§ 5.21 p.m.
§ Lord Reay rose to ask Her Majesty's Government how they intend to give further encouragement to employee share ownership in general and statutory employee share ownership plans in particular.
§ The noble Lord said: My Lords, as I will have no opportunity to speak again at the end of the debate I should like at the outset to thank all those who are to take part and to say in particular how much I am looking forward to hearing the maiden contribution of the noble Lord, Lord Haskel.
§ It has for many years been the policy of this Government to seek to increase the numbers of those having a stake in society. The statutory right-to-buy for council tenants, introduced in the 1980 Housing Act by my noble friend Lady Thatcher, brought an additional 1.5 million families into home ownership and raised the proportion of those owning their own homes from somewhat over one half in 1979 to over two-thirds today.
§ Wider share ownership has also been promoted, with the result that the shareholding proportion of the adult population rose from 7 per cent. in 1979 to 22 per cent. in 1992. Privatisation issues were the main means of bringing this about, the sale of BT alone bringing more than a million investors into shareholding for the first time.
§ Many steps have also been taken by the Government in recent years to involve employees more closely in the fortunes and ownership of the companies they work for. Indeed, virtually every budget of the past 14 years has contained specific tax reliefs designed to increase employees' financial participation in their firms. The first significant move in that direction took place under 668 the Lib-Lab pact. As a result of the 1978 Budget companies could receive tax relief up to a certain limit on their contributions to profit-sharing schemes set up by them for the benefit of employees, and further relief was made available for individual employees who held their shares beyond a minimum period.
§ One of the early acts of my noble and learned friend Lord Howe of Aberavon as Chancellor was to make the provisions of the scheme more generous, and successive Chancellors have raised the limits ahead of inflation. My noble and learned friend also introduced save-as-youearn share option schemes under which tax inducements are available for employees who save on a regular basis to buy shares in their companies at a previously agreed price. The number of employees benefiting from both these schemes rose rapidly and by the end of 1992 stood at some 2.9 million receiving shares or share options worth initially some £10.3 billion.
§ In 1987 my noble friend Lord Lawson introduced profit related pay. Under PRP schemes a part of employees' pay is linked to changes in the profits of their company and a proportion of this pay element is free of tax. The intention was to produce an alignment of interest between employees and the companies they worked for and also to increase pay flexibility. In a recession when profits declined, the argument was that the wage bill would decline, thereby reducing the pressure on companies to lay off labour. How far this second objective has been achieved remains to be fully assessed, although my noble friend Lord Lawson in his memoirs refers to some favourable evidence. In any event, PRP has proved popular. Almost 5,000 profit related pay schemes covering nearly 1.2 million employees have been registered. That is twice what there were barely two years ago.
§ A rather different type of scheme is the discretionary share option scheme introduced in 1984. The tax advantages under this scheme have been widely used, particularly as a means for firms to attract and hold top executives. By September 1992 the number of discretionary share option schemes which had received Inland Revenue approval was over 5,000.
Finally I come to ESOPs—employee share ownership plans. I refer to statutory ESOPs to distinguish them from so-called case law ESOPs. Case law ESOPs result from the initiative of businessmen making use of UK trust law for the benefit of their employees. Their tax status has been a constant matter of dispute in the courts and it was partly to put the ESOP advantages on to a more satisfactory basis that my noble friend Lord Lawson introduced statutory ESOPs in 1989. They were improved in 1990 by my right honourable friend the Prime Minister, then Chancellor. who described ESOPs as being,
an attractive option which deserve further encouragement".
§ They were improved again the next year by my right honourable friend Norman Lamont.
§ Under statutory ESOP legislation a company may set up a trust whose function is to buy or otherwise receive shares in that company, borrowing to do so if necessary, before passing them on to employees to hold individually.669
§ ESOPs today enjoy three specific tax advantages. Sellers of shares to the trust enjoy roll-over relief from capital gains tax; the company enjoys tax relief on payments made to the trust to enable borrowings to be serviced and repaid; and the company is entitled to tax relief on the costs involved in setting up ESOPs in the first place. To acquire entitlement to these tax reliefs, a statutory ESOP must satisfy a number of conditions. Shares must be passed on to individual shareholders, not held collectively, and this must be done within seven years of the shares being acquired by the trust; shares must be offered to all employees and on similar terms; and a majority of the trust's trustees must be selected by the employees. Unfortunately the first and the third of these restrictions which were invented to prevent abuse have served to prevent virtually any use being made of the legislation—and that is quite contrary to the Government's intention.
§ The fillip which my right honourable friend the Prime Minister at the time believed would follow for ESOPs from his introduction of roll-over relief has not materialised. I wish to explain why I think this is so. One of the important potentials of ESOPs is to enable substantial transfers of shares to be made to employees by large individual shareholders in privately owned companies. Let me say here that it is evident from what my noble friend Lord Lawson said when he first introduced ESOPs that he particularly had in mind privately owned companies as an area where ESOPs could flourish. A typical situation is one where an owner, perhaps the founder of a successful private company, is faced with the problem of his own succession and is anxious to preserve the independence of the company. To sell his shares, probably at a favourable price, to a trust established for the benefit of the employees, can be for him an attractive option. However, he will be deterred from, and even advised against, doing so on account of two of the restrictions I mentioned.
§ The present requirement that a majority of the trustees should be employee-selected gives rise to a fear that such a body might accept an external offer for the company as a whole—one which will cost the company its independence—an offer less likely to be acceptable to a board where independent trustees hold the balance. Further, no vendor is likely to opt for a disposal where the danger exists that substantial tax benefits may be reclaimed from him seven years later as a result of developments over which he would have no control. That is the effect of the requirement that all shares must be passed on by the trust to individual employees within seven years.
§ The perverse situation now rules whereby such a vendor would be advised instead to sell to an external buyer in exchange for shares, roll-over relief being available in such a case and not liable to clawback, thereby bringing about the very loss of independence which he wishes to preserve. The result is that, while case law ESOPs have flourished, statutory ESOPs alone among the measures introduced to encourage employee share ownership over the past 14 years, and despite the attentions of three successive Chancellors, have 670 remained earthbound. Yet statutory ESOPs are the one means which offer the possibility of really substantial transfers of shares to employees being made and therefore of providing a significant boost to employee share ownership as a whole.
§ I very much hope that the Government will remedy those defects in legislation. I know that the Treasury has been in discussion with Job Ownership Limited, the body probably most concerned with this issue and of which I believe the noble Lord, Lord Grimond, is a director, as is my honourable friend Ian Taylor in another place, himself a tireless advocate of employee share ownership. Job Ownership has acquired a considerable reputation under the admirable leadership of Robert Oakshott, who is also known to other noble Lords. I hope very much that its concerns and my concern can be met.
