, we need a mechanism that provides them with the ability to take greater benefits and share options according to earnings or seniority. That matter seems to be built into the amendment. Is not a lot of what the hon. Gentleman says already accounted for? Does he accept that the motivation behind the measure is the degree of public anger at the totally disproportionate amounts of share option benefits that have been given to top management out of all proportion to any reasonable incentive, while people further down in companies are being shut out altogether?

Mr. Davies

The hon. Member makes two points, which I shall deal with in reverse order. My right hon. and learned Friend the Chancellor of the Exchequer very much accepts the point that the hon. Gentleman makes about the general public outcry at the excessive benefits achieved through share option schemes. In fact, he accepted it some six months or more ago. That is exactly why clause 105 is in the Bill, and why we now have the £20,000 or £30,000 limitation.

On the hon. Gentleman's first comment, I am afraid that he rather forces me to repeat some of what I have already said. My point was precisely that it was not right that share options should necessarily be allocated in proportion to the salary levels of those who benefit from them. Still less would it be right that one should qualify only because one has a high salary or wage. On the contrary, I am saying that it is important that those schemes be so structured that they provide benefits for those who make a disproportionately large individual contribution to the firm—by definition, therefore, a compulsory universality.

The Labour party always likes to think in terms of compulsion. Everything has to be compulsory and imposed from on high by the Government—one cannot leave companies to run themselves and determine how they run the schemes because Government or civil servants know better. That is the old, old Labour party, and it does not change. That has come through just as strongly in this debate as in so many different contexts in the House.

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Mr. Darling

Does it strike the hon. Gentleman as curious that he is happy to support a Government who impose tax increases on most people, but at the same time support the tax breaks that he wants to focus on the very few? If a tax system is going to be used, it should benefit everyone in the work force. If companies want to give people incentives over and above that, there is nothing in this world to stop them from doing so, but they are not going to be able to receive their current tax break. Is not what we are hearing tonight that the Tory party is up to its old tricks? It is more concerned with Cedric and does not care much about the Sids of the work force.

Mr. Davies

The hon. Gentleman obviously has not read clause 105, on which his amendment is based, if he thinks that no one cares about the Sids, because the point of the clause is to deal with precisely that point. I am gratified at the way in which the discussion is moving. The hon. Gentleman started off by proposing a certain regime for share options; I criticised it; and, far from tackling my criticism, he has shifted the argument on to the general matter of whether I am in favour of a Government who have greatly increased taxation and so forth. He knows my response to that perfectly well, but I should think, Sir Geoffrey, that you would not want me to deliver it this evening.

I do not intend to be thrown off my stride. Another important point arose from the speech by the hon. Member for Edinburgh, Central, and it would be a great mistake to let the debate go by without drawing the attention of the Committee to it. At the outset of the debate on this amendment, perhaps reluctantly or inadvertently—it was in the nature of a Freudian slip—he said that he was concerned that the Government have not taken into account the possibility of firms coming up with an unauthorised scheme that could be very different from the sort to which the tax benefits foreseen in this paragraph have now been more narrowly directed.

He contradicted that in his subsequent intervention on my remarks, when he said that there is no reason why companies should not do that. He then caught himself. He obviously thought that new Labour should not be in the business of saying that companies cannot do what they like with their own money, even when there is no tax implication. He said, "But, of course, for the private companies"—I think I am quoting him accurately; but Hansard will confirm this—"that might be all right. But for the newly privatised companies, that would not be all right at all."

The hon. Member for Edinburgh, Central—this is characteristic of Labour party thinking, and it has come out well in this debate—is trying to distinguish between private sector companies in general and those private sector companies that were once nationalised. That is an extremely damaging road to go down for a sector of British industry that now has a worldwide reputation.

The great success of our privatisation programme has not merely been the creation of a new class of small shareholders, but that we have achieved efficiency and productivity gains and turned loss-making nationalised industries into profit-making privatised ones, from which the Exchequer has gained a considerable revenue stream. Those are all enormously important, but there has also been a major development in the structure of British industry. We now have a number of major multi-nationals of global importance in their sectors—some are leaders in their sectors, for example, British Airways, British Telecom, British Steel and British Gas.

The consequence of the thinking of the hon. Member for Edinburgh, Central, if ever it were allowed to influence policy formation in this country, would be to stymie those companies—those great success stories—with a regime that is different from that of the rest—

Mr. Darling

Will the hon. Gentleman give way?

Mr. Davies

I have given way a great deal to the hon. Gentleman. I hope that he will forgive me for not doing so at the moment. I am sure that he will be able to catch your eye again, Sir Geoffrey, if he feels that he needs to do so.

As a result, it would be extremely difficult for those companies to compete equally with other private sector companies. On executive or directors' share options and the tax treatment of directors or employees of those companies generally, one can envisage exactly what such a differential regime would lead to. Able and successful executives in the newly privatised companies—not so newly privatised in some cases, but almost all extremely successful, with some major multinationals—would be poached by rival companies which could offer more attractive executive share options. It would be a one-way street. No one would want to go from the rest of the private sector into the privatised sector, and that would handicap extremely successful companies—the generators of a great deal of national wealth and employment—with a burden that was unjustified in economic theory, or more importantly, in pure equity, fair play and justice.

I am sorry to have seen that tendency revealed—we all know that it is there—in such a stark and slightly shocking way in that intervention from the hon. Member for Edinburgh, Central. Perhaps it was a slightly involuntary remark.

Mr. Darling

The hon. Gentleman says that it is only the Opposition who distinguish between the privatised utilities and the generality of private industries. Does he not accept that the public make a distinction in what they regard as unacceptable behaviour in the privatised utilities—not all private companies—and so do the Government, because they regulate those utilities? So everyone except for the hon. Gentleman distinguishes between the privatised utilities and other industries in general.

Mr. Davies

I do not think that that distinction stands. There is indeed a necessity to regulate natural monopolies, but as we have discovered—we have been path-breakers in the area of privatisation and it is not surprising that the world has come to our door to see how we have done it—many sectors of activity within the utilities are not natural monopolies. Competition can be and is being generated there—competition that could not have been foreseen 10 or more years ago.

One thinks of the great competition within the telecoms sector, first from Mercury and now from the cable companies. One thinks of the tremendous competition that has come into electricity generation and distribution, and gas extraction and distribution. Only the pipeline, the intermediate part of the gas industry, is in any sense a natural monopoly. Similarly, we have found that it is feasible to generate genuine competition in the running of trains. The natural monopoly that may need to be regulated is the ownership of the track. The distinction drawn by the hon. Member for Edinburgh, Central is naive and perhaps a little misinformed.

Mr. David Shaw (Dover)

Does my hon. Friend agree that the Opposition's campaign was largely based on share options that involved perhaps 40 or 100 people, that the total number of share options at stake was relatively small compared with the fact that in an average electricity company or privatised utility there may be 4,000 or 5,000 relatively junior staff who have share options, and that the opportunity for those people to have share options has been greatly damaged by the way in which the Labour party conducted its campaign?

Mr. Davies

I agree strongly with my hon. Friend. The Labour party's cynical, demagogic campaign did much damage to those companies, which was unjustifiable, given their record of creating value, exports and employment for our country. I also agree with his remarks about the share option scheme. After the controversies of the past six or nine months, in clause 105—and in my hon. Friend's amendment, which we may have an opportunity to discuss later—we have reached a considered and sensible solution.

Mr. Pearson

I take issue with the comments of the hon. Member for Stamford and Spalding (Mr. Davies). Not only were the remarks of my hon. Friend the Member for Edinburgh, Central (Mr. Darling) about the different regulatory regime that the Government adopt towards the privatised utilities correct, but the Greenbury report was exercised by the abuses of the privatised monopolies.

The Greenbury report states: There is little doubt that the remuneration committees of a number of companies in the privatised water and energy sectors have developed, perhaps unintentionally, remuneration packages that are richer than is required to recruit, retain and motivate quality managers. That strikes me as meaning that remuneration committees have not followed their fiduciary duties to provide sufficient—and no more than that—incentives for managers.

The Greenbury report continues: Utility directors should command a greater pay premium where there is substantial competition and risk, where there is a wide diversity of activities or an international spread of operations or where significant technological or structural change is under way". That, I freely admit, applies to former public companies such as BT, but it does not apply to the water and electricity companies unless we include some of the expensive mistakes that they have made as a result of their diversification programmes.

The Greenbury report concludes: We strongly recommend that all the privatised utilities in the water and energy sectors should undertake a comprehensive review of their remuneration packages in the light of this report and, if necessary, voluntarily adjust them accordingly. The report disagrees with the hon. Member for Stamford and Spalding and says that there is a case for remuneration committees to answer—and quickly.

8.15 pm
Mr. Quentin Davies

Does the hon. Gentleman concede that there is all the difference in the world between share options, or other remuneration packages, that were decided upon before flotation and those that may be decided on now or subsequently? In the latter case, there is no justification for considering those companies differently from other private sector plcs.

Mr. Pearson

There is a clear case for considering such companies differently, because water and electricity companies are still not subject to the full rigours of international and market competition in the way that ordinary private sector companies, and some other privatised companies, are. The hon. Gentleman's argument does not solve the problem. The public are still angry about the abuses of executive pay and share option schemes in the privatised utilities. He misreads public opinion if he thinks that doing nothing about that is acceptable.

I support the comments of my hon. Friend the Member for Edinburgh, Central about the importance of everyone in the work force benefiting from the legislation. Rather unusually, I pay tribute to the hon. Member for Dover (Mr. Shaw), who has done much sterling work in persuading the Government to change their mind. I suspect that the chief executive of Asda was probably more influential in achieving that volte-face. The fact is that both Greenbury and the Chancellor of the Exchequer botched it, and finally, we are starting to get legislation that looks sensible. Certainly, no hon. Member would begrudge providing a few shares for shelf stackers, the odd cheque for check-out girls and a little bunce for the boys who push the trolleys round at Asda.

