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Rev. Martin Smyth (Belfast, South): On a point of order, Mr. Lofthouse. Have Northern Ireland Office Ministers asked you to adjourn the Committee so that a statement can be made about the closure of Fokkers, and the impact of that closure on Shorts? Some 1,500 jobs could be threatened.
The First Deputy Chairman of Ways and Means (Sir Geoffrey Lofthouse): I have received no such request.
Clause 105
Mr. Alistair Darling (Edinburgh, Central): I beg to move amendment No. 7, in page 69, line 37, leave out
'subsections (2) and (3) below'
and insert
The First Deputy Chairman:
With this, it will be convenient to discuss also amendment No. 6, in page 69, line 38, at end insert--
Mr. Darling:
Amendment No. 7 is a drafting amendment: it is necessary for the incorporation of amendment No. 6.
The purpose of clause 105 is to allow the Government to implement their new company share option plans, which we broadly welcome. The plans replace the existing share option schemes introduced in the mid-1980s. The new relief involves two essential conditions. The first is the placing of a £20,000 limit on the value of shares that may be held by an employee at any one time. Secondly--perhaps I could attract the Financial Secretary's attention for a moment as I wish to press him on this--the options must be granted at an exercise price
of the shares at the date of grant. In other words, they must not be granted at a discount, which contrasts with the present position. That second condition appears in clause 105(3).
It would help both the Committee and those who will have to interpret the provision if the Financial Secretary would tell us exactly what "manifestly" means in this context, and what measure we are to apply to it. "Manifestly less" clearly implies more than "slightly less" or "marginally less". Paragraph 29 of schedule 9 of the present scheme provides for a discount of up to 15 per cent. It might be useful if, speaking in percentage or similar terms, the Financial Secretary could tell us whether "manifestly less" means less than 15 per cent. Presumably it does; otherwise, the Government's argument that they are restricting the scope for discount would fall apart.
I assume that that point will need to be the subject of a guidance note from the Inland Revenue. Otherwise, it will be left to the interpretation of the courts. That is very unsatisfactory. Companies will want to get new schemes under way fairly early, but they might have to wait two to five years, if not longer, for a judicial interpretation. When I saw the words "not manifestly less", it occurred to me that the Government might be saying that they were going to close a door while using a form of words which would result in that door being left as wide open as it is now.
Before I come to the central issue, I should like the Financial Secretary to deal with a point which arises in the Inland Revenue notes on clauses circulated to members of the Committee. It relates to the old discount of up to15 per cent. Those who have read the notes, and those who are familiar with the legislation, will know that that discount was available if the company scheme was available to all employees, but if the company subsequently restricted share availability to certain employees, the discount could still be applied.
Two questions arise from that. First, am I correct in assuming that, along with the 15 per cent. discount, all those arrangements will go? Secondly--here I return to my point about the phrase "manifestly less"--are we to understand that some variability is involved? The position is extremely uncertain.
Lest the Committee think that I am spending undue time on what might be considered a comparatively small point, let me add that it is necessary to examine the Government's track record on share option schemes to understand our concern. We were told in the Budget statement that the Chancellor wanted to end abuses of the present scheme, as we have pressed the Government to do for many months. Far from closing an avenue for abuse, however, it seems that such an avenue is being opened. Given that many people have ruthlessly exploited and, I believe, abused the present scheme, it would be wrong for us to allow further opportunities for such exploitation and abuse.
I have raised that issue at the outset because the Financial Secretary's reply will influence our judgment of what the Government have to say about the rest of the legislation. The Government have said that they do not just want to simplify legislation; they want clarity as well. If one is interested in clarity, one should avoid putting into legislation words that are open to 57 different interpretations. The Financial Secretary seems to agree with the spirit of what I have said, as he is nodding vigorously, although he may be doing that simply to pass the time.
Amendment No. 6 is designed to ensure that the new company share option schemes are open to all employees, from the board room to the shop floor. That is essential if we are to encourage workers to have a stake in the company that employs them. Everyone must be motivated and feel that they are part of the enterprise in which they are employed. All the evidence suggests that companies have recognised the essential truth that the employees who are motivated and intimately involved with their place of work are the ones who will succeed, while those who insist on relying on the old "them and us" approach to industry are likely to fail.
I have been told on numerous occasions that people in senior management and in the boardroom need to receive incentives to make them perform. I am usually told that by the same boardroom members who stand to benefit from these schemes, but I have always believed that, if incentives are good for some people, they are probably good for everyone, and that it is good if people think that by working hard and doing something different--a restructuring in a company, perhaps--they, too, stand to gain. Hon. Members should encourage that.
Mr. Lofthouse, the history of this matter is relevant to the debate. It entitles us to consider the Government's proposals with a degree of scepticism, although everyone is entitled to take a different view and to change their mind, as the Government did after vehemently opposing
any idea that the existing share option scheme was being abused, especially by people in the boardrooms of the privatised utilities. The Prime Minister had a sudden change of heart, which took many of his colleagues by surprise. When one considers the abuses that have taken place, especially by people who sit on the boards of the privatised utilities, we are entitled to ask whether the Government have indeed changed their mind and ensured that such abuses will end.
It upset many people that the same people, doing the same job, received hugely increased salaries only a few weeks after their enterprise had been privatised. They saw those individuals being granted huge amounts of share options. Share prices increased in the privatised utilities, not because of improved performance by people in the boardroom, but because of the way in which those utilities were privatised. Bluntly, they were sold off at knock-down prices. It would have been difficult for anyone appointed to the boardroom of a privatised utility not to receive a substantial windfall gain, not because of anything they did, but as a result of sheer chance.