§ The spread of employee share ownership would also be given a boost were the Government to bring forward at last their proposals on partnership companies and on Table G of Section 128 of the Companies Act 1989. I understand that the Government have now given an undertaking to do that, and I look forward to hearing confirmation of that when my noble friend the Minister replies.
§ There is another reason to believe in a future for statutory ESOPs aside from the continued proliferation of case law ESOPs and the rapid growth of all the other schemes which have been introduced to encourage employee share ownership, provided the right fiscal framework can be found. That is found in the American experience.
§ ESOP legislation originated in the United States, the first tax reliefs being introduced there in 1974. Thereafter, employee share ownership burgeoned in a most dramatic fashion. There have been hundreds of cases each year in which the principal shareholder—the private company—has made use of ESOP legislation to solve a problem of ownership succession. ESOPs are used in the United States in other situations also. For example, in the US steel industry they have played an important role in enabling a large number of companies to weather the crisis in that industry.
§ ESOP legislation in the United States is in many ways similar to that in this country. In some respects it is less generous. A vendor to an ESOP trust in the United States must own 30 per cent. of the stock of the company before he qualifies for roll-over relief. In the United Kingdom the threshold is set at 10 per cent. The vital difference lies in the presence in United Kingdom legislation, and the absence in the United States legislation, of the restrictions which I have described. The result is that, whereas the number of ESOPs in this country can be counted on the fingers of two hands, in the United States there are estimated to be over 7,000 ESOPs covering today some 7 million employees. In this country no more than 30 companies are fully or majority employee owned compared with an estimated 1,000 to 1,500 in the United States. Of those, the largest single category is private companies, in particular family companies. I see no reason why we should not 671 see the same development here given similar encouragement. That means remedying the defects in current legislation.
§ That represents the minimum, not the sum, of what the Government should do if they still wish to see advances in employee share ownership. Today the focus is on the Treasury. The remedy lies in Treasury hands. My noble friend Lord Henley, in his capacity as Treasury spokesman, is replying to this debate. In the longer term it should be a matter for the Department of Employment to take up. I should like to see that department show a more positive and involved attitude to the subject than I believe it has shown to date. As my noble friend Lord Henley now happens also to be the Minister at that department (and I congratulate him on his appointment) I am particularly pleased that he will be able to hear why I believe that it is important that his department should take up this cause.
§ The closer involvement of employees in their companies improves their motivation and therefore tends to improve companies' performance. It is not for nothing that many well-run large companies—from BASS to Royal Insurance to Sainsbury—have set up their own all-employee share ownership schemes. Employee share ownership induces more realistic attitudes to pay. The instances of employee owners having forgone a wage increase or accepted a wage reduction to save the life of their company and their own jobs are too numerous to mention. The result is that there is less wage-inflationary pressure in the economy. That is the economic advantage of employee share ownership.
§ I believe that the reasons for supporting employee share ownership stretch further. I am certain that the Government remain committed to the goal of a share-owning democracy. The scope for progress in that direction remains considerable. Despite privatisation sales, the proportion of equity in the hands of individuals as opposed to institutions is less than it was 12 years ago. The trend which my noble and learned friend Lord Howe vowed to reverse in his Budget Statement 10 years ago has not in practice been reversed. Privatisation sales must now be approaching the end of the road. Other means of promoting the policy must be sought. Is not employee share ownership one of the obvious ways in which the Government could procure a serious advance in wider share ownership?
§ I believe that there is also another reason for the Government seriously to consider giving a major boost to employee share ownership at the present time. The Government took the controversial, but I believe justified, decision to opt out of the Social Chapter of the Maastricht Treaty. I agreed with the Government that the Social Chapter represented a type of thinking that was unsuited to the times, even for the rest of Europe but particularly for this country which had recently but all too painfully thrown off the shackles of over-mighty trade unions and where decentralised, flexible and non-corporatist methods of consultation were becoming the norm and should be preserved.
§ Does not employee share ownership offer an alternative to the socialist vision of M. Delors, one which this Government could embrace, which renders 672 unnecessary statutory representation on boards by workers, which bypasses trade union representation and which emphasises individual rights and secures the individual involvement of employees in the ownership and management of their companies? Is that not a suitable vision for a Conservative Government to put forward? Is it enough for the Government to be purely negative in the councils of the Community so far as concerns social policy? What other vision do they have?
§ I believe that employee share ownership, created out of the new wealth generated by an expanding economy, could be a major development in the future of capitalism, one which improves its functioning and yet which also serves to render less harsh the inequalities which result from competition, that competition which nonetheless we cannot dispense with, as the last decade has also taught us. Noble Lords opposite will not agree, but I believe that the Conservative Party, with its belief in capitalism, its support for individual freedom and its commitment to a share-owning democracy, is its natural champion. Indeed, the Conservative Government have already shown admirable consistency over the past 14 years in the support they have given employee share ownership. I say now that it is time for that support to be renewed and indeed reinforced. I hope that when he replies my noble friend the Minister will be able to show that he agrees with me.
§ 5.38 p.m.
§ Lord Haskel
My Lords, although it is only 10 days since I was introduced to your Lordships' House, your warm and friendly welcome has given me sufficient courage to address your Lordships for the first time. I am grateful to the noble Lord, Lord Reay, for giving me the opportunity to do so in this important Unstarred Question.
My confidence also springs from my personal experience in the matter your Lordships are discussing. That experience has been gained during 30 years of work in the textile manufacturing industry, at all levels: as a technologist, as a manager and as chairman of an international company. In addition, as a founder member, secretary and latterly chairman of the Labour Finance and Industry Group, I have been able to share experiences and gain insights from other people engaged in different sectors of business and industry.
During those 30 years, because of worldwide competition, I have seen the pressures increase enormously on people working in the textile industry and indeed in the whole of manufacturing industry. In my company we used to have four weeks between receiving an order and delivering it; today we have four days. Faults in quality were previously expected and tolerated; today our customers expect perfection. Innovation was leisurely and haphazard. Today it has to be quick and constant. With all those demands, our industry has to produce extraordinary results with ordinary people. Industry will succeed in doing that only by harnessing the skills, energy and enthusiasm of all employees. That is a key factor in our nation's wealth.
In my industry the best firms rise to that challenge in three ways: training to supply the skills; investment to provide the tools; and participation to provide the 673 motivation, enthusiasm and dedication. It is in that final element where employee share ownership plans play their part. I have no doubt that employee share ownership plans work in harnessing the enthusiasm of employees. But they must be introduced with care. First, the plan must apply equally at all levels of the company, not just to managers. Secondly, there has to be a way that employees can at some stage sell their shares, otherwise they become handcuffs inhibiting employees joining and leaving the company and, perhaps, encouraging the sale of the business.