I remain concerned about two principal issues. First, there is the balance between executive share option schemes and other forms of option schemes such as savings-related option schemes and profit-sharing schemes. Secondly, there is still built into the system an unfairness that our amendment would partially, but not fully, solve. Share option schemes are inevitably geared towards publicly owned, publicly quoted companies.

In Inland Revenue-approved schemes, the market value of shares in unquoted companies can be negotiated between a private company and the shares valuation division of the Capital Taxes Office. Will the Minister say how many times that takes place? According to Inland Revenue statistics, there are about 4,000 schemes at the moment. My best guess is that the majority of those are schemes with publicly quoted companies.

I suggest that those private companies that have executive share option schemes run them not for the whole work force but for the few private wealth individuals who own the companies and use the scheme as an extra measure of tax planning. I remain concerned that we are providing tax incentives to individuals simply because they happen to work for publicly quoted companies, whereas people who happen to work for unquoted companies, which is still a large proportion of the work force, do not have such tax breaks. We need to examine that.

I remain to be convinced that share option schemes are encouraging long-term share ownership. They have some benefits as part of an employer's recruitment, retention and motivation strategy. Asda thinks that its share option scheme has been beneficial for staff retention. However, 95 per cent. of people who exercise share options sell them immediately and the average sum involved for individuals who were granted share options, which was given by the Financial Secretary to the Treasury in a debate on 25 October, was £45,000 in 1994–95. When the Asda employees and other shop-floor workers are stripped out of that calculation—averages can be misleading—we find that a limited number of individuals receive substantial options.

Many quoted companies are now thinking about moving away from traditional option schemes, and I welcome Greenbury's injunction on them to do so. Traditional share option schemes must be weighed against other kinds of long-term incentive schemes. I welcome the fact that companies are now beginning to introduce more relative performance criteria. I also welcome moves by many major companies to ensure that, if share options are to be granted, they will be granted for five years or more, even if they are part of approved option schemes.

I welcome the Government's change of heart in terms of not completely excluding share option schemes and introducing a £20,000 limit. It is important, however, that the amendment is adopted on grounds of fairness, because everyone in the work force should be allowed to benefit from such a tax break.

The Financial Secretary to the Treasury (Mr. Michael Jack)

This has been a quiet but interesting debate. As the Opposition are now willing to embrace the whole ethic and philosophy of matters associated with share ownership, I now understand why they have played first consideration of this matter, in the context of the Finance Bill, in the svelte tones of the hon. Member for Edinburgh, Central (Mr. Darling).

Mr. Darling


Mr. Jack

Perhaps the hon. Gentleman is not aware of the meaning of svelte. He gave a smooth, quiet, well-mannered and thoughtful presentation of his party's case. He may have done that so that the outside world would not be reminded of the history of how we reached this position.

Mr. Darling

I remember it very well.

Mr. Jack

The hon. Gentleman says that he remembers it very well. Let me take him on a little voyage of all our yesterdays, because it is important to put the amendment into some context.

The hon. Member for Sheffield, Hillsborough (Mrs. Jackson) made a telling intervention, and my hon. Friend the Member for Stamford and Spalding (Mr. Davies) reminded us of her words. I am delighted that Opposition Members welcome what we are about this evening.

However, this is the same party that objected to the British Aerospace work force having a stake in their enterprise. Some 89 per cent. of the work force acquired shares in that company because of the special terms offered. The Labour party also opposed the privatisation of British Telecom, yet this evening they advocate all-employee share option schemes. A staggering 95 per cent. of British Telecom's work force bought a stake in the company after its privatisation had been opposed by the Opposition. Indeed, 99 per cent. of British Gas's employees bought a stake in their company after the Labour party opposed its privatisation.

I suppose that I must welcome the fact that the sinners are repenting and are now endorsing a policy that has enabled shareholding to rise from some 3 million when we came into office to some 10 million today.

Mr. Quentin Davies

I am anxious that my hon. Friend should always be just in his observations about the Labour party. Has not the Labour party always opposed the idea of directors acquiring options or shares before a company is floated? Did my hon. Friend see the article in the Financial Times of 18 January last year, which said: Mr. Peter Snape, MP for West Bromwich, East and Opposition spokesman on transport, admitted that he had accepted options on 40,000 shares in his capacity as non-executive director of West Midlands Travel. The Birmingham-based bus company was taken out of local authority hands in a management-led workers buy out in December 1991. Preparations are being made for flotation, possibly in the autumn. Is it not nice to know that at least some Labour Members are enterprising when it comes to opportunities for acquiring shares on a pre-flotation and no doubt private sweetheart deal basis?

The First Deputy Chairman

Order. That was a long intervention.

Mr. Jack

I hope that my reply will be shorter, Sir Geoffrey.

I am sorry that the hon. Member for West Bromwich, East (Mr. Snape) is not in his place this evening, because he should have an opportunity to explain to the House why he made a principled attack against the proposal for privatising bus services but was prepared to put that to one side and enjoy the benefits of share options, which the policy that he opposed enabled him to have. He may have been ahead of his time, judging by the events referred to only a few hours ago at Prime Minister's Question Time. It is interesting to see the juxtaposition between the principled stand in public and the private change for private gain. My hon. Friend is right, and I congratulate him on his forensic skills in digging that article out.

The amendment has been tabled by the same party that voted against the save-as-you-earn scheme during the Committee stage of the Finance Bill in 1980. In a relatively short time, our policies have woven their magic and Labour Members are now coming round to our way of thinking. If a sinner repenteth, it must be applauded.

Mr. Darling

We are all concerned that this debate should be accurate, and the Minister will no doubt recall that the last Labour Government first introduced employee share ownership schemes before he and I were in the House. I do not see much advantage in going into these matters in the context of the amendment. Will the Minister simply tell us whether he supports the amendment, or is he happy to side with his hon. Friends in ensuring that the privileged few will benefit from the Government's measures?

Mr. Jack

I shall come to that in due course. I do not disagree with the hon. Gentleman's point about history, but something clearly happened around 1980 to change Labour Members' minds on this matter. In fairness, the hon. Gentleman welcomed the company share option plan and attempted to make a fist of amending it. However, people must be reminded where the Opposition are coming from because, in recent times, they have made much of the virtues of owning some kind of stake in something but have done little to acknowledge that we are the true pioneers in that area.

The hon. Gentleman asked me a straight question: do we support his amendment? Before explaining why we do not, I wish to pick him up on one point. It is typical of Opposition Front-Bench spokesmen to get into their minds a sound nibble such as, "The Tories only want this scheme for the benefit of a few rich, well-heeled people", and to keep repeating it.

I remind the hon. Gentleman of events that occurred on 17 July when my right hon. and learned Friend the Chancellor, having acquired the knowledge of what was in the Greenbury report, moved very quickly to address those concerns and deal with the question at the heart of the hon. Gentleman's probing. As a result of a healthy debate, we now have a scheme on the stocks—the company share option plan in the Finance Bill—that addresses precisely the issue that the hon. Gentleman mentioned. I am sure that he would not disagree that the proposal in the Bill is moderate in terms of who may benefit from share option plans. I believe that the measure addresses his concern, and I hope that we are at one on that. I think that the facts speak for themselves.

One interesting point that we have forgotten is that other all-employee schemes exist. I shall develop that point later, but I first wish to mention a couple of technical points about which the hon. Gentleman asked me. I do not want them to be lost in my general remarks—I listened carefully to what the hon. Gentleman said. He spent some time asking me about the definition of the term "manifestly less". I shall try to deal with the subject carefully as I should hate to mislead the hon. Gentleman or for somebody to read what I say in Hansard and get the wrong impression.

8.30 pm

The set of words repeats the definition used in the old executive share option scheme which the hon. Gentleman, as a lawyer, may have studied carefully. The phrase "manifestly less" has become well known in law since 1984. It means: not less by any amount that can be measured—in practice, not less at all. I hope that that clarifies the position—[Laughter.] I have to give the explanation in language that lawyers understand. The hon. Member for Dudley, West (Mr. Pearson) may sometimes have difficulty with lawyers' language, but the hon. Member for Edinburgh, Central is a lawyer and I would expect him to understand it. I also expect him to have studied what happened in 1984. Having defined "manifestly less" in legal terms, I will say more simply that shares should not be granted under option at below the market price. That can be understood in everyday language.

Mr. Darling

I appreciate the Minister's reference to 1984. If it is the Government's intention that the price should not be less at all, and as we are all in favour of plain English, why do not the Government break new ground and simply put "less than at all"? Then everyone in the House and, more importantly, outside it, would fully understand. The problem of relying on legal decisions is that lawyers have historically made a lot of money arguing about what is meant. If what is meant is "not less at all", why not say it?

Mr. Jack

For the sake of precision, I perhaps embroidered the words a little. To put the matter beyond misadventure, I shall write to the hon. Gentleman and spell out the precise terms. I shall place a copy of the letter in the Library of the House, so that we can all study it for our greater benefit.

The hon. Gentleman also asked about the 15 per cent. discount. In practice, very few companies use the 15 per cent. discount provisions, and the new company share option plan does not, as the hon. Gentleman's first question suggested, allow a discount to be available. The previous facility was available only if a company also had an all-employee scheme. I hope that I have dealt with the two specific points that the hon. Gentleman raised.

Having welcomed what the hon. Gentleman said in his opening remarks about the proposal of a company share option plan, I should remind him that we already have two existing tax-relieved all-employee schemes: the profit-sharing and the savings-related plans. They were introduced on an all-employee basis to stimulate wider employee share ownership across the board at an affordable Exchequer cost. The objective of the executive option relief introduced in 1984 was different: it was specifically designed to enable companies to reward key employees with options over shares that would increase in value prospectively in response to their hard work and commitment.

As my right hon. and learned Friend the Chancellor explained in July last year, we believe that companies that wish to give incentives to key employees in that way no longer need a tax relief. A variety of option schemes and other long-term incentive arrangements offer alterative ways of linking executive rewards to corporate performance, and none of them qualifies for special tax treatment.

