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New clause 8

Stock lending: power to modify rules

`.--(1) In subsection (1) of section 129 of the Taxes Act 1988 (description of stock lending arrangements)--

(a) for "subsection (4)" there shall be substituted "subsections (2B) and (4)"; and

(b) the words "has contracted to sell securities, and to enable him to fulfil the contract, he" shall be omitted.

(2) In subsection (2A) of that section, for "A to fulfil his contract" there shall be substituted "B to make the transfer to A or his nominee".

(3) After subsection (2A) of that section there shall be inserted the following subsection--

"(2B) Except in so far as the Treasury by regulations otherwise provide, this section applies only if A enters into the arrangement mentioned in subsection (1) above to enable him to fulfil a contract under which he is required to sell securities."

(4) After subsection (4) of that section there shall be inserted the following subsections--

"(4A) Regulations under subsection (4) above relating to section 271(9) of the 1992 Act may include provision modifying the operation of that Act in relation to cases where, by virtue of the regulations, any acquisition or disposal is excluded from those which are to be disregarded for the purposes of capital gains tax.

(4B) In such cases as the Treasury may by regulations provide, this section shall have effect as if references to a transfer of securities of the same kind and amount as those subject to a previous transfer included references to the grant of equivalent rights in respect of benefits accruing from the redemption of securities of the same kind and amount."

(5) For subsection (9) of section 271 of the Taxation of Chargeable Gains Act 1992 (exemption for arrangements to which section 129 applies) there shall be substituted the following subsection--

"(9) Subject to any regulations under subsection (4) of section 129 of the Taxes Act, any disposal and acquisition made in pursuance of an arrangement mentioned in subsection (1), (2) or (2A) of that section shall be disregarded for the


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purposes of capital gains tax unless it is one in the case of which subsection (2B) of that section has the effect of preventing that section from applying."'.-- [Mr. Nelson.]

Brought up, read the First and Second time, and added to the Bill.

New clause 13

Annuities purchased where certain claims or actions are settled

`The following sections shall be inserted after section 329 of the Taxes Act 1988--

"Annuities purchased for certain persons

329A.--(1) In a case where--

(a) an agreement is made settling a claim or action for damages for personal injury,

(b) under the agreement the damages are to consist wholly or partly of periodical payments, and

(c) under the agreement the person entitled to the payments is to receive them as the annuitant under one or more annuities purchased for him by the person against whom the claim or action is brought or, if he is insured against the claim concerned, by his insurer, the agreement is for the purposes of this section a qualifying agreement.

(2) In a case where--

(a) an agreement is made settling a claim or action for damages for personal injury,

(b) under the agreement the damages are to consist wholly or partly of periodical payments, and

(c) a later agreement is made under which the person entitled to the payments is from a future date to receive them as the annuitant under one or more annuities purchased for him by the person against whom the claim or action is brought or, if he is insured against the claim concerned, by his insurer,

the agreement mentioned in paragraph (c) above is for the purposes of this section a qualifying agreement.

(3) Subsection (4) below applies where--

(a) a person receives a sum as the annuitant under an annuity purchased for him pursuant to a qualifying agreement, or

(b) a person receives a sum on behalf of the annuitant under an annuity purchased for the annuitant pursuant to a qualifying agreement.

(4) Where this subsection applies the sum shall not be regarded as the recipient's or annuitant's income for any purposes of income tax and accordingly shall be paid without any deduction under section 349(1).

(5) Subsections (6) to (10) below apply for the purposes of subsection (1) above.

(6) The periodical payments may be for the life of the claimant, for a specified period or of a specified number or minimum number or include payments of more than one of those descriptions.

(7) The amounts of the periodical payments (which need not be at a uniform rate or payable at uniform intervals) may be--

(a) specified in the agreement, with or without provision for increases of specified amounts or percentages,

(b) subject to adjustment in a specified manner so as to preserve their real value, or

(c) partly specified as mentioned in paragraph (a) and partly subject to adjustment as mentioned in paragraph (b) above. (8) The annuity or annuities must be such as to provide sums which as to amount and time of payment correspond to the periodical payments described in the agreement.