In the textile industry there have been various share ownership and profit sharing schemes for over 100 years. But they have never been wholly satisfactory. Indeed, it was because of the resistance to change and lack of mobility inherent in some of the schemes that eventually some firms went out of business. The more successful plans in the industry have been introduced as part of an overall company culture. That is because employee share ownership has a subtle effect on the relationship between directors and their employees. As shareholders, employees participate in appointing the directors and so judge their performance differently from when they perceive them purely as their boss.
The relationship between the directors and employees can come under strain when employees ask for more financial information than the directors think is good for them, especially in smaller private companies. Employee shareholders have been known to upset the cosy relationship between the directors and the auditors. In my experience, employee share ownership works when the changed relationship leads to an open, frank and trusting management style. It could well be that it is that management style, added to the incentive of share ownership, which creates the enthusiasm and involvement which the managers seek.
Employee share ownership plans can work and are a good idea. However, like all good ideas they can be spoilt by abuse. That abuse is sometimes found in executive share option schemes which are introduced under the guise of employee share ownership. They can be legitimate, such as in the case of a company in trouble which can only afford to attract an executive capable of rescuing the business by offering a generous share option. But in too many cases options are used to entice new senior executives into companies by giving them a riskless one-way bet complete with substantial tax advantages. There are other abuses, for example, when company executives reward each other with share options purely to take advantage of the tax allowances available—a kind of tax efficient carrot without a stick. Without careful regulation, those abuses will bring the whole idea of employee share ownership plans into disrepute. Sadly, recent privatisations have been among the worst offenders.
The timing and spirit of this Unstarred Question suggests that it is part of a series of representations to the Chancellor prior to the November Budget. It is not my intention to make any special representation. My purpose is to state that I am in favour of those plans, provided that they are for all employees, are strictly regulated to avoid abuse and are incorporated in an open 674 management culture. If I were to make a special plea to the Chancellor, it would be to help to restore and enhance the stature of manufacturing industry which I believe must be our main aim in the 1990s.
§ 5.45 p.m.
§ Lord Carr of Hadley
My Lords, I am sure that all noble Lords will wish me to thank and congratulate the noble Lord on his outstandingly good maiden speech. I hope that he will continue to speak to us on this important subject and related matters in the future. I have a number of close associations with him. If I am correctly informed about his higher educational background, like him I had a scientific/technological education. He became a professional textile technologist; I became professionally a metallurgist. I do not know whether he would be happy to be questioned about textile technology today; I certainly would not wish to be questioned too deeply about metallurgical matters. However, that is an unusual background in the political world. I do not know whether my noble friend Lady Thatcher realises it, but we have at least one thing in common: we both took science degrees at university.
I share too with the noble Lord experience of different levels in industry before I entered Parliament. Finally, I share with him the fact that I made my maiden speech in another place on joint consultation in industry. Even in those days, to my mind employee share ownership was closely bound up with that subject. I have stated that I made my speech "in another place". In parliamentary terms, I did so, but as at that time (and it was 43 years ago) another place was physically recovering from being destroyed in the war, I in fact made that speech from these red Benches. I have therefore much in common with the noble Lord. I wish him a long, happy and active life in your Lordships' House.
I thank my noble friend Lord Reay for raising the subject today. I support him strongly in what he said to the Government about the need to give the development of employee share-ownership a strong, new push forward. There is no need for me to reiterate the list of actions which the noble Lord gave about what has been done by a succession of Conservative Governments to promote the increase of employee share ownership. It is a good record. However, I too believe that some of the Government's latest measures have become stuck. It is urgent that they now become unstuck.
I therefore strongly support my noble friend, for example, about the need to give a new push forward to statutory employee share ownership plans (ESOPs). There is little doubt that in the current climate those plans could be a potent means of extending employee share ownership. It is ridiculous—or so it seems to me—that they should be stymied or stillborn by the red tape with which the Treasury has bound up the plan. I cannot believe that the potential losses to the Treasury from relaxing the two restrictions which my noble friend Lord Reay mentioned are worth considering. They are small in the counterbalance of what would be achieved if we could give a big push forward to the development of statutory ESOPs in this country, as we 675 have seen happen in the United States, as my noble friend said. So I beg the Government to look at the suggestion most seriously and constructively.
Having once been both junior Minister in the Department of Employment and Secretary of State for Employment, I wish that I too could have been a Treasury Minister. I hope for great things from my noble friend Lord Henley and that he will bring to the Treasury the common sense and constructive ideas typical of the Department of Employment, but, in my view, not always to be found in the Treasury. Perhaps my noble friend Lord Boyd-Carpenter would not agree with those liberal statements. Anyhow, I hope that the matter will be taken seriously.
There are two other areas which I wish to mention where I feel that the development of employee share ownership is getting stuck. One is in the management-led employee buy-outs of local transport companies. Here, the situation has been distinctly made less favourable by measures taken by the Government since the last general election. Up to that time they were progressing quite fast, but since the last general election a new condition has been introduced whereby none of the schemes can go forward unless it is put out to competitive tender. That I understand to be a measure to protect the value of public assets. Perhaps I ought not to be opposed in principle, but it is important that a real advantage should be given to management buy-outs, as long as they are soundly based, in competition with open buy-outs. Otherwise, the Government's own policy for local transport can easily be defeated. If the local companies are gradually absorbed into big companies, we shall find ourselves, 10 years from now, back in as nearly a monopolistic situation as we have recently been in.
Thus I believe that it is in the Government's own economic and financial interests to do what they can to encourage the revival of the management-led employee buy-out schemes of local transport which were going forward fast prior to the general election, as I understand it, but have been slowed down since by the new condition. The Government should look carefully at whether the small advantage which I believe is still granted to buy-out schemes should be increased if the schemes are to go forward, to the greater good of the whole idea behind the proposals.
The third area which I wish to mention is a matter which was introduced in the Companies Act 1989 and which proposed that a new form of corporate entity called a partnership company should be introduced and should be made possible by means of secondary legislation. I believe that there was to be a new Table G to the Companies Act. That was the situation four years ago and there is still no new Table G. I do not wish to make too crude a pun, but it is time that this was "geed up". It is absurd that this has gone on for four years while lawyers have been quibbling about how they interpret the amendment which the Government themselves wish to introduce into the Bill, in order to make it easier.
I believe that my noble friend Lord Onslow at that time—and he will have something to say about this so I shall not steal his thunder—agreed to withdraw his 676 amendment to allow the Government's wording to be introduced in order to make it easier. Instead, it seems to have made it more difficult and something must be done.
I strongly support my noble friend Lord Reay's plea that the Government should look at all that they have been doing to promote the share ownership schemes and should carefully pick out for attention the three areas which we have mentioned where their efforts are being frustrated by their own, in my view misguided, detailed policies. The broad policies are right, but the way in which they are being applied in a detailed manner seems to me to be causing obstruction rather than being helpful. I hope that this debate will help to bring that about. Again, I thank my noble friend Lord Reay for raising the subject today.
