EMPLOYEE SHARE OWNERSHIP PLANS (Hansard, 19 July 2000)

§ The Financial Secretary to the Treasury (Mr. Stephen Timms)
I beg to move amendment No. 57, in page 240, line 12, leave out from "must" to end of line 13 and insert— 'form part of the ordinary share capital of—'.

§ Mr. Deputy Speaker (Sir Alan Haselhurst)
With this it will be convenient to discuss the following: Government amendments Nos. 10 and 11.
Amendment No. 135, in page 248, line 28, at end insert— 'Where an employer pays on behalf of an employee any Class 1 national insurance contributions which would have been due from the employee but for the deduction of partnership share money not be an emolument or benefit chargeable to tax under Schedule E.'. Government amendments Nos. 12 and 13.

§ Mr. Timms
The amendments deal with the new employee share ownership plan whose rules are set out in schedule 8. Paragraph 60 provides a rule for the type of share that must be used in the plan. As it stands, the paragraph restricts that to the share capital of a single company.
The legislation for the new plan inadvertently changes the position for consortium companies. Currently, it would not be possible for shares in more than one consortium company to be used at the same time for the purposes of the new plan. It was not our intention to change the position for such companies; we want the new plan to be open to as many companies and employees as possible. Amendment No. 57 ensures that, in the new plan, shares in consortium companies can be used in exactly the same way as under the existing Inland Revenue-approved schemes. I hope the House will welcome that change.
I deal now with amendments Nos. 10 to 13. The new plan is designed to give employees a genuine stake in the company for which they work. Under Inland Revenue-approved share schemes, redeemable shares do not normally count as qualifying shares because they do not entail a full-blown stake in the company—employees can get their money back whenever they want to do so.
Members of retail co-operatives hold redeemable shares, as do those in workers' co-ops. Shares in retail co-ops are bought at their face value. They carry a small amount of interest, providing a dividend based on the company's profit that varies according to the amount of purchases made by the member—often known as a divvy. The shares are also normally redeemable by the company at the same value.
Retail co-ops want to improve their employees' participation in their business. They want to use the redeemable shares that they issue to other members in an 399 all-employee share plan. Without an amendment to the legislation, such shares would not qualify for the new plan. The amendments extend the current exception whereby workers' co-ops may use redeemable share capital in a new plan to all co-ops that are registered industrial and provident societies.
The Co-operative Union estimates that at present very few employees are members in this way—perhaps as few as 2 per cent. of the 40,000 employees in the 37 United Kingdom consumer co-ops. These changes will enable retail co-ops to encourage their employees to take a stake in the business, using the same redeemable share capital available to other members. Many more employees working in co-ops will be able to benefit from the tax reliefs in the plan. That will help us to achieve our goal of doubling the number of companies that offer shares to all their employees, and it will extend to co-operatives the substantial advantages that the new scheme offers.
Several right hon. and hon. Members have advocated an amendment along these lines. It has been welcomed as a real boost by the chair of the Co-operative Union, and I am delighted to commend it to the House. If I may, Mr. Deputy Speaker, I will seek in a few moments to catch your eye to respond to what is said by Conservative Members on their amendment.

§ Mr. Howard Flight (Arundel and South Downs)
We agree with the amendments as outlined by the Minister. I do not know whether this is the right time to mention this, but the issue of consortiums and different shareholdings of companies that are not owned by one single company owning more than 51 per cent. also came up in Committee in relation to investment management incentives. We had a letter of undertaking that the Government would be tabling a relevant amendment. I am not clear whether amendment No. 57 is intended to relate to enterprise management incentives as well as to the employee share ownership plans. However, perhaps we can deal with that point later.
Amendment No. 135 raises, in a slightly different way, a point that we sought to have addressed in Committee. It would cure an anomaly. Under the employee share ownership plan, lower-paid employees could, by having partnership share money paid before tax, have lower earnings in terms of their national insurance contribution liabilities, and thus pay lower personal NIC contributions, in turn receiving lower reduced earnings-related state benefits. That cannot be the Government's intention, given that the employee share ownership scheme is designed to benefit relatively lower-paid employees in particular. This amendment to cure the anomaly is slightly different from our previous proposal.

§ Mr. Andrew Love (Edmonton)
I welcome the amendments to extend the all-employee share plan to co-operative organisations. Before I say a little about that, I should make a declaration. I am a Labour and Co-operative Member of the House, with a long-term interest in and involvement with the co-operative movement.
400 In the foreword to the Government's initial consultation document on employee share ownership plans, the Chancellor of the Exchequer stated: Share ownership offers employees a real stake in their company with shareholders, managers and employees working towards common goals. I agree with that statement. Research shows that employee share ownership plans, when linked with other means of employee participation, can do a number of things. They have a positive effect on productivity; they link the owners with the workers in the objectives of the successful company; and they make employees more aware of the overall performance of the company.
Today's co-operative movement is interested in reform of its structures which are, in effect, stakeholder models of co-operation. The amendment will assist in achieving that reform by achieving real partnerships between the members who are the owners and their employees. It will enable the employees to participate in the activities of the co-operative by voting at meetings, becoming members of the boards of directors and sharing in the profits of the organisation.
I welcome the Government's move in this respect. It will create a level playing field in the industries in which co-operatives are involved. Why should it be that other retailers can have such plans, but the co-operative movement cannot? These amendments will extend such plans to the co-operative movement and give the work force a more inclusive role. The press release issued by the co-operative movement states: The Government's recognition that our workers deserve to be included is a real boost to those leading exciting reforms in the co-op movement. I certainly welcome these amendments; they will help to achieve those reforms in the co-operative movement, and I commend them to the House.

§ Mr. Timms
I welcome what my hon. Friend the Member for Edmonton (Mr. Love) has said, and I commend his work in the House on behalf of the co-operative movement to promote the interests of co-ops.
The hon. Member for Arundel and South Downs (Mr. Flight) asked about amendment No. 57 and the impact on enterprise management incentives. There is no read-across from that amendment to such incentives. I am not sure to which amendment in Committee he was referring, although a later group of amendments deals with enterprise management incentives.
On amendment No. 135, I understand that the intention of Opposition Members is to ensure that, where the employer pays the employee's national insurance on the amount used to buy partnership shares, that amount would not be chargeable to income tax on the employee, but the underlying assumption is that the employer would be able voluntarily to pay the primary national insurance contributions on the employee's behalf. That is not the case.
Current legislation does not permit the employer to pay class 1 contributions that he is not liable to pay, so the employer would not be able to pay those contributions as is implied in amendment No. 135. Without changing the underlying law, which would be a task of significant 401 technical complexity, that amendment would have no effect so I hope that Opposition Members will not press it to a Division.