§ 6.55 p.m.
§ Baroness Thornton
My Lords, I beg to move that this Bill be now read a second time. From the outset I wish to declare my interest as someone who works as an adviser to the Co-operative Group and as a member of the Co-operative Party.
I am honoured to move the Second Reading of the Employee Share Schemes Bill and I should like to take the opportunity to pay tribute to my honourable friend Mark Lazarowicz, who piloted the legislation through its stages in the other place with such skill that he succeeded in persuading the Government to join with him in extending the scope of tax advantages in the Bill.
The Bill was originally introduced to remedy an anomaly in the current legislation with regard to the operation of tax advantages available to employee share schemes. Ironically, the very businesses that provide for a high degree of employee ownership and involvement and are totally or partially employee controlled are often unable to distribute shares to the employees on a tax-effective basis because of their employee-based structure. That anomaly acts as a deterrent to the wider extension of employee ownership. This Bill seeks to address that problem.
Perhaps I may describe briefly the purposes of the Bill. It will encourage wider employee ownership in the UK and will do so by extending the tax benefits for employee share schemes for companies that wish to encourage widespread employee ownership.
It will facilitate the transfer of shares to an employee trust by companies that want to make a significant move towards employee ownership and transfer a large part of the company into a trust at the outset. At present, this action may be discouraged because to do so would not offer corporation tax benefits otherwise available when such shares are transferred on a year-by-year basis. Thus, provided that at least 10 per cent of the company's ordinary share capital is held on behalf of the employees by trustees, the Bill provides for corporation tax relief to be granted "up front" in respect of such shares.
In addition, the Bill seeks to make it easier for employee trusts which hold shares to elect employees as trustees of that shareholding, and so give employees a direct voice in the ownership of the businesses in which they work.
Clause 1 states that the Bill will amend Schedule 8 of the Finance Act 2000, covering the introduction and operation of share incentive plans. Clause 1(2) adds a provision to the SIP legislation, which gives a clear pointer to companies setting up an SIP that elected employees may become trustees. Clause 1(3) seeks to support the position of companies and, in particular, business owners who want to make a significant move towards employee ownership. It grants corporation tax relief up front where a significant block of shares—10 per cent or more—is transferred to an employee trust. Clause 1(4) ensures that the availability of the corporation tax deduction should be linked to the 878 distribution of shares in order to maintain the link between productivity and employee benefits. This also ensures that a proportionate part of the deduction will be withdrawn in respect of any shares which may for whatever reason be awarded to a non-Schedule E taxpayer.
Clause 2 proposes changes to the Finance Act 2000 which are consequential on the other changes resulting from the Bill. Clause 3 provides that shares held in an SIP by trustees with the benefit of up-front corporation tax relief will not be subject to income tax on dividends and other distributions or capital gains tax for so long as the trustees hold them, during a period of up to 10 years. This extends the period for relief otherwise available under the SIP legislation, which is usually limited to two years. This measure is designed to ensure that the enacted provisions of the Bill operate in the same way as the provisions for existing legislation governing SIPs.
Clause 4 gives the Bill its title: Employee Share Schemes Act 2002. Clause 5 states that the Bill will become law on 6th April 2003. The Bill represents a milestone in rewarding long-term commitment by employees. There is no better incentive and motivation for employees than for their work to be recognised and for them to share in their firm's success. Research has shown that businesses with widespread employee share ownership outperform their rivals. The combination of employee share ownership and employee participation yields the best results for everyone.
I read with great pleasure the commitment that my honourable friend the Paymaster General gave to the issue in her remarks on Report in the other place. She said,The Government attach great importance to employee share ownership and participation. Increasing employee share ownership is at the heart of the Government's productivity agendaThe Share Incentive Plan introduced in the Finance Act 2000 has made it easier for not just some, but all employees to become stakeholders in a company. I wholeheartedly welcome the Government's commitment and support for the Bill. I commend the Bill to the House.
Moved, That the Bill be now read a second time.— (Baroness Thornton.)
§ 7 p.m.