§ 5.54 p.m.
§ Lord Boyd-Carpenter
My Lords, I think that your Lordships' House and those who are concerned outside with the working of the British economy are much indebted to my noble friend Lord Reay for raising this matter this evening. If I may say so, he has shown considerable adroitness in the timing inasmuch as he introduces it during quite obviously the period in which Her Majesty's Government and the Treasury are considering the Budget and the Finance Bill. Timing in politics is one of the most important matters and my noble friend's timing seems to be quite perfect.
If I may pick up what my noble friend Lord Carr of Hadley said, it is a matter for the Treasury. That is a good thing, because while I have the highest regard for the department in which he served, I think that most people who seriously study the working of government know that the Treasury is the central machine of government. I am not talking of Ministers, but at the official level where it holds the cream of the Civil Service. It is a good thing that this important matter should be considered by that department.
Risking a rebuke, I should like warmly to congratulate the noble Lord, Lord Haskel, on his most interesting maiden speech. It had the enormous advantage of his practical experience behind it which he deployed so interestingly and impressively. I am sure that his contribution has added considerably to the impact of the debate.
I wish to make only one point of substance on the issue. It is that employee shareholding is socially, economically and financially an extremely important activity. It is one which, I am afraid, has in recent years made rather disappointing progress. Employee shareholding means that those who work in an enterprise have a direct financial interest in the success of that enterprise. It is in that respect the very converse of a nationalised industry, where those who work in the industry know that their prospects and earnings are utterly unaffected by the success or failure of the industry. With employee shareholding, they have a direct and visible contact with the earnings of the company. That seems to me of enormous importance. In large measure it prevents disputes between capital and labour, between employer and employee, which do so 677 much harm and cause so much delay from time to time in various enterprises. Everyone is on the same side and that is an enormous asset.
Therefore, I suggest that it is up to Her Majesty's Government to show their full appreciation of that by the steps they take, I hope in the next few weeks, because the employee shareholding movement has not gone as fast or as far as most of us would wish. As my noble friend Lord Carr of Hadley said, it is no doubt because of the various rather rigid restrictions which are imposed in a rather short-sighted view of the possible expenditure involved.
I hope that, although my noble friend Lord Henley cannot anticipate the Budget Statement—or he would cease very quickly to be on that Bench—he will be able in his usual tactful way to indicate the sympathy of Her Majesty's Government with the development of employee shareholding and give some indication that they realise its great importance and the desirability of taking action on it. In any event, I am quite sure that this debate has served a most useful purpose in making clear from both sides of the House how important those of us who have had any industrial experience know employee shareholding to be. I hope that we shall get an encouraging reply from the Government.
§ 6 p.m.
§ Lord Grimond
My Lords, I too should like to join in the congratulations to the noble Lord, Lord Reay, on introducing this debate. I also congratulate the noble Lord on his speech, which dealt most admirably with both the wider issues and the particular points which are, as has been pointed out, of some immediate importance in view of what the Chancellor is leading up to in regard to the present legislation.
I feel some sympathy with the Chancellor over insisting that a majority of the trustees should be elected by their workers under an ESOP, and also that they should eventually take the shares into their own hands. But as the noble Lord, Lord Reay, has pointed out, this has proved a serious, almost fatal, defect in the Bill. I therefore hope that the Chancellor will drop it.
In general, one of the troubles in trusting the Treasury—which, as the noble Lord, Lord Boyd-Carpenter, as an old Treasury hand quite rightly pointed out, is a most splendid institution—is that the British appear to look under every carpet to see what mousetraps there may be and to find the possible loopholes for evading taxation.
Taxation is always being evaded. I fear that if now the limited liability rules were brought into effect, the Treasury would find some objection to them. The Treasury is quite right to raise objections and to maintain the honesty of the tax system. But it must also realise that it must move forward and risks must be taken.
Like other noble Lords, I too was deeply impressed by the maiden speech of the noble Lord, Lord Haskel. I too should like to join in congratulating him. Two particular points struck me. First, the noble Lord emphasised the different atmosphere in companies in which the employees have a substantial say. He also attacked the share options given to directors—which 678 appear to me to be one of the lesser scandals, (but nevertheless a serious scandal) in relation to the general scandal of ever rising directors' pay, regardless of whether companies do well or badly, and quite regardless of whether it is inflationary. I am glad to hear that the noble Lord came out against that.
If it is said that there have been rather small advances in certain directions, as over ESOPs, the noble Lord, Lord Reay, was quite right in saying that in general there have been very considerable advances in workers becoming shareholders. We can point to the success of such undertakings as John Lewis and Baxendale in the whole campaign which we are conducting.
I do not want to reiterate what has been said about the technical possibilities, tax concessions and so forth, for encouraging shareholding among the workers. Nor do I want to reiterate what the noble Lord, Lord Reay, said about the general desirability of such moves. But I want to stress two points.
First, it is absolutely essential in this country to spread wealth. It is deplorable that the poor, as I understand it, are in real terms 14 per cent. poorer than they were, while in the meantime the rich have become richer. If we are to have a decent and satisfactory country, whatever our Party, it is essential that the gap between rich and poor should not grow. One way of tackling that (only one way, admittedly) is through wider share ownership, and particularly the ownership of businesses by those who work in them.
My second point is that we are watching an immense change in the balance of power between capital and labour. In the old days mass labour, organised through its unions, could exercise very considerable influence. But now the way to get on in the world is to have some access to capital, or to own capital. We have seen the decline in the power of the trades unions partly as a result. Again I say that it is essential, if this is the modern tendency, that the nation as a whole should have a share in the capital it possesses and that capital should not be confined to a small elite. This permeates everything, not only businesses but also the social services, in which the clients are so clearly distinguished from those who actually dish the money out. Therefore I hope that employee participation will also be considered possible in the running of the social services. Otherwise, we shall have a highly divisive country, and to my mind an extremely inefficient one.
I come to my last point. The American economist, Weitzman, has pointed out that there may be great overall economies in rewarding labour through profit and not solely through wages. Whether he is accepted by Congress I do not know, but I find his arguments rather persuasive. I have also found, looking round, that however much we may believe in the private enterprise system of competition—and I certainly do—it has hardly turned out to be as satisfactory as we hoped it would. State socialism may be very unpopular at the moment, but it will certainly rear its ugly head again unless we are careful, and the capitalist system gives some better reward to the majority of people in this country, among whom, most prominently, are the unemployed. Unless we can find some way of bringing 679 them in to the general advance in prosperity, to my mind we shall see a return to state socialism, which I would much regret.