(9) Personal injury includes any disease and any impairment of a person's physical or mental condition.

(10) A claim or action for personal injury includes--


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(a) such a claim or action brought by virtue of the Law Reform (Miscellaneous Provisions) Act 1934;

(b) such a claim or action brought by virtue of the Law Reform (Miscellaneous Provisions) Act (Northern Ireland) 1937;

(c) such a claim or action brought by virtue of the Damages (Scotland) Act 1976;

(d) a claim or action brought by virtue of the Fatal Accidents Act 1976;

(e) a claim or action brought by virtue of the Fatal Accidents (Northern Ireland) Order 1977.

(11) For the purposes of subsection (2) above--

(a) subsections (6), (9) and (10) above apply;

(b) subsection (7) above applies as if the reference to the agreement were to that mentioned in subsection (2)(a) above; (c) subsection (8) above applies as if the reference to periodical payments described in the agreement were to periodical payments described in the agreement mentioned in subsection (2)(a) above and falling to be made after the later agreement takes effect. (12) This section does not apply unless the sum concerned is received after the day on which the Finance Act 1995 is passed, but it is immaterial when--

(a) the agreement mentioned in subsection (1) above is made or takes effect, or

(b) either of the agreements mentioned in subsection (2) above is made or takes effect.

Annuities assigned in favour of certain persons

329B.--(1) In a case where--

(a) an agreement is made settling a claim or action for damages for personal injury,

(b) under the agreement the damages are to consist wholly or partly of periodical payments,

(c) the person against whom the claim or action is brought (or, if he is insured against the claim concerned, his insurer) purchases one or more annuities, and

(d) a later agreement is made under which the annuity is, or the annuities are, assigned in favour of the person entitled to the payments so as to secure that from a future date he receives the payments as the annuitant under the annuity or annuities,

the agreement mentioned in paragraph (d) above is for the purposes of this section a qualifying agreement.

(2) Subsection (3) below applies where--

(a) a person receives a sum as the annuitant under an annuity assigned in his favour pursuant to a qualifying agreement, or (b) a person receives a sum on behalf of the annuitant under an annuity assigned in the annuitant's favour pursuant to a qualifying agreement.

(3) Where this subsection applies the sum shall not be regarded as the recipient's or annuitant's income for any purposes of income tax and accordingly shall be paid without any deduction under section 349(1).

(4) For the purposes of subsection (1) above--

(a) subsections (6), (9) and (10) of section 329A apply; (b) subsections (7) and (8) of section 329A apply as if references to the agreement were to that mentioned in subsection (1)(a) above. (5) This section does not apply unless the sum concerned is received after the day on which the Finance Act 1995 is passed, but it is immaterial when either of the agreements mentioned in subsection (1) above is made or takes effect." '-- [Sir George Young.]

Brought up, and read the First time.


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5.15 pm

The Financial Secretary to the Treasury (Sir George Young): I beg to move, That the clause be read a Second time.

The object of this clause is to simplify the administration of the payment of agreed damages in cases of personal injury, where the damages are to be paid to the victim of the injury in instalments over a period or for his or her life. It will make it possible for the victim of the injury to receive the damages as an annuity directly from a life insurance company without turning a non-taxable capital sum into income chargeable to tax.

The payment of an annuity directly to the victim of the injury will bring the advantage of protection under the Policyholders Protection Act 1975. Uncertainties as to the long-term financial stability of the payer of the damages will no longer be a significant obstacle to the acceptance of damages in a form which meets the long-term financial needs of the victim.

The clause achieves the objectives of the measure tabled by the hon. Member for Oxford, East (Mr. Smith) in Committee and will, I know, have the support of the whole House. It also represents a first step towards realising our intention, announced to the House on 23 March, of implementing the recommendations made by the Law Commission in its report on structured settlements and interim and provisional damages.

Additionally, the clause breaks new ground by making it possible for existing structured settlements to be renegotiated to come within the new framework. This offers the advantages of long-term security for the individual receiving the damages by instalment payments and of administrative savings for the insurance company paying them. The removal of the territorial restrictions from the measures previously proposed will, we hope, make it easier for an individual suffering an injury when overseas to obtain damages payable through life without taxation disadvantages.