§ Lord Shutt of Greetland
My Lords, I rise to welcome the Bill. As a former Liberal Democrat candidate it has been mother's milk: a say and a share in the place where you work. I do not declare an interest, but I have an interest in the other sense. I was an initial director of Job Ownership Limited, which has been involved with the Bill. It is a further step towards wider share ownership.
The gist of the Bill is that major tax relief is available. That should encourage proprietors and employees. During the time I was involved with Job Ownership, 20 years or so ago, I became interested in the theology of employee-owned organisations. There is quite a span. The major element is whether the 879 employee ownership is collective or individual. I am in favour of letting many flowers grow, but I wonder whether there will be an opportunity to review the arrangements and see that there is a level playing field in terms of the fiscal arrangements of the organisations trying to encourage greater employee ownership; particularly the tax incentives.
In the other place there was discussion about the John Lewis Partnership and some of the possible concerns of that firm in relation to the Bill. There are occasions when we nudge matters, and this is a nudging Bill. There is further help and assistance for employee ownership in the Bill and I rise to encourage that. I hope that the further nudge eventually goes through Perhaps there should he an opportunity in the not-too-distant future to consider further nudges.
§ 7.3 p.m.
§ Lord Cope of Berkeley
My Lords, I am happy to support the Bill. The noble Baroness, Lady Thornton, has done us a service in picking it up from the honourable Member for Edinburgh North and Leith.
I am speaking in this House on the Bill because I have been involved in encouraging employee share schemes, both when I was Minister of State for Small Firms in the Government of my noble friend Lady Thatcher and also later when I was in the Treasury. I am a longstanding supporter of small businesses and of employee share schemes. I agree with the remark of the noble Lord, Lord Shutt of Greetland, about many flowers blooming. There are many different ways in which such schemes may be encouraged, which work well in different circumstances. It should not be a function of government to persuade organisations to use one form as opposed to another.
The noble Lord also referred to the important outstanding matter of the John Lewis Partnership and other firms arranged on the same lines. As we all know, John Lewis is an outstanding example of employee share ownership. It is far more longstanding than any of the schemes of either the present or previous Government—of which I was a member—on this matter. It would be astonishing and wrong if John Lewis was to be excluded from the benefits of the Bill because of the arrangement of its partnership.
So far we have had only expressions of sympathy from the Government on that point. With regard to John Lewis and similar companies it is an example of what passes for activity by the Government: every assistance short of actual help. I hope that the Minister will be able to reassure us either today or in later stages on that aspect.
The Bill is a finance Bill in all but name. It is about tax. It amends the Finance Act 2000 and does nothing else. It was handled in another place by my successor as Her Majesty's Paymaster General, Dawn Primarolo, who was also my parliamentary neighbour. It is excellent that we are being allowed to discuss the Bill completely, not only today but in its later stages, and to discuss amendments should noble Lords wish. I look forward to the later stages being conducted in a full and proper manner as befits a Bill, even if it is a finance Bill in all but name.
§ 7.7 p.m.
§ Lord Davies of Oldham
My Lords, I congratulate my noble friend Lady Thornton on bringing the Bill before the House. I am not sure that I share the exulted enthusiasm displayed by the noble Lord on the Opposition Benches, who delighted in the fact that this is a quasi-finance Bill and therefore felt that we should take extra delight in the proceedings. I have rather more respect for finance Bills in the other place not to develop a certain shudder about Bills on which discussion often went on long into the night under the old regime. Let us rest assured that, as the noble Lord, Lord Cope, described, the Bill amends the Finance Act; but it began as a Private Member's Bill in the other place and is being read in that vein here.
As my noble friend said in her opening remarks, employee share ownership is at the heart of the Government's drive for improved productivity and enterprise. In July 2000 we introduced the Share Incentive Plan and enterprise management incentives. The noble Lord, Lord Shutt, is right that the body of which he has fond associations, Job Ownership Limited, played its part in the Bill's development. So too did the Co-operative Party; I congratulate both organisations on their contribution.