Therefore I beg the Government not only to remove the present drawbacks to employee ownership, not only to implement Table G (so admirably moved in this House by the noble Earl, Lord Onslow) but to go forward and, as the noble Lord, Lord Reay, suggested, aim at a situation in which at least a high proportion, if not an absolute majority, of the nation receives benefit, either through shares or through some equivalent ownership of capital, and people are not merely either turned into dependants upon the social services or are among the unskilled workers. For my part, I do not see the present system ever absorbing the unemployed. It has to cater for them, and introduce new ideas, even if it runs some risks arid possibly forgoes some efficiency in that process.
§ 6.8 p.m.
§ Lord Vinson
My Lords, it gives me great pleasure to support the noble Lord, Lord Reay, in this matter. Like the noble Lord, Lord Haskel, who made such an excellent speech, I have a particular interest in employee share ownership, not least from practical experience. Like the noble Lord, I know that the whole concept works greatly to the benefit of the employee, the company, and thus no doubt to the nation at large. It is excellent that the Government have done so much to encourage wider employee share ownership. I very much hope that this debate will accelerate that process.
It may interest noble Lords to know that for 15 years I was either chairman or president of the Industrial Participation Association, a society which for over 100 years has advanced the cause of wider share ownership and the sense of common purpose that such ownership engenders—greatly, I believe, to the public good.
I was also fortunate enough to be able to build up a business from scratch. At the point at which we were employing about 1,000 people, I took the company public. That gave me the opportunity to practise what I had preached, and to give 10 per cent. of the shareholding of that company to the employees proportionate to their length of service and seniority. Without going into that matter too deeply, I should like to say that I think that I have seldom been more moved than when walking round the works about a week afterwards one elderly employee came up to me and said, "Guv'nor, you don't know what it means to me to feel I own a bit of this company." When one sees the effect that ownership has on job satisfaction, work satisfaction and indeed on life satisfaction, one does not need any convincing of the importance of engendering wider share ownership throughout the community for all the excellent reasons that the noble Lord, Lord Grimond, has just given.
I do not for one moment suggest that all employees are motivated to the degree of that lovely woman. But my experience tells me that many are and in a wholly beneficial way. Fortunately, too, my entirely subjective observation in this matter is borne out by extensive research—particularly in the United States, as the noble Lord, Lord Reay, mentioned—which shows that 680 employee share ownership based companies have consistently higher productivity, higher profitability and better growth. That must be something which we all want to see.
There are plenty of cynics about to denigrate the concept. We have all heard the expressions "Well, employees always would grab a freebie, wouldn't they?" or "They will sell them as soon as they can". The fact remains that although some employees may take advantage of that kind of situation and prematurely sell their shares, the majority of employees do not and many of them hold on to their shares for many years. That alone is a positive benefit. It should be considered in relation to the problems of short-termism and the goal of broadening the property ownership base of this country which is so important.
I realise that the Government clearly recognise the benefits of ESOP schemes, but it is, particularly ludicrous that many of the useful steps that they have taken to promote their introduction are, not for the first time, frustrated by minor legalities which were not envisaged when the wording of the legislation was drafted. It is ridiculous that those worthwhile schemes are held up by matters which could be so easily overcome—such as the modification to the seven-year rule and the simple declaration as to what constitutes a significant number. In that respect I suggest that a figure of 30 per cent. would be a perfectly sensible working figure that would break the current legalistic log jam. I echo the words of others in saying that the Government must take steps urgently to remove the legal entanglements which are strangling at birth the emergence of such schemes.
Meanwhile, we all try to put an optimistic gloss on the economic position of this country. But the fact is that we have a howling balance of payments deficit such as no nation can sustain for long. Fortunately, now that our currency is at an appropriate exchange rate level, we are in a unique position to trade ourselves out of the problem. Many people argue that we do not have the supply side capacity. But it is surprising what capacity can be squeezed out of existing investments, if one harnesses the ingenuity and inherent skills with which we are so well blessed in this country. To accelerate personal endeavour and commitment we need to induce a greater sense of joint endeavour throughout the workforce. I do not say that it will have immediate effect, but overall the introduction of such schemes and wider share ownership generally induce such a feeling of joint endeavour. Whatever the critics may say, people like to belong and feel that they are part of an organisation; and they rightly like to reap some benefit from it, not just in their weekly pay packets but over the longer term. Indeed, the longer term is a concept that we need to encourage in all walks of life, not only in government but in shareholding as well.
The concept of employee share ownership precisely meets those needs and helps to fulfil them. I hope that the Government will be able to give the House an assurance that they will look again at this matter with a view to removing at an early date the obstacles that prevent its wider implementation. If they do so, I am 681 sure that we shall be doubly grateful to the noble Lord, Lord Reay, for raising this matter again at such a timely moment.
§ 6.15 p.m.
§ The Earl of Onslow
My Lords, I must first congratulate the noble Lord, Lord Haskel, on what he had to say. There was hardly anything with which we could not all agree. I am awfully cross that the noble Lord, Lord Reay, has had to bring up this matter at all. He should not have had to do so.
This has been government policy. With regard to the famous new Table G in the Companies Act, in 1989 I moved an amendment to which my noble friend Lord Strathclyde agreed. I thought to myself that it was magic that there was something which I had agreed with my own Front Bench, and it had been arranged that it would go forward. But, no, the wording that I originally put forward was "majority shares" whereas the government amendment said "to a substantial extent".
The wording "to a substantial extent" obviously produced among the Treasury lawyers a mood which could only be described as like that of the argument between the arian bishops, the catholic bishops and the monophysite bishops at the Council of Nicaea. It is a marvellous argument over the nature and substance of shareholding. It is government policy. We all know that it ought to be done. No doubt we all know that according to Locke, property is the basis of human liberty. We all want to diffuse property ownership to the maximum number of people possible, so that they all have a stake in society. The greater the stake in society that people have, the more liberty there is, the more social cohesion there is and the more general wealth is created because of the motivation mentioned by my noble friend Lord Vinson.
It is irritating that one has to come back on something which is policy and which has been agreed. It is something which everybody agrees is a good thing but nothing has happened about it. Thank goodness my noble friend Lord Reay has brought up this matter. I sincerely hope that he never has to bring it up again, because my noble friend on the Front Bench will make sure that government policy is carried out and not forgotten.
§ 6.17 p.m.
§ Lord Rochester
My Lords, everyone who has spoken has welcomed the request for information from the noble Lord, Lord Reay, as to how the Government intend to give further encouragement to employee share ownership. I am delighted to do the same. As the noble Lord, Lord Boyd-Carpenter, said, the noble Lord, Lord Reay, is particularly to be congratulated on the timing of his Question, coming as it does only a few weeks before the Chancellor is to make his Budget Statement at the end of next month. For obvious reasons the noble Lord, Lord Henley, will be limited in his remarks in reply, but at least we have been given the opportunity to express our views on this important subject. I shall have a little to say about statutory employee share ownership plans 682 in particular, but I hope I shall be forgiven if, for the most part, I deal with the broader matters raised by the Question.