I hope that the measure commends itself to the House.

Mr. Andrew Smith (Oxford, East): I am grateful to the Financial Secretary for acknowledging the role that the Labour party and the Law Commission played in proposing the measure. It is a good measure for all the reasons that the Minister set out, which I do not intend to repeat. It will bring considerable benefit to the victims of accidents and those who suffer injuries. It will stimulate competition in the range of financial instruments which are available to them. It will provide for annuities structured specifically to the varying needs that victims have for the rest of their lives following a severe accident or injury. We welcome the new clause and commend it to the House.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New clause 1

Discretionary share option schemes in the privatised utilities

`.--(1) The Treasury shall present to Parliament for its approval before the next Budget a report on discretionary share option schemes operated by the privatised utilities which fall within Part IV of Schedule 9 to the Taxes Act 1988 (share options schemes other than savings-related share option schemes) ("the schemes").


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(2) The Treasury shall report to Parliament on the past and estimated future effects on the public revenues of schemes which are operated by the privatised utilities.

(3) The report shall differentiate between public revenues raised from:

(a) members of these schemes and

(b) the privatised utilities which operate these schemes. (4) For the purposes of this section privatised utilities will include all companies which produce or distribute water, gas, or electricity in which HMG has sold shares since 1979 and will include other companies which the Treasury may by order determine.'.-- [Mr. Andrew Smith.]

Brought up, and read the First time.

Mr. Andrew Smith: I beg to move, That the clause be read a Second time.

I fear that this new clause will not be so uncontentious as the last one. I would be grateful if the Financial Secretary would nod across the Dispatch Box. We would be pleased to move on, once the Government had accepted it. The Minister is not making any such indication.

The new clause calls for an assessment of the costs to the taxpayer incurred in Government support for discretionary share option schemes in the privatised utilities, and for a report to Parliament before the next Budget. Our case is that such an assessment is long overdue, that the boardroom excesses of the privatised utilities are a national scandal, and that it is high time that the Government took action. I find it difficult to imagine who could possibly disagree with such a reasonable suggestion as that which we are making today--other than perhaps some of the beneficiaries, and some right hon. and hon. Members on the Conservative Benches.

Certainly, anyone with an intelligent experience in commerce would be appalled at any enterprise which spent large sums of money without assessing the value created. Yet that is just what the Government are doing. They are underwriting the handouts at the taxpayers' expense. We seek no less prudent supervision of matters involving the public purse.

As has been especially clear in recent months, the British people are fed up with the Government's excuses and double standards in regard to share options and the excesses of the privatised utilities. They want not mere words--such as the Prime Minister's admission that he found such abuses "distasteful"--but action. Families with ordinary incomes whose living standards fell last year and are falling now, and must pay an extra £812 in tax this year, are angry about the abuses at the top.

The Government should deal with these scandals. The chairman of the National Grid Company is set to make £2 million this year; the chief executive of British Gas has been awarded a 75 per cent. increase in his basic annual salary--an extra £205,000. That is on top of the share options, amounting to more than £100 million, taken out in the privatised utilities alone last year.

The Prime Minister has said that the Government may consider acting after the Greenbury committee has reported--indeed, that they may take legislative action. Even since that statement, however, three directors of Norweb alone have exercised share options netting them a combined benefit of more than £1 million. That will do nothing to make the public feel confident that the Government have any intention of ending the excesses of privatised industries.


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We have set out the action that needs to be taken. The regulation of water, gas, electricity and telecommunications must be made open: there must be public hearings enabling customers to question the privatised utilities about their service to the public, and about profits and boardroom pay, before the prices are set. Regulators should have the power to cut prices in the event of "top pay" and share option abuses.

Mr. Deputy Speaker: Order. The hon. Gentleman is straying rather wide of the new clause.

Mr. Smith: I was just coming to the part of the new clause that deals with the effects on revenue, Mr. Deputy Speaker. Those effects are considerable. We also want executive share options to be taxed as income to discourage abuse.