Those people did not stop there. Many of them, using current tax laws, as they are entitled to do, ensured that their wives also benefited indirectly from the scheme. That is grossly unfair, when most people have had to face 21 different tax rises since 1992. The burden of taxation for most people has increased. It seemed that there was no limit to the greed of some members of the privatised utilities. As I have said, the Government and the Prime Minister in particular did absolutely nothing until the pressure on them became so great that they had to go along with the Confederation of British Industry's decision to set up the Greenbury committee.
It has always seemed to me, Mr. Lofthouse, that, in relation to the privatised utilities and sell-offs, the Government were never really bothered about Sid, but were far more bothered about looking after Cedric, which is exactly what the Government did. It was only after pressure that they forced to set up the Greenbury committee.
Clause 105 resulted from the Chancellor of the Exchequer's reaction to the Greenbury report. It was, as ever, a bungled reaction. On 17 July, the Government announced that they were going to shut down executive share option schemes immediately, but 10 days later the Chancellor had to change his mind as he realised that, in addition to shutting down schemes that many of us would criticise, he was also shutting down schemes that had been used to benefit a majority of employees, which the Government may not have intended.
At Asda, for example, the executive share option scheme was used to benefit most of the work force. Of course, if the Chancellor's original announcement had been implemented, those people, who were wholly innocent and were simply taking advantage of a scheme that they had been offered--certainly it was small-scale stuff--would have been hit, so the Chancellor had to change his mind.
I assume that the clause was introduced by the Government in an effort at least to get rid of some of the abuses that Greenbury had identified. If that ending of abuses is to proceed hand in hand with a genuine move to extend opportunities to acquire shares in an enterprise, however, amendments Nos. 7 and 6 must be accepted by the Government. Otherwise, options will be offered only
to a small class of people--probably those sitting in the boardrooms, whose behaviour has so incensed people, not just in the House, but throughout the country.
The amendment provides that the option under clause 105 must be made available to all people who are employed in an enterprise and on similar terms--not identical terms, because that is clearly inappropriate. That would ensure that people would see that they too had an opportunity to benefit from whatever option schemes were available in the company. They too would know that any success in the company would be shared. On this point, it is important that all schemes should ensure that there is reward after success, rather than reward in anticipation of success, which is where British Gas went badly wrong.
Despite our amendment and clause 105, the abuses in the system will continue and are continuing, not only because powerful voices are determined to block the full implementation of Greenbury, but because--unless the Financial Secretary tells us that we are wrong--the present schemes will continue to operate as unapproved rather than approved schemes. If a company wants to fund a scheme, it can do so. If the Financial Secretary can tell us that we are wrong on that, it will be interesting to hear what he says. Unapproved schemes will be able to continue. In a private company, that does not matter--that is its concern--but in the privatised utilities, it does matter. Concerns will remain about that.
Mr. Lofthouse, we are dealing here with one clause. When the Committee sits upstairs, we shall have an opportunity to consider other aspects of the Government's reform--profit-related pay, and so on. This clause, however, implements the new company share option plan, which most people would broadly welcome, but only if it is a genuine attempt to expand share ownership and participation to the whole work force. In many companies, the opportunity will be taken to offer schemes across the board because many employers are keen to do that. I am concerned, however, that unless this amendment is accepted the people who took part in the abuses that the public, Labour Members and perhaps a smattering of Conservative Members want to stop, will drive a coach and horses through any attempt to reform the system.
Sir Geoffrey, I have just realised that I have been guilty of a great insult to you for the past 20 minutes: I have overlooked the fact that you are now Sir Geoffrey rather than Mr. Lofthouse. I hope that that is why you were glaring at me, and not because I was straying out of order. Having apologised so fulsomely, I trust that you will not mind if I do stray, although I will do my best not to.
It is important that we have a new culture in this country and encourage companies genuinely to involve the work force in the enterprise. There are some encouraging signs in many regions, where companies are ensuring that their employees receive genuine share ownership. As I said, I should like those options to be open to everyone from the boardroom to the shop floor. That is what our amendment would achieve.
I hope that making shares available to more employees will encourage a long-term outlook within a company and therefore a long-term culture, which is something that far too many companies do not have. If that encourages savings, in addition to a pensions scheme and other savings options, it should be welcomed. Shares should reward success, but we must ensure that the success comes before the reward. We should avoid the problems
that have bedevilled parts of British industry where the reward has been paid willy-nilly and has had nothing to do with success.
I hope that the Government will accept the amendment. If they do not, that will show people that yet again the Government are concerned with the few in the boardroom and not the many who work in British industry. It will be a touchstone of where the Government stand on the wider case for spreading share ownership to as many people as possible. We believe that it is important to involve people and to change the culture of British industry because that is where future success will lie.
'subsections (1A), (2) and (3) below'.
'(1A) After paragraph 27 there shall be inserted the following paragraph--
"27A(1) Subject to paragraph 8 above, the following shall apply:
(a) Every person eligible to participate in the scheme must be able to do so on similar terms;
(b) Every person who meets the following conditions must be eligible to participate;
(i) The person must be an employee or a director of the company, or in the case of group scheme, of a participating company, and
(ii) The person must be chargeable to tax in respect of his office or employment under Case 1 of Schedule E.
(2) For the purposes of sub-paragraph (1) above the following shall apply;
(b) The fact that the rights obtained and exercised by a person participating in the scheme vary according to the levels of their remuneration, the length of their service or similar factors shall not be regarded as meaning that they are not eligible to participate in the scheme on similar terms.".'.
"not manifestly less than the market value"
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