Ever since publication of the Liberal Yellow Book in 1928, democratisation of the structure of industry has been a major theme in my party's policy. The most significant political advance in encouraging employee share ownership, as the noble Lord, Lord Reay, was gracious enough to acknowledge, came from our initiative during the Lib-Lab Pact when the 1978 Finance Act introduced tax relief for approved schemes. Recent studies in the UK have shown that the benefits of employee share ownership can be substantial. For example, in one survey profit-sharing companies as a group out-performed their non-profit sharing counterparts over a range of nine performance indicators. However, such studies also showed that employee share ownership schemes only improve a firm's performance when they are accompanied by greater involvement of the workforce.
Moreover, by itself this form of ownership does not necessarily lead to an increase in employee participation. Management has sometimes seen it simply in terms of increasing incentives. The United States National Centre for Employee Ownership found that the most significant factor in the success of American-style employee share ownership plans is worker participation. ESOP companies that simultaneously instituted participation plans grew three or four times faster than ESOP companies that did not. Other American studies suggest that ESOPs will improve economic performance only if they lead to greater employee participation.
Evidence of that kind suggests that proposals for further encouragement of employee share ownership should be aimed at increasing both the number of employee shareholders and employee participation. This is not the time to offer detailed suggestions as to how that participation may be encouraged further, although there is one proposal that I should like to make on the matter before I conclude.
With regard to share ownership, my party proposes, first, that the limit on the value of shares which may be made available to an employee in any year under a share ownership scheme should be increased from the present figure of £3,000 to £5,000, or 10 per cent. of salary whichever is the higher, and that the cut-off point should remain at £8,000, except that it should be permissible to appropriate a limited proportion of shares in each year above the cut-off.
Secondly, we propose that changes should be made to the present guidelines of the investment protection committees which represent the major pension funds and investment companies. Those guidelines at present prevent more than 5 per cent. of pre-tax profits per annum going into employee shares and share dilution exceeding I per cent. a year. In our view, it is for the directors of a company to balance the interests of shareholders and employees. Indeed, that is part of company law following the Second European Company Law Directive, which excludes issues of shares to employees from the need for shareholder approval. We would not permit the Stock Exchange to continue to 683 impose its present requirement that broadly-based employee share schemes must have shareholder approval. In that way we would remove the power of institutional investors to inhibit such schemes.
Thirdly, executive share option schemes designed as incentives for senior management do not involve the same spread of share ownership as all-employee schemes, and in fact contribute to the increasing divergence of earnings deplored so much by my noble friend Lord Grimond. We think it regrettable that the operation of those schemes and the tax relief that goes with them have not been made conditional on a company either operating them on a broad basis or also operating a widely-based scheme, particularly as more schemes for executives have been approved than those that are broadly based. In our view, the law should be modified to bring that condition into effect. The noble Lord, Lord Haskel, whose maiden speech I too so much admired, appeared to me to sympathise with that view.
Perhaps I may turn to the statutory employee share ownership plans for which the 1989 and 1990 Finance Acts provided encouragement and to which the noble Lord, Lord Reay, referred specifically. Like him, we see a useful role for those trusts, particularly when there is a significant change in the ownership of an unquoted company, whether or not it involves flotation and its desire to vest ownership of the shares in a vehicle which will benefit employees generally. We would add to existing tax incentives for owners to transfer their business to their employees by means of an accession tax, which would restore effective taxation on the passing of property on death or by gift. Again, this is not the time to deal with the matter in detail. Suffice it to say that the main purpose would be to tax not the donor of the gift but its beneficiaries, thus encouraging the wider distribution of assets.
If that suggestion is considered too radical for speedy implementation, at least let action be taken to ensure that the main deterrents to companies using statutory ESOPs are removed. If that means altering the composition of the trustee body—as suggested by the noble Lord, Lord Reay—so that control is more evenly spread between trustees who are elected by the workforce, those appointed by management and others acceptable to both groups who are independent, for my part I would not dissent. Similarly, if the present rule that an ESOP must distribute the shares bought to individual employees within seven years or lose tax relief can be shown, as seems to be the case, to be the deterrent which has most severely inhibited take-up under existing legislation, then I would agree that permanent shareholding by a trust should be made possible.
I said earlier that measures to increase employee shareholdings should go hand in hand with action to develop employee involvement more widely. In that connection I should like to refer once more to an amendment which I proposed to what became the Employment Act 1982. That amendment, which was accepted by the Government and now forms part of the Companies Act 1985, requires directors of larger companies to include in the report accompanying their annual accounts a statement describing action taken 684 during the accounting year to develop employee involvement in a number of ways. One is providing employees systematically with information on matters of concern to them as employees. Another is consulting employees or their representatives regularly so that their views can be taken into account in making decisions likely to affect their interests. The third and most significant in the light of the Question we are now discussing, is encouraging the involvement of employees in the company's performance through an employees' share scheme or by some other means.
Following the 1982 Act the Institute of Personnel Management and the Industrial Participation Association (now the Involvement arid Participation Association) produced a code and action guide aimed at helping companies to develop employee involvement under those headings in practical ways. Both organisations asked the Government to give statutory effect to the code, but at the time the Government were unwilling to do so. Now I ask the Government to reconsider the matter. To act in that way would be an unmistakable sign of their desire to give further encouragement to employee involvement generally and employee share ownership in particular. I do not expect the noble Lord, Lord Henley, to respond positively to that proposal now. But I hope that when he replies he will agree to take the request back to his department for further consideration.
In conclusion, perhaps I may say again from these Benches how much I welcome the timely initiative of the noble Lord, Lord Reay, in asking his Question.
§ 6.28 p.m.
§ Lord Peston
My Lords, in echoing other noble: Lords who thanked the noble Lord, Lord Reay, for introducing this interesting topic, I hope that he will forgive me if I do not follow him entirely through his; denouement. It seems to me that the Conservative Party has lost a great leader—or rather thrown her away—and is now looking for a vision. Somewhat far-fetchedly that vision is supposed to be wider employee share ownership. I should have thought the future of that party should be sought elsewhere rather than in something as narrow as that. But we shall have other occasions to discuss those matters.
I wish to concentrate on the main theme—that is, employee share ownership. In doing so, I congratulate my noble friend Lord Haskel on his maiden speech. He said many things with which I agree. But in particular—a point made by the noble Lord, Lord Boyd-Carpenter—my noble friend spoke from experience. That is enormously valuable to your Lordships' House. It is particularly valuable to those of us who speak from these Benches. I certainly do not speak from experience. In the American vernacular, I have never had to "meet a payroll". No doubt my noble friend has, and that makes quite a bit of difference. He will both strengthen your Lordships' House and these Benches.