The spirited and constructive debate that started in July last year as a result of my right hon. and learned Friend's announcement that he was going to withdraw tax relief on the existing executive share option scheme revealed that there was a demand for a third type of employee share ownership scheme in addition to the two existing all-employee schemes to provide a more flexible way of granting options to lower-paid employees. That explanation addresses one of the concerns expressed by the hon. Member for Edinburgh, Central when he spoke about who would benefit.

The debate stirred up the issue—the hon. Gentleman exemplified that by mentioning Asda, but that company was not alone. Many other retailers also expressed a wish to sustain such a scheme. They wanted to target their schemes at the more modestly paid of their employees, such as middle managers and even those on the shop floor. We listened carefully, but the companies that made those representations made it clear that they did not want a compulsory all-employee scheme. My hon. Friend the Member for Stamford and Spalding adverted to that in his telling contribution when he said that there was a difference in every respect between the Government and the Opposition because the Opposition always want to seek compulsion whereas we seek an element of choice.

Those self-same companies wanted to be free to design their schemes as they wished, and to structure them so that they could reward loyalty. If every employee who was with the company on the day that the options were granted had to receive some options—as the amendment suggests—it would be impossible for company share option plans to be used to reward loyalty. That is the first reason why I am unable to accept the amendment.

Mr. Darling

The option is always open to companies.

Mr. Jack

If the hon. Gentleman wants to tell me what it is, he can always intervene. The sedentary debate is perhaps not entertaining the House. I see that the hon. Gentleman is not pushing his point, so I shall continue.

There is an important point to make in relation to smaller companies. The share capital of small companies is a valuable and limited asset. It would simply not be appropriate for such a company to have to grant options to all its employees when it wanted to grant options. In that context, where would the Opposition draw the line? I do not think that they have thought through the effect of the amendment in reality as it shows a clear lack of understanding about small companies.

Today I received a further, supporting piece of evidence that I feel duty bound to put before the House. It came in a letter from the director general of the Institute of Directors, Mr. Tim Melville-Ross, dated 23 January. He said: Specifically, we do not support the proposal that all employees should be eligible for share options rather than the allocation being at the discretion of management (which is the current position). Replacing management's discretion to provide share options as incentives by the principle of universality represents, in our view, another restriction and inflexibility on business. Those are telling words. The letter continued: Moreover, the amendment ignores the particular problems in the unquoted company…It is common in a private company to have to offer share options to attract and motivate one or two key people. I saw that fact for myself when I visited a fibre optics company called Coe in Leeds. Representations were made to me by the company asking whether the Government could restore a share option scheme—similar to the one that we have introduced—precisely because it had problems attracting a top-quality sales director when it could afford only a limited salary. I believe that the scheme that we have now entirely meets that company's wishes, since the company wanted to focus its scheme on that specific need.

For the reasons that I have given, we should have respect for the difficulties of the small company share structure. I remind Opposition Members that the new company share option plan tax relief is part of a wider package, which includes substantial improvements to both the existing all-employee share schemes.

The hon. Member for Dudley, West asked about the scope and scale of those schemes. It is interesting to note that about 80 per cent. of listed companies have one or more approved schemes, about 55 per cent. of the companies that have one or more approved schemes are unlisted and about 40 per cent. of companies that have one or more approved schemes have an all-employee scheme. It is interesting that it is in the profit-sharing and save-as-you-earn schemes, in which about 2 million people are involved, that all-employee activity is very widely spread.

The hon. Member for Edinburgh, Central, very properly, asked whether we had considered the scope of who was able to benefit from share participation—whether participation was restricted to a narrow group. I hope that he is now aware, as a result of that exemplification of the numbers involved in the save-as-you-earn and the profit-sharing schemes, that those benefits are very widely available to all employees. I say that because it demonstrates clearly why companies wish to have one other scheme that they can tailor to meet the individual needs of their business. As the Institute of Directors rightly guides us, companies want some flexibility in how they will go about that, especially bearing in mind the special position of the smaller company and its share structure.

For those very good reasons, I believe that we should respect the right of choice. That is what fundamentally separates the Government and the Labour party. Conservative Members believe passionately in the fact that people should have an opportunity to participate in the equity of their company. We have two schemes, which are available already, on an all-employee basis, so it is right that we, as the party of choice, recognise that companies should be free to choose a scheme to meet their needs.

I say to the hon. Gentleman, there is nothing in the way in which that scheme is specified that prevents any company, if it so wishes, from making the scheme an all-employee scheme.

Mr. Darling

Does not the Minister, by his own words, admit that he has certainly given the choice to companies, but it is also choice to deny their work force the chance to participate in share ownership schemes? In other words, it is not giving a choice to the many. Labour Members believe that everyone should have choices in this world, not only the few.

Mr. Jack

We believe in choice by persuasion. [Interruption.] I am sorry, I must return to the hon. Member for Edinburgh, Central. Perhaps he can help me with a word or two of reassurance. He is interested in all employees having an opportunity to participate in the company. I shall give him an opportunity to show the truth of his credentials.

There is a privatisation scheduled for a few months—that of Railtrack. Railtrack has said that it will not have an executive share option scheme but it does want its employees to participate fully in the company by holding shares. I will give way to the hon. Member for Edinburgh, Central if he wants. Will he now commit himself? It might be difficult to bring your party with you, but take a personal view. I give you the opportunity to say, "I welcome the commitment to the privatisation of Railtrack and the opportunity for the staff to own shares in the company." Will you interrupt me and tell me—

The First Deputy Chairman

Order. On several occasions, the Minister used the word "you". I am not responsible.

Mr. Jack

The enthusiasm of my argument has led me again to cause you to interrupt, Sir Geoffrey; thank you for correcting me.

I ask the hon. Member for Edinburgh, Central, through the Chair, is he able to tell me—having had a little extra thinking time—that he would like the employees of a privatised Railtrack to have that opportunity, or does he wish, by opposing that privatisation, to deny those employees that opportunity to own shares?

Mr. Darling


Mr. Jack

I give way. This could be historic.

Mr. Darling

I am grateful to the Financial Secretary. He must realise that we are arguing about the opportunity to ensure that, in companies throughout the country, there is the widest opportunity for many to participate in those companies' success. The argument about the privatisation of Railtrack and rest of the railway network has nothing to do with that, as well he knows. I suspect that I speak, not only for Opposition Members, but for a majority in the country, who want nothing whatever to do with breaking up the rail network. That process is purely designed to satisfy a tiny minority in the country, and the vast majority of the public would suffer as a result. It has nothing to do with the amendment, as well the Financial Secretary knows.

Mr. Jack

I think—

The First Deputy Chairman

Order. The Minister would be wise not to go down that track. The privatisation of the railways has nothing to do with the debate.

8.45 pm
Mr. Jack

I entirely take your guidance, Sir Geoffrey, but that answer is another example of Labour hypocrisy, because, as I said earlier in response to an intervention by my hon. Friend the Member for Stamford and Spalding, when the Opposition choose to deny something, they will follow that, but when it comes to personal gain, as we saw with reference to the hon. Member for West Bromwich, East, we know what the answer is. The hon. Gentleman was unable to give me the satisfaction that I sought.

On the basis of the amendment, which has been—

Mr. Darling

Will the hon. Gentleman give way?

Mr. Jack

I wish to—

Mr. Darling

On a point of order, Mr. Deputy Speaker. I am sure that the Minister did not mean it, but, as I understand it, one is not supposed to accuse hon. Members of hypocrisy in the House and I deeply resent the suggestion that I am guilty of hypocrisy about Railtrack. I think it might be better—

Mr. Richard Ottaway (Croydon, South)

Hypocrisy is a sensitive subject today!

Mr. Darling

The Whip speaks from a sedentary position.

Privatisation of Railtrack is a matter of concern to this country. The Financial Secretary might be better dealing with the merits of his argument—which, I am bound to say, I struggle to see—instead of indulging in this silly sort of thing, which might go down well in the Conservative party bar room but is not terribly suitable for debate.

The First Deputy Chairman

Order. I did not understand that the Minister was using the word "hypocrisy" regarding an individual. If he was, I am sure that he would wish to withdraw it.

Mr. Jack

I would never wish to insult any hon. Member on a personal basis, and if the hon. Member for Edinburgh, Central thought that that is what I said, let me say to him that I unreservedly withdraw any smear on him as an individual. As you rightly said, Sir Geoffrey, my use of the word "hypocrisy" was in the context of the Labour party as a collective, not the hon. Member for Edinburgh, Central. I would not want in any way to go beyond that.

There is another technical hitch in the amendment. I was surprised to see that it would require part-time directors to participate in the scheme. The hon. Member for Edinburgh, Central may have overlooked the fact that the guidelines for institutional investors, which are produced by the Association of British Insurers, state very clearly that part-time directors should not participate in share option schemes. That is an important factor, and another reason why I am unable to accept the hon. Gentleman's amendment.

We have had a very thorough debate. The Conservative party is the party of wider share ownership. I welcome the Opposition's endorsement of the company share option scheme, but I hope, for the reasons given, that the hon. Member for Edinburgh, Central will understand why, at this stage, I am unable to accept his amendment.

Mr. Tipping

I am pleased to have had the opportunity to listen to the Financial Secretary's remarks. I generally welcome the changes to executive share options that are set out in the Finance Bill. The Financial Secretary made some historical references early in his speech, and perhaps it is worth remembering how the clause came to be a part of the Finance Bill.

We should remember that the Government vacillated over the Greenbury report, which formed the basis of the clause. Some of us argued that the Government should have done the work themselves. The Government's response to Greenbury can only be described as erratic. The Chancellor reacted quickly on 17 July, but he lived to rue that day. Archie Norman and the employees of Asda forced him to change his mind by pointing out that the Chancellor's actions did not fit the bill.

The amendment is important because it seeks to extend the share option scheme, as laid down in the Finance Bill, to all employees. It requires that, in order for a scheme to be approved, all employees and directors must be able to participate on equal terms. I was interested to hear the Financial Secretary's remarks about choice: he argued that our amendment should be rejected because it forbids choice.