It is high time that the Government listened to the public, and ended the indefensible position in which there is one rule for the few and another for the many. These discretionary share options are very expensive to the public purse: even the Government estimate that the cost to the taxpayer in the financial year that is now ending was some £60 million. That is a large amount, even if it is an underestimate--as we have argued it is, because it does not take account of all the opportunities for tax planning and avoidance. Surely it is right to ask, as our new clause does, how such schemes affect the public purse and what public benefits they produce. I look forward to hearing from the Financial Secretary exactly what benefit the public are receiving in return for the huge handouts involved in the tax subsidies for those schemes.

It is not good enough for the Government to try to subcontract their responsibilities to the Greenbury committee. Important though that body is, and important though it is that the views of the CBI are taken into account, it cannot stand in for the Government. Paul Foot, writing in The Guardian , provided an amusing insight--although I do not always agree with him politically. Musing on what might have happened if Labour had been in government, he attempted to draw a parallel:

"Imagine, for instance, that the trade union leaders, in a sudden rush of enthusiasm, pay themselves enormous wage increases. Imagine that Bill Morris or John Edmonds tripled their salaries. Imagine the sustained howl of protest in the newspapers.

Investigative journalists would suddenly flourish at the Daily Mail. The union leaders would be pursued by persistent hacks who would describe in detail every morsel of food they consumed at La Gavroche"--

whatever that is--

"and every gold tap in their country mansions.

Imagine, then, the Government being panicked into a response. Imagine the Lord Privy Seal, John Prescott, announcing that his government had decided to suspend all further action on the matter until a committee of trade unionists, previously set up by the TUC, made their recommendations. Imagine, what's more, that the TUC committee was headed by Bill Morris and John Edmonds.

Can you conjure up the Daily Mail headline: BLAIR'S BACK-SCRATCHING BUDDIES. A portentous leader in the Daily Telegraph would condemn the Government for insulting Parliament. `What has become a matter of urgent public interest--a matter which threatens the very integrity of our public life--is to be dealt with by a cabal led by the very brothers who stand accused of enriching themselves beyond the dreams of avarice.'

Strangely, there are few such headlines or leaders in the Mail or the Telegraph about the Greenbury committee",

which, Mr. Foot suggests, comprises


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"a clutch of millionaires appointed by the Confederation of British Industry to investigate the scandal of, er, millionaires paying themselves grotesque salaries and share options."

It is a humorous piece, but does it not underline the Government's hypocrisy? This is an issue of vital public interest; there is outrage up and down the land about what the Government are allowing to happen. The Government, however, are happy to propose simply subcontracting their responsibilities to a CBI committee some of whose members are beneficiaries of the very schemes that they are charged with investigating. That is unacceptable to the public, and it should be unacceptable to the House.

Mr. Tim Smith (Beaconsfield): Is the hon. Gentleman suggesting that discretionary share option schemes in the privatised utilities should be treated differently, in tax terms, from such schemes generally? I understood that his policy was to subject them all to income tax. If the former is not his policy, what is the point of producing the report?

Mr. Smith: The point of producing a report that is specially geared to the privatised utilities is twofold. First, those utilities have attracted the most public concern, and have involved the most outrageous abuses. Secondly, there is an interaction, in the fiscal consequences and the consequences for the public purse, between the under-valuation of the assets of the utilities when they were sold and the benefits that the bosses have subsequently been able to extract.

The hon. Gentleman asks whether, in this as in other matters, the law relating to tax should apply equally to schemes in the privatised utilities and those elsewhere. Of course it should: we have made it clear that we consider it sensible and prudent to tax executive share options as income.

It would be interesting to hear from the Financial Secretary what reason the Government could possibly adduce for failing to present the report for which we have called. It cannot be that there are too many schemes to assess. Each scheme has to be formally approved, and there are only 5,000 such schemes covering the privatised utilities and others.

In the case of the privatised utilities, there are 12 regional electricity companies, 10 water companies, two major power generators, one gas company and one telecommunications company. Such a report should not be beyond the Government's resources in the time between now and the Budget. I am grateful to the hon. Member for Wirral, South (Mr. Porter), who nods agreement.

Mr. Barry Porter (Wirral, South) indicated dissent .

Ms Primarolo: The hon. Gentleman is nodding off.

5.30 pm


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