I was particularly struck when my noble friend spoke about not abusing employee share ownership, particularly employee options. Indeed, he referred to the share option schemes. I was thinking that many years ago the right honourable Member for Old Bexley and 685 Sidcup, Mr. Heath, referred to some of the activities of the Lonrho company as the unacceptable face of capitalism. I am bound to say that what I have seen in the financial pages of the newspapers in the past year about senior management share option schemes suggests to me that Lonrho got a raw deal in being described as the unacceptable face of capitalism. I am glad that my noble friend referred to that.
The remarks made by the noble Lord, Lord Reay, and other noble Lords were perfectly sensible in so far as we are discussing the technical matters to do with possible changes in the Finance Bill. I think we would all agree that the Government were too cautious. As the noble Earl, Lord Onslow, said, they should have done the thing rather differently, and there is still time to get that right. I do not think that there is anything between us on that. I hope—I know, indeed—that the noble Lord, Lord Henley, will see to it that these technical points to do with taxation are brought to the notice of his right honourable friend the Chancellor, although nothing more can be said on that.
I think that someone—and it has to be me—has to introduce a word or two of controversy into this matter. If I may wear my economist's hat, the case for employee participation is put in terms of raising productivity and improving economic performance. It is not the only case. The Liberals, traditionally, have also argued that it is a good thing in itself. But it is not the main case.
The main case is that it allegedly raises productivity and economic performance. An economist would then be bound to ask: if it does that, why does the market then not see that it happens? Clearly, if it does it, as noble Lords have said, firms gain from it. But if firms gain from it, the market ought to see that this becomes the characteristic behaviour of firms. Therefore, I have to say that if I were in the Treasury, and if it were my ambition to be there—as I was in my younger days—I would have to ask the difficult question: if it is such a good thing, why does it not happen as a result of the working of the free market, and why is there any need for any public money in terms of tax concessions to be involved here? The very least one wants is an answer to that question.
I am not trying to be a total dampener on it but I think that the role of the economist—I hope that the Treasury speaks up in these harsh terms—has to be to demand an answer to that question.
There is a second question which concerns the position of the employee. The noble Lord, Lord Grimond, referred to Professor Weitzman's papers, which were brilliant papers. In large part—I am speaking only from memory—those were papers about profit related pay that would give the worker a more sensitive interest in the performance of the firm. But I think that what Professor Weitzman was looking for there was the notion that that would lead to more stability of employment. Therefore, in discussing the subject, one is discussing a change in the form of workers' remuneration—to make it more sensitive to firm performance—rather than in the first place the level of workers' remuneration.
§ Lord Grimond
My Lords, I do not want to attempt to enter into controversy on economic matters; nor do I want to appear to be an expert on what Professor Weitzman may or may not have said, but I think that I ought to reserve my position. When I have thought over it I shall see whether or not the noble Lord's interpretation of Weitzman is correct.
§ Lord Peston
My Lords, I am delighted that the noble Lord said that because I, too, can only partially remember the papers. I just remember how good they were. I may have misled your Lordships as it is some years since I read them.
If I may stick with the theme of remuneration being sensitive to the performance of the firm, we have to ask the question whether it is rational on the part of the employee to wish his or her remuneration to be so sensitive, because there is then introduced into that remuneration an element of risk. It is not obvious to me that an employee would welcome that element of risk. Indeed, to go back to another point raised by my noble friend Lord Haskel, which is that the shares should be marketable, if they are marketable, one then asks the question: what is the optimum form of behaviour for the employee? Is it to hold on to those marketable shares and place his or her whole economic future in the hands of the firm that he or she is working for; or is the sensible thing to sell those shares and invest in another firm, the cyclical behaviour of which will be different from the behaviour of the firm that the person is working for?
I am not trying to argue to your Lordships that profit related pay and employee shareholder remuneration of this kind are bad things. I am simply pointing out that there are complications and economic difficulties with these matters that ought to be addressed.
Noble Lords will recall that quite a number of the ideas put forward by the noble Lord, Lord Reay, were argued by my noble friend—and certainly by my noble friend Lord Williams of Elvel, who is now sitting next to me, when we were discussing the Companies Act 1989. We were pressing the Government to do rather more than they were doing. In that connection, our arguments were frequently to do with how we would deal with public companies rather than private companies. I do not reject entirely the private company argument put forward by the noble Lord, Lord Reay. However, I do think that the Opposition's credentials on these matters are rather good, and that is what enables us to be as supportive of the noble Lord, Lord Reay, as I have tried to be.
In conclusion, I suppose my position is that of the standard economist—on the one hand this, and on the other hand that. I am trying to say that some of these ideas are good. I am certainly trying to say that I hope that the Chancellor of the Exchequer will look seriously at the points made on the tax treatment of ESOPs. Having said that, I do not believe that this is other than a minor problem in terms of the reform of the way we conduct our economic arrangements. Certainly, I do not see this—if I may echo the noble Lord, Lord Grimond 687 —as the way to make the 3 million unemployed both not unemployed and feel a larger part of our society. I think that other routes are the routes to that.
All one can do at this point is to wait. We shall have the Budget speech in about a month's time. I am told that we shall be allowed to debate that speech in one form or another. I hope that the noble Lord, Lord Reay, will put down his name to speak on that occasion and will either congratulate the Government on doing what he wants or remind the Government that they ought to have done what he wants.
§ 6.37 p.m.
§ The Parliamentary Under-Secretary of State, Department of Employment (Lord Henley)
My Lords. I join my noble friend Lord Carr and others in congratulating the noble Lord, Lord Haskel, on his maiden speech and welcome the wealth of practical experience—the noble Lord, Lord Peston, stressed that we are sometimes lacking in practical experience in some parts of the House—of both the textile business and employee share ownership in general that he brought to the debate. We look forward to hearing him on many other occasions.
My noble friend Lord Reay is justified in drawing attention to the impressive results of this Government's employee share ownership policies. The Government are proud of their commitment to advancing employee share ownership. In all but two of the past 14 years, as my noble friend made clear, they have introduced measures to make it easier for employees to acquire shares. In 1979 there was a total of 30 approved share schemes open to all employees on similar terms. Since then the number has grown to more than 2,200 all-employee share schemes. Nearly 3 million employees, as my noble friend made clear, are estimated to have benefited since the introduction of these schemes, receiving shares, or options over shares, worth around £10.3 billion.
As, I believe, all speakers made clear, with the possible exception of our noble economist, the noble Lord, Lord Peston, there are clear advantages to be gained from the identification of employees with the success and profits of the enterprise employing them. Employee involvement is likely to result in improved productivity and improved industrial relations, which are crucial if the process of wealth creation is to be advanced. Ultimately employee share ownership can be good for the economy as a whole and, as my noble friend Lord Boyd-Carpenter made quite clear, can bring considerable social advantages to the country as well.