The Asda episode shows—as the amendment does—that we want choice for all. We want all employees to have the opportunity to participate in a scheme of that kind. That is fundamentally important. If we were to follow the track laid down by the Financial Secretary, we could return very quickly to the bad old days of perks for a few and a handicap for the majority of the work force. I believe that "choice" means that everyone should be able to choose: all employees should have the right to participate in share option schemes. That is why the amendment is so important.

It is also important to recognise that the share option issue has generated real public concern. People come to my surgery and talk about the benefits and the perks that the fat cats, as they call them, have enjoyed under share option schemes in the past. They find it hard to understand why the newly privatised gas, electricity and water industries offer such perks. I believe that the public's view resonates very strongly: everyone who is involved in those industries should have the same right to choose.

As I am talking about those who attend my surgeries, I shall mention two firms about which people have relayed their concerns. I refer first to East Midlands Electricity. I know the company well and I have a great deal of respect for it. I remind the Financial Secretary that the company's former chairman and chief executive, John Harris—whom I hold in high regard—left the company with a very good pay-off of reportedly £1 million, partly in share options. The second company that local people raise with me is Severn Trent. Its former chairman, John Billock—whom I know and admire—also left that company with a big pay-off.

The Financial Secretary talked at length about the need to reward success. In both the cases that I mentioned, the gentlemen involved left their respective companies in rather unfortunate circumstances. Their pay-offs were not so much a measure of success and a reward for that success as a way of getting them out of the way quickly. In the case of East Midlands Electricity, it is clear that the company diversified, bought into electricity contracting and then caught a cold. It was forced to refocus on the core business under new management.

I know the new management of East Midlands Electricity well, and I am pleased to hear it say that it is sceptical about the value of share options. It takes the view that they have given the company and the entire industry a bad name. The former chairman of Severn Trent, Mr. Billock, also left partly because of difficulties with the company's performance. It is okay to reward success; I agree with that fundamentally.

Mr. John Marshall (Hendon, South)

Does the hon. Gentleman agree that that point emphasises the merits of a different recommendation of the Greenbury committee regarding the length of service contracts? If we were to reduce the length of such contracts to one year, many large pay-offs would not occur. It has more to do with the length of service contracts than with share options.

Mr. Tipping

The hon. Gentleman makes a fair point. The length of service issue is important. Like him, I would like to see more short-term contracts of about one year's duration. At Severn Trent, the diversification into waste disposal and the acquisition of Biffa led to problems within the company.

The public find it hard to believe that the chief executives at East Midlands Electricity and Severn Trent did the same job in the privatised industry as when the companies were under public ownership. They also find it hard to accept the monopoly position that put the companies into such advantageous positions. They do recognise that, at the end of the day, the whole company is underwritten—there is a safety net—by its ability to raise prices. If things go wrong, the consumer will pay.

The employees of the newly privatised utilities will also be affected. The Financial Secretary was rather dismissive of the scare stories—as he put it—about executive share options and the perks that the top men in such companies enjoy. We must remember that many employees of the water and electricity companies, in particular, have lost their jobs. The companies have achieved success through efficiency measures, and the most basic efficiency measure is to reduce the number of staff.

I have a lot to do with National Power. Its officers have been extremely generous in their willingness to show me around the company and to talk with me. I do not have any financial interest in the company—I can see that the hon. Member for Dover (Mr. Shaw) is listening to me very closely. The management of National Power has allowed me the latitude to walk around the company and to discuss the past and the future. About two thirds of the company's employees have lost their jobs. At the same time, the executives of the company have seen their pay explode. I look forward to watching the share options, the salaries and the pensions of people in the generating industry.

Only the other day, I was looking closely at the share prices of electricity companies. The prices have fallen, for reasons that are not entirely in the companies' control, but on which they have some input. I look forward to seeing whether the executives' benefits fall as well.

If the amendment were implemented, it would lead to some fundamental changes in the way that companies operate in the United Kingdom. There would be more transparency, because all employees would be involved. I and others find it hard to discover the real benefits being given to directors and chief executives of newly privatised industries. If all employees had the right to be members of a share option scheme, that would lead to greater transparency.

Mr. Jack

I agree with the hon. Member that it is a good idea to have employee participation in companies. However, there is some evidence that, if there were to be a scheme such as that to which the amendment refers, some companies might decide that they did not want to run a company share option scheme. Does the hon. Member think that that is a risk worth running?

9 pm

Mr. Tipping

That may be a risk, but it is a choice for the company. I feel strongly that the benefits of such schemes would outweigh the disadvantages enormously. The first benefit would be transparency. The second benefit would be that everyone in the company would have a sense of stakeholding and shareholding. The schemes would be a recognition that people were companies' greatest assets and they would make companies realise that they should invest in and add value to people. The amendment clearly would do that.

If people had a shareholding or stakeholding in the company, it would lead to a long-term view. People who work for major companies are committed to their success. For example, the coal miners who work for Coal Investments Ltd. gave up their holidays when the company was in trouble over Christmas and went in to work. The schemes suggested in the amendment would reinforce that view.

Companies should be open, transparent and fair to everybody, not just to the few, and they should take a long-term rather than a short-term view. That is why I support the amendment.

Mr. David Shaw

May I extend my apologies to the House? On the flight back from the European Parliament, where I was today attending the Labour and Social Affairs Committee, I was delayed at a border control at Brussels airport which, according to everything we are told, does not exist. It was very real.

I am speaking in the debate because I have long had an interest, although not a personal, pecuniary interest, in how employees should be rewarded and share in the success of their companies. I have never had share options myself, but over the years I have sat on the boards of one or two companies and awarded share options to certain individuals. The decision-making process has been interesting, as has seeing the way in which share options can reward people.

I have always made a practice of looking not just at directors or managers as recipients of share options but at secretaries and middle and lower management, to encourage a broad spectrum of employees. We did not necessarily award share options to every member of the company. There were often good reasons for not awarding the options to some individuals. Sometimes, sadly, it might have been better if individuals had got a job elsewhere, and sometimes people were relatively new to the company and were still untried and untested.

I also have a long-standing interest in share options from a constituency point of view. During the 1987 election—the one that got me into the House—we were shown around the Buckland paper mill, which was lucky enough to be visited also by someone called Kenneth Clarke, now known to the House as the Chancellor of the Exchequer. Kenneth went around the paper mill and met the secretaries and typists, who were fully aware of the success of their company. They were interested in the share price and in how the mill was performing as part of a larger group.

The thing that impressed the current Chancellor was that those people's share options gave them an added interest in the company—they felt that they were part-owners of it. That feeling extended down to the shop floor, where the mill produced Conqueror paper, which is famous not just because it is used in the House of Commons but because it is unquestionably one of the best papers in the world.

The people in the company took great pride in owning part of the manufacturing process. They were thoroughly involved at every stage and, because of their share options, were keen on the success of the company. That is why I have a passion for share options as a way of motivating company employees.

The employees of P and O in my constituency—hundreds of them—also own share options. Junior onshore staff and more senior officers on board the ferries that make Dover a successful part of the country participate in share option schemes, which are clearly beneficial to many people in my constituency.

Within a month of his appointment as Financial Secretary, the Minister rapidly apprised himself of an enormous amount of information once the debate on share options got under way, and I thank him for that. We were both shocked by how complex some of the details of the argument can be, but we discovered that fundamental misconceptions surround share options and share option schemes. All the focus on fat cats and directors diverted attention from the hundreds of thousands of employees who were benefiting and who had benefited from share options. We should not forget that just under 1 million people are in this category; I hope that that number will be exceeded under a Conservative Government in the near future.

Another key misconception concerns the fact that people forget that these are approved discretionary share options. They became known as executive share options, however. Although it was often envisaged in the early stages that senior management and top people would be the main beneficiaries, it was soon discovered that junior employees—secretaries, typists, bank clerks—would also be significant beneficiaries, and rapidly became so. We found, in short, that the social spectrum was much more widely covered by share options than many people expected. They rapidly became another element in the expansion of democratic capitalism.

I was delighted to read all the research showing just how wide and deep the ownership of share options had become—just like the ownership of shares.

Mr. Denis MacShane (Rotherham)

The hon. Gentleman will have read today that Mr. Archie Norman, a wannabe Tory Member, has just cashed in £3 million in share options—a modest addition to his private fortune. The problem was that the Asda share price dropped by 3p, thereby wiping out a considerable part of the value of the shares of ordinary investors in Asda. Which is more important—the immense gain that Mr. Norman has pocketed, or maintaining the value of the Asda shares in which many ordinary investors, through their personal equity plans and unit trusts, may have placed their faith?

Mr. Shaw

When Archie Norman went into Asda, the company was flat on its back; it was suffering badly from competition from supermarket chains that were much more successful, and 37,000 of its employees faced the possibility of losing their jobs during the recessionary period if it had gone under. It was very close. It was within a whisker of going under. Archie Norman rescued the company. I have spoken to a number of his junior employees and not one of them begrudges him his share option profits. They are happy that he rescued their jobs and the company.

It also benefits consumers because it is one of the most competitive companies in terms of getting price reductions. It has forced the abolition of the net book agreement, and many books are much cheaper than before. It is putting pressure on a number of other restrictive practice agreements or other price arrangements that exist, and it is forcing down quite successfully the price of a number of products.

Asda's chief executive should benefit not just because he has benefited the employees but because he has benefited consumers and others in this country enormously. The Treasury has also benefited because Asda is paying quite a few millions in corporation tax, which, if it had gone bankrupt, it would not have paid.

Mr. John Marshall


Mr. Shaw

I give way to my hon. Friend.

The First Deputy Chairman

Order. Before the hon. Gentleman gives way, I am afraid that he has allowed himself to stray from the amendment, probably because of the question from the hon. Member for Rotherham (Mr. MacShane). He should now relate his remarks to the amendment before us.