As has been indicated in all parts of the House, the Bill enjoyed support on all sides of the Commons. The Government's proposals on share incentive plans and enterprise management incentives were developed in consultation with industry and both are proving very popular. For example, more than 600 companies have applied for Inland Revenue approval of their share incentive plans. This demonstrates our very real commitment to employee share ownership. But we are not complacent. The need for development will be monitored. Both the share incentive plan and enterprise management incentives will be fully evaluated in 2005–06, although there will be some preliminary findings available before then.
The Government have also made a commitment to look at the corporation tax treatment of share schemes to make it simpler, particularly for small companies—a matter to which the noble Lord, Lord Cope, referred and which I know is dear to his heart. This should provide further encouragement to introduce employee share schemes. The Government welcome the aims of the Bill to encourage employee participation and employee ownership. Research shows that companies with widespread employee ownership and participation out-perform their rivals.
The Government accept the idea of providing in the Bill a framework for employee representation on the share incentive plan trust for those companies that wish to use it. Inland Revenue officials are working with my honourable friend Mark Lazarowicz and his team on a trust deed that would provide for this with a view to making it available alongside a model trust deed already offered by the Revenue.
The Government fully support the transfer of shares into employee ownership. The new early corporation tax deduction will complete the measures that the Government have already taken to facilitate the 881 transfer of shares from individuals such as family owners into the share incentive plan. Capital gains tax roll-over relief is already available for individuals on the gain made when they transfer shares to a trust that holds at least 10 per cent of the ordinary share capital of the company. Shares that were held in a qualifying employee share ownership trust on 21st March 2000 can be transferred to a share incentive plan without the immediate corporation tax deduction being lost.
An additional tax advantage is given in the Bill by allowing share incentive plan trustees to be exempt from income tax on dividends and from any capital gains tax that might arise on disposal of the shares throughout the 10-year period they have to award the shares to employees.
The Government share the widespread enthusiasm for the measure which has been shown today. The noble Lord, Lord Cope, asked about the John Lewis Partnership. The noble Lord is right, discussions are still on-going in respect of that company, which, because of its structure, raises particular issues in regard to this legislation. Not all the issues have as yet been resolved. But that is not through a want of co-operation by the Government and work is progressing constructively on that front.
I am aware of how much hard work has been put into the Bill by its proponents. They have worked with the Government to settle on a series of provisions that enjoy joint support and I am grateful for that. I affirm the Government's support for the Bill. Once again I congratulate my noble friend on the perceptive way in which she introduced the Bill and the clear way in which she outlined its issues. I am sure that she will ensure that the Bill has a satisfactory passage.
§ 7.14 p.m.
§ Baroness Thornton
My Lords, I should mark the fact that I have been allowed out to play without my noble friend Lord Graham. He would have spoken in support of the Bill today but he is on his way to Manchester on Co-operative business. I should also mark the fact that I have had a great deal of support from Job Ownership and the Co-operative Party in preparing myself to deal with the technicalities of the Bill. Tax issues are not my speciality in this House, as noble Lords will know, and I am very grateful for their support.
I shall have to discuss with them the issue of John Lewis. I am sure that noble Lords will be aware that the Minister said on 21st June that the Government are taking the issue very seriously indeed and are trying to resolve it. I hope that they will succeed.
As to the point raised by the noble Lord, Lord Shutt, about the legal and tax regime in general for Job Ownership—and, indeed, for Co-operative and other social ownerships—I believe that very soon we shall see some developments from the Government in that area in terms of strategic issues concerning the whole regime. I hope that Job Ownership will take the Government's general statement of intent in this area as an opportunity to push for the kind of reforms we would like to see on a broader front. The Bill is not designed to do that, as noble Lords will know.
With grateful thanks to the noble Lords, Lord Shutt and Lord Cope, and to my noble friend Lord Davies, I hope that the House will give the Bill a Second Reading.
On Question, Bill read a second time, and committed to a Committee of the Whole House.
House adjourned at sixteen minutes past seven o'clock.