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In relation to quoted companies, it could be argued that the disclosure of profit targets to staff constitutes price-sensitive information, but that is no more significant than the profit estimates that are routinely issued and updated by brokers as a company's accounting period progresses, which anybody who deals in shares can get from the many consultants in the City, or even from the Internet, where they are widely available.
One of the fascinating aspects of profit-related pay--I, of course, would be the hon. Member to bring this up, Dame Janet--is that it is now becoming a European issue. The European Commission, inspired by the take-up of PRP in Britain, is now examining the idea of profit-related
pay and, indeed, seeing whether a directive could be crafted to encourage it in other European countries. It seems a shame that the Government are throwing profit-related pay out the window just at the moment when Europeans are adopting what is, at its kernel and with reforms, a sound British idea.
Mr. Tipping:
I shall speak briefly and compare and contrast two schemes that have been brought to my attention recently in the Nottingham area, one of which shows the positive values of profit-related schemes; the other can be described only as an abuse.
I shall start with the abuse. In the autumn, some people employed at Nottingham university came to see me to suggest that the university was to have a "salary sacrifice" scheme. They were somewhat bemused in that they wondered how an institute of higher education could produce profit in the true sense of the word. They were also keen to point out to me that profit-related schemes have traditionally come from the private sector, and that the university, although no longer clearly in the public sector, was not a private sector animal in the true sense of the word.
Those people were not just academics. The people most concerned were technicians who had worked at the university for many years. One of them, Graham Tomlinson, is a stalwart of the local community. He described the scheme as a scam. He said that it is about making money for the university and about tax avoidance. He said that they had been given assurances that they were not at risk. He pointed out that the whole point of the exercise was for the university to save money. He is a man of some integrity. He took the view that he did not want to avoid paying taxes, because he could see the irony of a situation in which his taxes allowed education to continue. In effect, taxes funded the university. I am pleased to say that the scheme at the university has not gone ahead.
I contrast that scheme with the one at Philip A. Minson, a manufacturer and distributor of net curtains in the Nottingham area. Again, the directors and employees contacted me to say that theirs is a profit-related scheme in the true sense of the word. Its employees take risks. Their salary is dependent upon how the company performs. They pointed out to me that now that the scheme has come into effect, they are all stakeholders in the company and that performance has improved.
I am concerned about what appears to be real abuse, and 3.6 million people are affected. There are about 13,000 schemes. In 2000, £1.7 billion will be saved. There is a real issue here.
I am keen to support the amendment because it looks to the future, to a situation that I am keen to see--people adding value to their company, the company valuing them, and people becoming stakeholders in companies. There is abuse, as at Nottingham university, but there are examples of excellent practice, as at Philip A. Minson. That is why I am very pleased that the amendment calls for reports to be made in future.
I do not think that this is the end of the line for the issue. I very much hope that, in future, we will introduce measures and policies that really will ensure that people who work for companies are part of that company,
that they are valued by that company and that in effect they become stakeholders, who get a payback from the company.
Mr. Pearson:
I begin by paying a warm tribute to the Chancellor of the Exchequer for taking the decision to phase out profit-related pay schemes. That was described in the magazine Taxation as being "politically courageous". That is right. Politics is about taking hard decisions. Undoubtedly there are a number of genuine profit-related pay schemes, but it is clear from all the survey evidence that has been published that there have been widespread abuses.
If you will excuse me, Sir Geoffrey, I shall be self-indulgent and quote myself. I have never done that before. In the Standing Committee that considered the Finance Bill last year, I said:
I feel sorry for those who have been operating genuine PRP schemes. I recognise that there might be some danger that the Chancellor has, as one of the directors of the CBI pointed out at the time of the Budget,
I have particular sympathy for the John Lewis Partnership, which was mentioned earlier. Last year, it paid out more than a third of its £150 million profit in profit shares. The company chairman said:
I must disagree with my hon. Friend the Member for Rotherham (Mr. MacShane) when he put the blame on Lord Lawson for the abuse of the PRP scheme. I think that any blame should be placed on another former Chancellor, the right hon. Member for Kingston upon Thames (Mr. Lamont). Until March 1991, fewer than 300,000 people were covered by PRP schemes; it was the March 1991 Budget, which doubled PRP relief, that led directly to the widespread abuse of the schemes that has occurred since then. In less than five years, membership of PRP schemes has grown from 300,000 to 3.7 million.
It is worth reiterating the statement made by the Chancellor in his Budget speech, when he spoke of the 3.7 million people who would be affected by abolition of the scheme. He said:
If the Chancellor is intellectually consistent, he is clearly indicating that he wants to abolish tax relief on "save as you earn" share option schemes, company share ownership plans and profit-sharing schemes. If that is indeed the Government's intention, perhaps the Minister will tell us so in his reply.
Mr. Jack:
The amendment invites us to spend up to £150,000 on a report. That is unnecessary public expenditure. The details will be recorded in the Inland Revenue statistics, and I see nothing in the arguments that we have heard that commends the amendment.
The second amendment confirms that profit-related schemes can save costs for companies. The job that Lord Lawson set out to do with the profit-related pay schemes--encouraging the establishment of such schemes--has now been done; my right hon. and learned Friend the Chancellor now believes that the relationship of profit to pay can be sustained, but without the need for further support from the tax system. I am therefore confirmed in that line of argument in the substantive part of the relevant clause.
"all too often PRP schemes have been abused and used by companies as a tax dodge."--[Official Report, Standing Committee E, 15 February 1996; c. 351.]
I pointed to the significant level of programme dead weight and the lack of additionality of the vast majority of PRP schemes. I also highlighted the fact that it was very much a get rich scheme for consultants, who were visiting companies and telling them, "I know how I can save money on your wages bill," and making a very easy sale because the tax man was picking up the cost.
"thrown the baby out with the bath water,"
but I do not see any practical alternative when legislating in this area.
"No doubt some clever accountants and lawyers have run rings around the PRP rules, but the John Lewis scheme was a genuine sharing of profit from top to bottom of the company."
I believe that to be correct. I have sympathy for any employees who will lose out as a result. I do not think that we can ignore the widespread abuses of the scheme. That is why the Chancellor was fundamentally right to take his decision.
"I can no longer justify the ever increasing cost of the tax relief to the 22 million taxpayers who are not in profit-related pay schemes. We cannot permanently divide the work force into groups of people who pay different levels of tax on the same earnings
22 Jan 1997 : Column 1009depending on whether the firm that they work for is in a scheme or not. The aim . . . of widespread use of PRP--has been achieved, and I would rather make faster progress on lower taxes for everybody."--[Official Report, 26 November 1996; Vol. 286, c.165.]
I know that intellectual consistency is not normally the remit of politicians, but if what the Chancellor said, rightly in my view--I refer to the words
"We cannot permanently divide the work force into groups . . . who pay different levels of tax on the same earnings depending on whether the firm that they work for is in a scheme or not"--
applies to the 3.7 million people who currently benefit from PRP schemes, it applies equally to the 700,000 or so people who are participating in profit-sharing schemes, the 500,000 participating in "save as you earn" share option schemes and the 100,000 or thereabouts participating in company share ownership plans, which used to be described as discretionary share option schemes.
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