Mr. Marshall

On Asda and share options, will my hon. Friend confirm—to answer those who are concerned about Asda shareholders—that, under the guidance of Mr. Norman, Asda shareholders have seen the share price treble, which is quite a good achievement? Even the hon. Member for Rotherham might give an alpha double plus.

Mr. Shaw

There is no doubt that, if "stakeholder" has any meaning whatever, one can truly say that all the stakeholders in Asda have truly benefited under Archie Norman and the Conservative Government who have made the environment right for them to benefit.

I now return to some of the key points. My hon. Friend the Financial Secretary was kind enough earlier in the summer to see me to discuss share options and to listen to some of my concerns and those of a number of organisations and others. I realised that he had considerable experience of option, incentive and share schemes from his involvement in companies—in the years before he came into Parliament—and that he had observed the benefits that tying in staff, in a way that gives them an interest in the company, can produce. I was grateful to him for the sympathetic way in which he listened.

When a Minister moves to a new Department, especially the Treasury, it is always interesting to see the extent of his commitment to some of our fundamental policies, and whether perhaps the Treasury atmosphere rapidly gets the better of him. I was delighted that my hon. Friend the Financial Secretary was able to assure me of his commitment to a shareholding democracy. He was able to assure me that he, like me, is proud of the fact that there are 11 million shareholders compared with 3 million when we got into office, and that 16 million people have life assurance policies and pension policies. I was also pleased that the Prime Minister is committed to widening share ownership. I felt, therefore, that there was a chink of light, that it was possible to push open the door, not only in relation to keeping share schemes but to seeing whether they could be better targeted at the very people whom we want to help.

It was apparent from discussions with my hon. Friend the Financial Secretary that he wanted to look after the thin cats and even, perhaps, one or two of the thinner cats who were putting on just a modicum of weight but were well short of becoming fat cats. I am delighted that his work during the summer and the work on the Budget have produced this share option scheme. It is important that my hon. Friend has recognised that share options are about giving people the incentive to create jobs. It was apparent that he had some knowledge in that area.

Let me recap some of the benefits of share option schemes and their purpose. The fat cat/thin cat debate has sometimes taken us off the main track.

The First Deputy Chairman

Order. This is not a clause stand part debate but a debate on the amendment. The hon. Gentleman should confine his remarks to that.

9.15 pm
Mr. Shaw

I shall try to ensure that I keep to the point. The implications of the amendment are in danger of not being fully understood unless one focuses on the purpose of share option schemes.

One of the key purposes of share option schemes is to help lower and middle income employees. Another is as a source of equity finance. I am not saying that the amendment would necessarily damage those, but it would begin to move the share option schemes away from some of their original purposes.

As well as encouraging a share-owning democracy, the number of share option schemes demonstrates how effective they are. My hon. Friend the Financial Secretary said that the amendment could damage the number of share option schemes that people might want to set up in the future, so we should not support it.

Loyalty is regarded as a key issue in the awarding of share options, but the amendment would remove the loyalty incentive. It would mean that everyone could have share options regardless of their loyalty to the company and regardless of how management and directors saw that loyalty helping the company's performance.

In addition, there must be flexibility within high technology companies. The amendment might remove such flexibility, because high-technology companies will have to reserve the share options with a little bit extra for some of the high-tech and skilled staff that they need to retain.

We also need to consider whether the amendment would encourage the development of the common interest between employees and shareholders. If employees feel that they will get something automatically as of right simply because they work in the company, it is not quite the same as if they are given an incentive to produce the extra value in the company which will benefit its shareholders and employees. The amendment is not in line with the basic philosophy behind share option schemes, so I cannot support it.

Share option schemes are often used as a substitute for pension schemes in small companies that cannot afford conventional pension schemes. That may not be contrary to the amendment, but the amendment will not necessarily assist. As I discovered, share option schemes are often used to help inward investment. American companies are keen on United Kingdom employees benefiting from the share option schemes of the parent company in America, and that is possible under the law. I am not certain that the amendment would work in favour of such an arrangement. My hon. Friend might wish to consider that when he replies.

The amendment might make life difficult for such American companies, many of which want to put their British employees on parallel employee remuneration and incentive packages as the American companies' employees in the United States. All those arguments show why the Government are right to bring in the new scheme and why the amendment is not quite right.

Sir Richard Greenbury was mentioned earlier. I remind the House that his report concerned directors. When I spoke to him, he told me that he did not intend his proposals to affect arrangements for share options further down the income scale and further down the hierarchy within companies: he did not intend them to have any impact on shop girls, supervisors or even junior managers. The amendment is rather dangerous. Some companies will want to make share options available to all employees; others will want to make them available to only a small number, which I do not think is necessarily wrong.

I am delighted with the way in which the Government have approached the matter so far, and I hope that I can express further delight when we debate a later amendment tabled in my name. Amendment No. 6 would make share option schemes too rigid, and might damage some of them. As my hon. Friend the Financial Secretary has suggested, some companies might even not implement schemes as a result. If the amendment were passed, people might be entitled to share options regardless of their performance. Schemes should operate with some flexibility, allowing the benefit of share options to be earned only by employees whose performance makes their companies successful. I shall vote against the amendment if it is put to a vote.

Mr. Mike O'Brien (North Warwickshire)

As the Financial Secretary said, this has been a good and thorough debate.

The Government's main objection to the amendment seems to be that it would benefit too many people. So much for their idea of a shareholding democracy. After 16 years of Tory government, only 17 per cent. of shares are owned by individual shareholders; that is the lowest percentage for a very long time, perhaps the lowest percentage ever.

My hon. Friend the Member for Edinburgh, Central (Mr. Darling) welcomed clause 105 as far as it went, but Opposition Members feel that it does not go far enough—hence the amendment. In an effective speech, my hon. Friend the Member for Sheffield, Hillsborough (Mrs. Jackson) pointed out that the Labour party approved not only of employee share ownership, but of the granting of share options. She also said that most employee shareholdings were small or even token. She pointed out that Asda, for instance, has 36,000 shareholding employees, which is welcome, but none of those employees is in the same league as the fat cats in the privatised utilities. As the hon. Member for Dover (Mr. Shaw) observed, a distinction must be drawn between the fat cats and those whom he described as the thin cats. I shall return to the hon. Gentleman's speech when he is less busy than he appears to be at present. My hon. Friend the Member for Hillsborough also spoke of her experience of the hypocrisy issue, as she described it, at the Yorkshire Water annual general meeting. Our agenda deals with the points that she raised: it seeks to help all shareholders, not just employee shareholders. The amendment fits well within that overall agenda.

The hon. Member for Stamford and Spalding (Mr. Davies) suggested that Labour's policy was "populistic". I suspect that it will indeed be popular, just as I suspect that his and the Financial Secretary's appeal for selectivity in granting share options will have much less popular appeal.

The hon. Member for Stamford and Spalding condemned the Labour party for distinguishing between privatised utilities and other plcs. I noticed that the Financial Secretary seemed to squirm at that because, as he knows, the Government make that distinction in terms of the regulatory regime that they impose.

A highlight of the debate occurred when my hon. Friend the Member for Dudley, West (Mr. Pearson) paid tribute to the hon. Member for Dover, who, during the great debate on these matters last year, helped to expose the Government's inadequacies in terms of their share options policy. Perhaps I may discomfit him still more by echoing that praise from the Labour Front Bench. I know that he takes a genuine and, it seems from his speech, informed interest in these matters. He went so far as to bring "Ken", as he described him, to talk about these matters to his constituents, who I am sure were greatly thrilled by that visit.

The First Deputy Chairman

Order. I hesitate to intervene, but the word "Ken" has now been used twice. I am sure that both hon. Members know that we do not refer in the Chamber to people's names—the hon. Gentleman should say," the right hon. and learned Member" or "the Chancellor of the Exchequer".

Mr. O'Brien

You are right, Sir Geoffrey. I put the name in quotes, but you are right to correct the hon. Member for Dover and me.

Mr. Christopher Whitehouse's text book, "Revenue Law: Principles and Practices," says of executive share options: The reason that many more of these schemes have been established than all employee schemes is precisely because they are not all employee schemes and benefits under them can be granted to selected employees and because the value of the benefits they can be given is much higher. Those company directors who granted share options saw great advantages to themselves in the schemes. They could be selective about who they gave the benefits to and so"— all too often— they gave the benefits to themselves. For the directors of the newly privatised utilities, they became great milch cows, providing perks, pensions, pay rises and all sorts of other wonderful benefits.

The Financial Secretary asked us to go into a history of what he called "all our yesterdays". The fact that I understand that phrase may date us both, but I remind him that it was Labour that initiated proposals for increased employee shareholding. Labour's 1978 profit-sharing scheme provided favourable tax treatment only if all employees with at least five years' experience benefited on similar terms.

The 1980 "save as you earn" scheme introduced by the Conservatives continued the principle of benefits on similar terms, but in 1984 Lord Lawson introduced the approved discretionary share option scheme—executive share options. That removed restrictions and allowed the company—in practice, directors of the company—to choose who received the benefits. The 1984 scheme gave a one-way bet: an option to purchase if the share price rose—if it fell, no one would need to buy the shares.

Executive share options were always aimed at a small group. On introducing them, Lord Lawson said that his aim was to increase the incentives and motivation of existing executives and key personnel".—[Official Report, 13 March 1984; Vol. 56, c. 299.] Those options were not intended for all. They were a special incentive for the preferred. The taxpayer provided a double largesse to directors in the privatised gas, water and electricity companies. Not only was the taxpayer forced by the Government to sell off the shares at a knockdown price, but the options on shares had a built-in, guaranteed price increase which, coupled with the tax concession, meant that those who had a lot of shares made an awful lot of money.

The schemes allowed massive profits that were unjustified by performance. In British Gas alone, 1,042,141 share options were awarded to its directors, including 268,000 to Cedric Brown, the chief executive. That was on top of his salary rise, following privatisation, of 75 per cent. As privatisation progressed, so the scandals surrounding share options grew.