It is for those reasons that we have been prepared to use the tax system to encourage employee share schemes which give employees a genuine stake in their companies' fortunes. That was why we introduced legislation in 1989 to provide a specific tax relief for a company's contributions to an ESOP. The Government decided that there was a gap in the range of opportunities for promoting employee share ownership that statutory ESOPs could fill. There were cases where large shareholdings might be made available for employees, larger than those usually associated with approved schemes, but where financing the acquisition 688 of the shares would be difficult. Inspired by US experience, ESOPs—a kind of employee benefit trust—were being set up. But before 1989 there was uncertainty whether company contributions to such trusts qualified for corporation tax relief. It was appropriate for the Government to fill this gap with a new type of statutory arrangement.
But in designing their legislation, the Government were concerned to avoid certain pitfalls, and to be consistent with their existing employee share ownership policies. In particular, the Government were determined that the new facility for statutory ESOPs should not fall into various traps. It should not divert attention from, or undermine the continuing success of existing approved employee share schemes. It should not provide only financing benefits for companies, nor become a tax shelter.
It should not provide special benefits for directors or top managers only. It should not delay real employee share ownership, or seek to restrict it.
In 1990 we took a further step to assist statutory ESOPs. A capital gains tax relief was introduced to encourage owners of shares in companies to sell them to statutory ESOPs. This relief allows gains on the sale of shares to be deferred. Finally, in 1991, the Government introduced a corporation tax relief for a company on its costs in setting up a statutory ESOP.
The introduction of all these measures confirms the Government's view that ESOPs can usefully add to the further development of employee share ownership in the UK.
I have described some of the principles underlying the ESOP legislation in some detail because I suspect that critics of the statutory ESOP requirements do not always take account of them. We understand, however, as I believe my noble friend Lord Carr put it, that we have got stuck and that not many ESOPs have been set up which comply with the statutory rules. My noble friend Lord Reay in particular, and other noble Lords, mentioned two of these rules—the trustee requirement and the seven-year rule, which he believes require modification to stimulate the setting up of more ESOPs.
Obviously my honourable and right honourable friends in the Treasury will note what my noble friend Lord Reay and other noble Lords have said. I can assure them that they have had discussions with various interested parties; in particular with those mentioned by my noble friend. I can assure my noble friend and others that they will continue to keep them under review. But as my noble friend Lord Boyd-Carpenter made clear, and only a month before the Budget, I believe that noble Lords will not expect me to comment on the possibilities for change. I again stress that we note all the various suggestions, particularly those from the noble Lord, Lord Rochester. They will all be passed on to my right honourable friend.
However, some general comments may be helpful. The trustee requirement, which specifies that a majority of the trustees must be employee-selected, was intended to ensure that the trustees would remain independent of the company and its owners throughout the operation of the ESOP, and that at all times employees' interests would take precedence. We believe that the Maxwell 689 affair is a powerful reminder of the necessity for providing some form of protection for employees' interests.
We recognise that the trustee requirement may be a deterrent to the take-up of statutory ESOPs. But before taking any decision to make any radical changes, my right honourable friend will want to ensure that their underlying objectives will not be compromised.
Similarly, the seven-year rule—the period within which the ESOP trust must distribute its shares to employees—was intended to ensure that employees take real ownership of their shares without unnecessary delay. Ministers wished to avoid a criticism which is sometimes levelled against US ESOPs. I note what my noble friend Lord Reay had to say about them and also the praise of the noble Lord, Lord Rochester, for them. There has been some criticism levelled against them, but they are used mainly as a substitute for more widely based and safer retirement provisions and are often of no real benefit to employees during their working lives. So if a statutory ESOP trust fails to distribute its shares within seven years, clawback charges of the corporation tax relief and of any CGT roll-over relief, can arise. I understand that it has been argued that this is a deterrent to the use of ESOPs by private businesses; for example in the case of a retiring owner who wishes to sell a large holding of his shares to his employees. I can assure the House that my right honourable friend and other colleagues in the Treasury, will continue to consider these points carefully. But it is important that ESOPs should be a vehicle for advancing employee share ownership, not permanent holders of shares in their own right.
I turn to the amendment to the Companies Act 1989 moved by my noble friend Lord Onslow and which I understand was then withdrawn as a result of a commitment made by my noble friend Lord Strathclyde on that occasion. I believe that my noble friend gave a commitment to consult interested parties on the draft of an appropriate model table which would be Table G to the Companies Act 1985. No single model of a partnership company exists. The task has proven to be extremely complex. However, I understand that in August this year the Department of Trade and Industry renewed its discussions with those in the employee ownership community with a view to the preparation of the draft Table G. I can only apologise to my noble friend Lord Onslow that it does appear to have taken some time. But I hope that we can move forward without any unnecessary delay.
As I have explained, in the field of employee share ownership, we have come a long way since 1978 or even since 1928 and the Liberal Party Yellow Book, of which I was not aware as I was not around at the time. The array of tax incentives to encourage employee share ownership have never been so attractive. Earlier this year the Government, with the participation of the CBI and the TUC, undertook a promotion campaign to make more employers and employees aware of what is on offer. There has been considerable interest in the 690 promotion booklet, Sharing in Success and we hope that this will generate further interest and lead to increased employee share ownership.
In his speech, my noble friend also suggested that employee share ownership offered a more effective and direct route to involving successfully employees in the management of their firms than does the prescriptive legislation on worker participation proposed by the European Commission.
We fully support a voluntary approach to employee involvement which allows companies the flexibility to tailor arrangements according to their needs. Share ownership is one of a variety of methods which are being employed by many British companies to create a well-trained, well-motivated, flexible workforce. The Government are actively encouraging others to follow suit. I can certainly accept the general tenor of my noble friend's remarks in that field.
As to future encouragement, the Government have prepared the way, but we believe that it is up to companies to take the matter forward. Wearing my ministerial hat as a Department of Employment Minister, perhaps I may stress the importance which the Department of Employment and the Government as a whole attach to employee share ownership. I can assure my noble friend and other noble Lords that the Department of Employment was involved in the booklet, Sharing in Success. My noble friend will note that that has a foreword signed by both the then Chancellor and the then Secretary of State for Employment. I can stress that there is to be a new booklet from the Department of Employment on employee involvement arrangements generally in the United Kingdom. It will include a chapter on employee financial participation, including employee share ownership schemes.
Finally, perhaps I may reassure my noble friends Lord Reay and Lord Boyd-Carpenter and all others that the Government's commitment to encouraging this process is as strong as ever even if, obviously, I cannot anticipate what might emerge from the Budget. Fully motivated employees with a financial stake in their enterprises are far more likely to be a decisive factor in the success of companies which are looking to compete in the expanding European and world markets of the 1990s and beyond.