Mr. Geoffrey Clifton-Brown (Cirencester and Tewkesbury)

Why does the Labour party want all those eligible to receive share options to have them on similar terms? Why should not directors give different employees in different areas of the company, who might have contributed different amounts to the company's profitability, different levels of share options?

9.30 pm
Mr. O'Brien

The hon. Gentleman was not here for the earlier part of the debate, so he does not realise that we have already dealt with that point, which was raised by the Financial Secretary. Indeed, I intend to deal with it again later in my remarks. If the hon. Gentleman had watched our debate on television or attended the Chamber he would be a little better informed about what has been said.

I was outlining the ways in which the various privatised utilities had benefited. In all, they issued more than £100 million in share options. Many of those options have yet to be exercised and the benefits realised. Coupled with that, we have seen directors earning massive amounts through Government policies on share options. As my hon. Friend the Member for Sherwood (Mr. Tipping) said, 40,000 jobs were lost in the electricity industry, 9,000 in the water industry, 26,000 in British Gas and 90,000 in British Telecom.

Mr. John Marshall

Does the hon. Gentleman agree that those massive job losses show that those industries were heavily overmanned when they were in the public sector, which is a further justification for their privatisation?

Mr. O'Brien

It is interesting to hear the hon. Gentleman justify unemployment. Is that his policy? Is that what he wants? Does he want to justify an increase in unemployment? That is the record of the Conservative Government.

Mr. Marshall

The hon. Gentleman asked whether it was my policy to increase unemployment. Is he not aware that unemployment in Britain is lower than anywhere else in the European Union? Is he not aware that the level of employment in Britain is higher than in almost any other European country? That is job creation. The hon. Gentleman supports job destruction through the social chapter and a minimum wage.

Mr. O'Brien

The hon. Gentleman tried to justify job destruction in the privatised utilities and then tried to suggest that in some way he was responsible for lowering unemployment. In fact, since the Conservative party took office, unemployment has doubled.

Mrs. Helen Jackson

Have not the job losses in the privatised utilities occurred partly as a result of the huge practice of outsourcing and contracting out core operations such as sewerage and water pipe maintenance, which should be done by the employees who then—

The Chairman of Ways and Means (Mr. Michael Morris)

Order. We are debating share options, and we should get back to that subject.

Mr. O'Brien

My hon. Friend the Member for Hillsborough is right, but I heed your words, Mr. Morris.

Even the Prime Minister said: I do not agree with the excessive and unjustified salary increases. I have made that perfectly clear. But for companies within the private sector that must be a matter for shareholders and not for the Government."—[Official Report, 22 November 1994; Vol. 250, c. 464.] The Government refused to intervene and deal with the abuses in the privatised utilities. As my hon. Friend the Member for Sherwood said, they vacillated and abdicated their responsibility to end the abuse. In contrast, Labour has always believed that the Government must undertake the minimum amount of intervention necessary to correct market failures and inadequacies and to enable the economy to work fairly for all society. Labour wants competition and success in industry. We recognise that the market can sometimes fail, so minimal intervention by Government is right to create the circumstances for fairness. That is why we put forward the amendment.

Eventually, the Government were forced to do something, due to the anger of the public and the campaigns of Labour Front Benchers. The Government appointed a committee of directors to look at salaries and share options for directors—again, an example of double standards. Here I should refer to the amendment, because the debate at that time is the reason why we tabled the amendment. The Government decided to deal with the abuses by appointing a committee of directors to consider their own salaries and conditions. When have the Government ever suggested that, if nurses want a pay rise, they should set up a committee of nurses to determine how much that rise should be? That was an abdication of leadership on the part of the Government.

The amendment takes further Labour's campaign to create a stakeholding economy, and clearly delineates the difference between the parties. While the Conservatives created perks for the privileged in 1984, Labour wants to give all employees a stake in their companies. The amendment helps to crystallise the distinction between the Conservatives and Labour. Workers already have a limited stake in their companies through their jobs and through their dependence on those jobs for an income for their families, but we want to give them a greater stake in the future of the business and allow them to identify even more with the success of the enterprise.

Many firms already recognise the importance of employee stakeholding, which provides motivation and incentives for people at work. Labour believes that shareholding by employees is a key way forward as we try to create a British stakeholding economy, and it can also bring massive benefits to British industry. One of the great failures of the Tory Government is that, for all their rhetoric, they have not provided the shareholding democracy that they have advocated. The Government schemes to increase employee share ownership have all too often been open to the sort of abuse that has taken place in the privatised utilities.

Mr. Jack

Does the hon. Gentleman acknowledge that 2 million people are involved in the profit-sharing and save-as-you-earn schemes? Does he further acknowledge that, since we came to power—as my hon. Friend the Member for Dover (Mr. Shaw) said—the number of shareholders in this country has risen from 3 million to 11 million?

Mr. O'Brien

Labour's policy of introducing a profit-sharing mechanism in 1978 led to the similar save-as-you-earn scheme, which enabled a number of employees to get involved in their companies. The Financial Secretary praises our scheme—it is a scheme that the Government copied from Labour—but he tries to justify restricting the availability of shares, although he claims to advocate that they be made available to all employees in the company. If he was in the House at time, there can be no doubt that he voted in 1980 to ensure that all employees should be involved, so why does he now want to deny them that involvement? Why does he say now that those employees should not participate in their own companies?

We need a change of culture in British companies. There must be an end to the conflicts between management and workers and a realisation that all have a vested interest in the long-term success of the company. Employee shareholding can help to do that. Many employee shareholders will work for a company for many years, so they will have a vested interest in looking to the long-term success of the business. They will see the benefits of investing now to secure jobs and prosperity for the future, rather than seeking short-term high dividends because their money can flit from one share to another.

Because of that long-term perspective, employee shareholders can help to put right the weaknesses in our financial institutions, particularly their short-sightedness and their under-investment in industry. Employee shareholding will be beneficial to the public, as it will help the economy and encourage a long-term perspective that will help investment in industry. Therefore, it is in the public interest, the taxpayer's interest and the Government's interest to use the tax system to promote employee shareholding.

Where the scheme can benefit all, so all should contribute through incentives in the tax system to encourage it. We want the amendment to be carried because it will benefit each and every employee, and benefit the nation also—something that can never be said of the Government's executive share option scheme. Whatever the Government hoped in 1984, the lax wording and the opportunities for abuse resulted in the scheme disproportionately benefiting an elite of directors. It is the failure of the 1984 scheme and the inadequacy of the Government's attempts to amend it to which the amendment is addressed.

During the controversy last year, the Conservatives never fully understood the anger and outrage of the British people at the abuses of share options. The amendment and clause 105 are the results of that anger. At a time when taxpayers were being told that they had to shoulder the burden of the highest tax increase ever imposed on the British people, when Britain was in the midst of a recession, and when unemployment stood at appalling levels—more than double the level when the Conservatives took office—a privileged elite of directors, mainly in the privatised utilities, abused a legal power to grant themselves excessive pay rises and share options in a tax-efficient way, thanks to the Government. The Tories saw nothing wrong with that, so out of touch were they with the British people. They never understood the anger about executive share options, any more than they understood the anger over VAT on fuel.

The British people objected to the simple unfairness of it all. Our people have an innate sense that things should be fair, and the executive perks in the privatised utilities breached that British sense of fairness. The Government are not in touch with that basic instinct of the British people because they do not share it. In this amendment, Labour has moved a policy which is fair, which will ensure that share options are open to all employees and which is based on all employees having a stake in a company rather than serving only the interests of the elite who control the company.

Our amendment to clause 105 speaks for the many in Britain. We want everyone to have a stake in their company, their future and their country. That is the real distinction. While the Government speak for the few, Labour speaks for the many. That is why the amendment deserves support.

Question put, That the amendment be made:—

The Committee divided: Ayes 255, Noes 276.

Division No. 33] [9.40 pm
Abbott, Ms Diane Barnes, Harry
Adams, Mrs Irene Battle, John
Ainger, Nick Beckett, Rt Hon Margaret
Ainsworth, Robert (Cov'try NE) Beith, Rt Hon A J
Allen, Graham Bell, Stuart
Alton, David Benn, Rt Hon Tony
Anderson, Donald (Swansea E) Bennett, Andrew F
Anderson, Ms Janet (Ros'dale) Benton, Joe
Armstrong, Hilary Bermingham, Gerald
Ashdown, Rt Hon Paddy Berry, Roger
Ashton, Joe Betts, Clive
Austin-Walker,John Boateng, Paul
Bradley, Keith Hall, Mike
Brown, Gordon (Dunfermline E) Hanson, David
Bruce, Malcolm (Gordon) Harvey, Nick
Burden, Richard Hattersley, Rt Hon Roy
Byers, Stephen Henderson, Doug
Callaghan, Jim Heppell, John
Campbell, Mrs Anne (C'bridge) Hinchliffe, David
Campbell, Menzies (Fife NE) Hodge, Margaret
Campbell, Ronnie (Blyth V) Home Robertson, John
Campbell-Savours, D N Hood, Jimmy
Canavan, Dennis Hoon, Geoffrey
Cann, Jamie Howarth, Alan (Strat'rd-on-A)
Carlile, Alexander (Montgomery) Howarth, George (Knowsley North)
Chidgey, David Howells, Dr Kim (Pontypridd)
Chisholm, Malcolm Hoyle, Doug
Clapham, Michael Hughes, Robert (Aberdeen N)
Clark, Dr David (South Shields) Hughes, Simon (Southwark)
Clarke, Eric (Midlothian) Hume, John
Clarke, Tom (Monklands W) Hutton, John
Clelland, David Illsley, Eric
Clwyd, Mrs Ann Ingram, Adam
Coffey, Ann Jackson, Glenda (H'stead)
Cohen, Harry Jackson, Helen (Shef'ld, H)
Connarty, Michael Jamieson, David
Cook, Frank (Stockton N) Jones, Barry (Alyn and D'side)
Cook, Robin (Livingston) Jones, Martyn (Clwyd, SW)
Corbett, Robin Jones, Nigel (Cheltenham)
Corbyn, Jeremy Kaufman, Rt Hon Gerald
Corston, Jean Keen, Alan
Cousins, Jim Kennedy, Charles (Ross,C&S)
Cunningham, Jim (Covy SE) Kennedy, Jane (L'pool Br'dg'n)
Cunningham, Roseanna Khabra, Piara S
Dafis, Cynog Kilfoyle, Peter
Dalyell, Tam Kirkwood, Archy
Darling, Alistair Lestor, Joan (Eccles)
Davidson, Ian Liddell, Mrs Helen
Davies, Bryan (Oldham C'tral) Litherland, Robert
Davies, Chris (L'Boro & S'worth) Livingstone, Ken
Davies, Rt Hon Denzil (Llanelli) Llwyd, Elfyn
Davies, Ron (Caerphilly) Loyden, Eddie
Denham, John Lynne, Ms Liz
Dewar, Donald McAllion, John
Dixon, Don McAvoy, Thomas
Dobson, Frank McCartney, Ian
Dowd, Jim McCrea, The Reverend William
Eagle, Ms Angela McFall, John
Eastham, Ken McKelvey, William
Etherington, Bill McLeish, Henry
Evans, John (St Helens N) Maclennan, Robert
Ewing, Mrs Margaret McMaster, Gordon
Fatchett, Derek McNamara, Kevin
Faulds, Andrew MacShane, Denis
Field, Frank (Birkenhead) McWilliam, John
Flynn, Paul Madden, Max
Foster, Rt Hon Derek Maddock, Diana
Foster, Don (Bath) Mahon, Alice
Foulkes, George Mendelson, Peter
Fyfe, Maria Marek, Dr John
Galbraith, Sam Marshall, David (Shettleston)
Galloway, George Martin, Michael J (Springburn)
Gapes, Mike Maxton, John
Garrett, John Meacher, Michael
George, Bruce Meale, Alan
Gerrard, Neil Michael, Alun
Gilbert, Rt Hon Dr John Michie, Bill (Sheffield Heeley)
Godman, Dr Norman A Michie, Mrs Ray (Argyll & Bute)
Godsiff, Roger Milburn, Alan
Golding, Mrs Llin Miller, Andrew
Gordon, Mildred Mitchell, Austin (Gt Grimsby)
Graham, Thomas Moonie, Dr Lewis
Grant, Bernie (Tottenham) Morgan, Rhodri
Griffiths, Nigel (Edinburgh S) Morley, Elliot
Griffiths, Win (Bridgend) Morris, Rt Hon Alfred (Wy'nshawe)
Grocott, Bruce Morris, Estelle (B'ham Yardley)
Gunnell, John Morris, Rt Hon John (Aberavon)
Hain, Peter Mudie, George
Mullin, Chris Smith, Llew (Blaenau Gwent)
Murphy, Paul Snape, Peter
Oakes, Rt Hon Gordon Soley, Clive
O'Brien, Mike (N W'kshire) Spearing, Nigel
O'Brien, William (Normanton) Spellar, John
O'Hara, Edward Squire, Rachel (Dunfermline W)
Olner, Bill Steel, Rt Hon Sir David
O'Neill, Martin Steinberg, Gerry
Orme, Rt Hon Stanley Stevenson, George
Parry, Robert Stott, Roger
Pearson, Ian Strang, Dr. Gavin
Pickthall, Coin Straw, Jack
Pike, Peter L Sutcliffe, Gerry
Pope, Greg Taylor, Mrs Ann (Dewsbury)
Powell, Ray (Ogmore) Taylor, Matthew (Truro)
Prentice, Bridget (Lew'm E) Timms, Stephen
Prentice, Gordon (Pendle) Tipping, Paddy
Prescott, Rt Hon John Touhig, Don
Primerolo, Dawn Turner, Dennis
Purchase, Ken Tyler, Paul
Quin, Ms Joyce Vaz, Keith
Randall, Stuart Walker, Rt Hon Sir Harold
Raynsford, Nick Wallace, James
Reid, Dr John Walley, Joan
Rendel, David Wardell, Gareth (Gower)
Robertson, George (Hamilton) Wareing, Robert N
Roche, Mrs Barbara Watson, Mike
Rogers, Allan Welsh, Andrew
Rooker, Jeff Wicks, Malcolm
Ross, Ernie (Dundee W) Wigley, Dafydd
Rowlands, Ted Williams, Rt Hon Alan (Sw'n W)
Ruddock, Joan Williams, Alan W (Carmarthen)
Sedgemore, Brian Wilson, Brian
Sheerman, Barry Winnick, David
Sheldon, Rt Hon Robert Wise, Audrey
Shore, Rt Hon Peter Worthington, Tony
Short, Clare Wright, Dr Tony
Simpson, Alan Young, David (Bolton SE)
Skinner, Dennis Tellers for the Ayes:
Smith, Andrew (Oxford E) Mr. Eric Martlew and
Smith, Chris (Isl'ton S & F'sbury) Mr. Jon Owen Jones.
Ainsworth, Peter (East Surrey) Brooke, Rt Hon Peter
Aitken, Rt Hon Jonathan Brown, M (Brigg & Cl'thorpes)
Alison, Rt Hon Michael (Selby) Browning, Mrs Angela
Mason, Rupert (Torbay) Bruce, Ian (Dorset)
Amess, David Burns, Simon
Ancram, Michael Burt, Alistair
Arbuthnot, James Butcher, John
Arnold, Jacques (Gravesham) Butter, Peter
Ashby, David Butterfill, John
Atkins, Rt Hon Robert Carlisle, John (Luton North)
Atkinson, Peter (Hexham) Carlisle, Sir Kenneth (Lincoln)
Baker, Rt Hon Kenneth (Mole V) Carrington, Matthew
Baker, Nicholas (North Dorset) Carttiss, Michael
Baldry, Tony Cash, William
Banks, Robert (Harrogate) Chapman, Sir Sydney
Bates, Michael Churchill, Mr
Batiste, Spencer Clappison, James
Bellingham, Henry Clark, Dr Michael (Rochford)
Bendall, Vivian Clarke, Rt Hon Kenneth (Ru'clif)
Beresford, Sir Paul Clifton-Brown, Geoffrey
Biffen, Rt Hon John Congdon, David
Body, Sir Richard Conway, Derek
Bonsor, Sir Nicholas Coombs, Anthony (Wyre For'st)
Booth, Hartley Coombs, Simon (Swindon)
Boswell, Tim Couchman, James
Bottomley, Peter (Eltham) Cran, James
Bowden, Sir Andrew Currie, Mrs Edwina (S D'by'ire)
Bowis, John Curry, David (Skipton & Ripon)
Boyson, Rt Hon Sir Rhodes Davies, Quentin (Stamford)
Brandreth, Gyles Davis, David (Boothferry)
Brazier, Julian Day, Stephen
Bright, Sir Graham Deva, Nirj Joseph
Devlin, Tim Kellett-Bowman, Dame Elaine
Dorrell, Rt Hon Stephen Key, Robert
Douglas-Hamilton, Lord James Kirkhope, Timothy
Dover, Den Knapman, Roger
Duncan, Alan Knight, Mrs Angela (Erewash)
Duncan-Smith, Iain Knight, Rt Hon Greg (Derby N)
Dunn, Bob Knight, Dame Jill (Bir'm E'st'n)
Durant, Sir Anthony Knox, Sir David
Dykes, Hugh Kynoch, George (Kincardine)
Eggar, Rt Hon Tim Lait, Mrs Jacqui
Elletson, Harold Lawrence, Sir Ivan
Emery, Rt Hon Sir Peter Legg, Barry
Evans, David (Welwyn Hatfield) Leigh, Edward
Evans, Jonathan (Brecon) Lidington, David
Evans, Nigel (Ribble Valley) Lilley, Rt Hon Peter
Evans, Roger (Monmouth) Lloyd, Rt Hon Sir Peter (Fareham)
Evennett, David Lord, Michael
Faber, David Luff, Peter
Fabricant, Michael Lyell, Rt Hon Sir Nicholas
Field, Barry (Isle of Wight) MacKay, Andrew
Fishburn, Dudley Maclean, Rt Hon David
Forman, Nigel McNair-Wilson, Sir Patrick
Forsyth, Rt Hon Michael (Stirling) Madel, Sir David
Forth, Eric Maitland, Lady Olga
Fowler, Rt Hon Sir Norman Malone, Gerald
Fox, Dr Liam (Woodspring) Mans, Keith
Fox, Sir Marcus (Shipley) Marlow, Tony
Freeman, Rt Hon Roger Marshall, John (Hendon S)
French, Douglas Marshall, Sir Michael (Arundel)
Gale, Roger Marlin, David (Portsmouth S)
Gallie, Phil Mates, Michael
Gardiner, Sir George Mawhinney, Rt Hon Dr Brian
Garnier, Edward Mayhew, Rt Hon Sir Patrick
Gill, Christopher Mellor, Rt Hon David
Gillan, Cheryl Merchant, Piers
Goodlad, Rt Hon Alastair Mills, Iain
Gorman, Mrs Teresa Mitchell, Andrew (Gedling)
Gorst, Sir John Mitchell, Sir David (NW Hants)
Grant, Sir A (SW Cambs) Moate, Sir Roger
Greenway, Harry (Ealing N) Molyneaux, Rt Hon Sir James
Greenway, John (Ryedale) Monro, Rt Hon Sir Hector
Griffiths, Peter (Portsmouth, N) Montgomery, Sir Fergus
Grylls, Sir Michael Needham, Rt Hon Richard
Gummer, Rt Hon John Selwyn Neubert, Sir Michael
Hague, Rt Hon William Newton, Rt Hon Tony
Hamilton, Rt Hon Sir Archibald Nicholson, David (Taunton)
Hamilton, Neil (Tetton) Norris, Steve
Hampson, Dr Keith Onslow, Rt Hon Sir Cranley
Hannam, Sir John Oppenheim, Phillip
Hargreaves, Andrew Ottaway, Richard
Harris, David Page, Richard
Hawkins, Nick Paice, James
Hawksley, Warren Patten, Rt Hon John
Hayes, Jerry Pattie, Rt Hon Sir Geoffrey
Heald, Oliver Pawsey, James
Heathcoat-Amory, David Peacock, Mrs Elizabeth
Hendry, Charles Porter, Barry (Wirral S)
Heseltine, Rt Hon Michael Porter, David (Waveney)
Hicks, Robert Powell, William (Corby)
Higgins, Rt Hon Sir Terence Redwood, Rt Hon John
Hogg, Rt Hon Douglas (G'tham) Renton, Rt Hon Tim
Horam, John Richards, Rod
Hordern, Rt Hon Sir Peter Riddick, Graham
Howard, Rt Hon Michael Rifkind, Rt Hon Malcolm
Howell, Rt Hon David (G'dford) Robathan, Andrew
Hughes, Robert G (Harrow W) Roberts, Rt Hon Sir Wyn
Hunt, Rt Hon David (Wirral W) Robertson, Raymond (Ab'd'n S)
Hunter, Andrew Robinson, Mark (Somerton)
Jack, Michael Roe, Mrs Marion (Broxbourne)
Jackson, Robert (Wantage) Rowe, Andrew (Mid Kent)
Jenkin, Bernard Rumbold, Rt Hon Dame Angela
Jessel, Toby Sackville, Tom
Johnson Smith, Sir Geoffrey Sainsbury, Rt Hon Sir Timothy
Jones, Gwilym (Cardiff N) Scott, Rt Hon Sir Nicholas
Jones, Robert B (W Hertfdshr) Shaw, David (Dover)
Jopling, Rt Hon Michael Shepherd, Rt Hon Gillian
Shepherd, Richard (Aldridge) Tracey, Richard
Shersby, Sir Michael Tredinnick, David
Sims, Roger Trend, Michael
Skeet, Sir Trevor Trotter, Neville
Smith, Tim (Beaconsfield) Twinn, Dr Ian
Soames, Nicholas Vaughan, Sir Gerard
Spencer, Sir Derek Viggers, Peter
Spicer, Sir James (W Dorset) Waldegrave, Rt Hon William
Spicer, Sir Michael (S Worcs) Walden, George
Spink, Dr Robert Walker, Bill (N Tayside)
Spring, Richard Waller, Gary
Sproat, Iain Ward, John
Squire, Robin (Hornchurch) Wardle, Charles (Bexhill)
Stanley, Rt Hon Sir John Waterson, Nigel
Steen, Anthony Watts, John
Stephen, Michael Wells, Bowen
Stern, Michael Whitney, Ray
Stewart, Allan Whittingdale, John
Sumberg, David Widdecombe, Ann
Sweeney, Walter Wiggin, Sir Jerry
Sykes, John Wilkinson, John
Tapsell, Sir Peter Willetts, David
Taylor, Ian (Esher) Wilshire, David
Taylor, John M (Solihull) Winterton, Mrs Ann (Congleton)
Taylor, Sir Teddy (Southend, E) Winterton, Nicholas (Macc'fld)
Temple-Morris, Peter Wood, Timothy
Thomason, Roy Yeo, Tim
Thompson, Sir Donald (C'er V) Young, Rt Hon Sir George
Thompson, Patrick (Norwich N)
Thornton, Sir Malcolm Tellers for the Noes:
Thumham, Peter Mr. Gary Streeter and
Townsend, Cyril D (Bexl'yh'th) Mr. Patrick McLoughlin.

Question accordingly negatived. nil

Mr. Peter Snape (West Bromwich, East)

On a point of order, Mr. Morris. I understand that, during the last debate, my involvement with a west midlands bus company was mentioned. I further understand that the hon. Member for Stamford and Spalding (Mr. Davies) was even less kind to me about my involvement with the bus company than he was to his sheep a couple of years ago. Will you, Mr. Morris, tell Conservative Members that the tradition of this House is that, if one hon. Member wishes to make a personal attack on another, he or she must notify that hon. Member first? Will you also pass that advice on to the Financial Secretary, who indulged in the same attack? I have no intention of going through the explanations that I have already given the House, and I have nothing to feel guilty about.

The Chairman of Ways and Means

I can confirm that any hon. Member who wishes to refer to another hon. Member should forewarn him that he wishes to do so.

Mr. David Shaw (Dover)

I beg to move amendment No. 3, in page 69, line 44, leave out '£20,000' and insert '£30,000'.

The Chairman

With this, it will be convenient to discuss amendment No. 4, in schedule 15, page 269, line 44, leave out '£20,000' and insert '£30,000'.

Mr. Shaw

The purpose behind the amendment is to raise the limit on approved share option schemes from the £20,000 that was originally proposed to £30,000. The figure of £20,000 is too low to operate a wide-ranging share option scheme that brings in not just very low income earners, but some of the people who are just above very low income levels.

The House should bear in mind that the share options are held over a three-year period. We are not talking about something that can be allocated at a rate of £20,000 per annum, but a fixed sum for at least a three-year period. The £30,000 limit would include people who are above very low income levels, but fall well short of fat cats. I would describe some of the beneficiaries as young, hard-working, aspiring, low and middle-income cats rather than fat cats. Those who are working in early-stage and developing companies would also benefit. There has been a cross-party view in the House that high-technology companies should be encouraged.

I shall give three brief examples of the pressure that I have received from a number of people outside the House to raise the limit from £20,000 to £30,000. I know that my hon. Friend the Minister has received many representations. In the retail trade, the figure of £30,000 would cover both store supervisors and junior managers. In high-tech companies such as an Internet service company, where many American companies are often bidding for staff, the figure would cover the highly skilled junior staff.

Among the many letters that I have received on share options was one from a research scientist in a small biotechnology company in Kent. Such people would benefit from a raised limit. They are not big income earners, but they hold the United Kingdom's future in their hands. They will help to create and maintain the jobs of the future.

I hope that my hon. Friend can accept this minor amendment.

Mr. Jack

I am grateful to my hon. Friend the Member for Dover (Mr. Shaw) for the way in which he moved his amendment. He knows that our overall objective is to encourage companies to introduce schemes from which as many of their employees as possible can benefit and to encourage employees to participate in them.

The new tax relief for company share option plans must be seen in that context. The representations that we have received in response to my right hon. and learned Friend the Chancellor's invitation made it clear that there was demand for a third sort of scheme aimed at providing a more flexible way of granting options to modestly paid employees. That is what the new scheme is intended to do and that is why we initially pitched the limit on the value of options that could be granted at £20,000.

On the basis of what my hon. Friend said and the representations that we have received, I accept that it is sometimes difficult to set the right limit. We initially felt that the balance was about right but, like my hon. Friend, I received representations. The British Retail Consortium, the ESOPs Centre and the Society of Share Scheme Lawyers were among those who asked us to review the subject to see whether £20,000 was right. We did so and I have thought carefully about the representations.

I recognise the force of the broad range of arguments that have been advanced. As those who have made representations to us suggested, the limit might have been a shade too tight to allow middle managers to receive a significant quantity of options. The limit was aimed at middle managers. There was no attempt to push it higher, into the stratosphere, as Opposition Members suggested earlier.

My right hon. and learned Friend the Chancellor and I have concluded that it would be right to provide greater flexibility, which my hon. Friend the Member for Dover adverted to, for the companies that want it, so that they might tailor the scheme to meet their needs and those of their employees. On that basis, I am prepared to recommend to the House that we accept my hon. Friend's—

Mr. Vivian Bendall (Ilford, North)

As a signatory of the amendment, may I thank my hon. Friend for making the opportunities open to a greater part of middle management?

Mr. Jack

I am grateful for my hon. Friend's endorsement of the line on which I was about to conclude by saying that I am prepared to recommend to the House that we accept the amendment.

10 pm

Mr. Darling

I wonder whether the Financial Secretary—as we are in Committee, he has an opportunity to do so—would tell us whether the Treasury has made an estimate of the cost of agreeing to amendment No. 3.

Does not the support for the amendment emphasise the truth of what we said earlier—that not only do the Conservatives oppose making schemes available to the many but, given the opportunity, they are prepared, inch by inch, bit by bit, to open all the doors that they said that they would close? What they are about is benefiting—

Mr. William Cash (Stafford)

Will the hon. Gentleman give way?

Mr. Darling

No, I will not. The hon. Gentleman has not been in the Chamber all night, and he need not expect to get in on the debate like that.

The Conservative party says that it intends to shut off loopholes and close down abuses, but the minute that it is subjected to pressure, it is prepared to start opening up the scheme. What is worse, when we table an amendment that is designed to ensure that the many are able to participate in schemes, Conservative Members vote it down. Given any opportunity, the Conservatives will choose to benefit as small a group of people as possible and deny opportunities to the many.

Mr. Jack

Sir Michael, let it be—[HON. MEMBERS: "Mr. Morris."] Mr. Morris, let it be known to every middle manager in the country that the hon. Member for Edinburgh, Central (Mr. Darling) would not accept a modest change to the upper limit of the scheme—a change advocated by a broad range of outside interests and companies that have made representations to us. We listened carefully to what they said, and I have announced that I recommend that the amendment tabled by my hon. Friend the Member for Dover be accepted.

The hon. Member for Edinburgh, Central asked me two questions. First, he asked about the cost of the scheme. [Interruption.] Would the hon. Gentleman care to listen to the answer, as he asked the question? The answer, in this public expenditure survey, is zero. When the scheme comes in, we estimate that the costs will be about £10 million.

The hon. Member for Edinburgh, Central misleads the House when he says that we do not want the employee share option plan to be available to all employees. The difference between the hon. Gentleman and Conservative Members is that we believe that companies should have the choice to tailor the scheme to meet their needs. I remind the hon. Gentleman that, if some companies were confronted with the regime that he has advocated, they would not even contemplate having any schemes, which denies the object of his remarks.

Amendment agreed to.

Clause 105, as amended, ordered to stand part of the Bill.

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