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Mr. Jack: As the hon. Gentleman says, I have been looking carefully at the amendment. Using the registration criteria for profit-related pay and the terms of the Opposition's amendment--it is, in fact, a new clause; I should not want to downgrade it to an amendment--will he say how, in reality, the scheme would work?
Mr. Tipping: That is the comment of a genuinely inquiring Minister. He has had since January to consider the issue. He has had the benefit of knowing the terms of the new clause--I am grateful for his correction--for a little time. If he is not satisfied with it, he at least knows its spirit: that the risk, the downside of profit-related pay, should be shared as well as the upside. I am sorry that he finds the new clause difficult; it is very straightforward. In essence, it proposes that current members of the scheme would not lose out until 2000 and that only genuine, bona fide schemes will in future qualify.
I want to draw the Financial Secretary's attention to good schemes and bad schemes--especially to one that is about to be introduced at Nottingham university. In the past, Nottingham university has been viewed as being in the public sector. It has now decided that it is in the private sector. It has corporate status and is to introduce a profit-related scheme. I would call the scheme not a profit-related scheme but a salary-conversion scheme.
The accountancy firm, Ernst and Young, which has looked at the issue, suggests that 75 per cent. of all profit-related schemes are salary-conversion schemes. Staff at Nottingham university--I am delighted that the Chancellor, who received an honorary degree from Nottingham university some time ago, is in his place--were told that the scheme was a no-risk scheme; that if 80 per cent. of them voted for it, it would be pound notes all the way; and that there was no element of risk.
I still find it difficult to understand conceptually how a university can make a profit. Moreover, many of the staff at the university are anxious about the notion of profit-related pay at a university. They recognise it for what it is--a tax avoidance scheme--and know that the most significant part of their income comes from the public purse. They are avoiding tax and are not paying it to the Exchequer. Simultaneously, however, university and student funding comes from the Exchequer. It is bizarre.
New clause 3 would end the element of tax avoidance. My hon. Friends have already mentioned the increase in the number of schemes that people are attempting to establish by 2000. I support the new clause because it would improve the Bill. I hope that we shall have an opportunity to make more progress on the subject in the debate.
Mr. Tim Smith:
Having listened to the debate, I conclude that new clause 3 would be ineffective and that it is misdirected. The Government have become a victim of their own success. Tax relief on profit-related pay was introduced in 1987 and was generally welcomed. A chart in the Red Book shows how the cost of relief has risen substantially over the past few years, especially since 1991, when it was doubled. This year, it is estimated that it will cost £1,500 million. Therefore, one could reasonably say that the relief has achieved its objective, and that it would be sensible to phase it out.
I have no knowledge of the figures produced by the hon. Member for Rotherham (Mr. MacShane) and I certainly do not dispute them. Companies may have been attempting to take advantage of the relief although it is to be phased out, and that issue should be addressed, but if the Opposition are as concerned as they claim, they should have drafted a more effective new clause. Surely it would have been more sensible to say that no new schemes will be registered as from today. Why not? If the relief has achieved its objective, why not say, "We'll finish the existing schemes, but no new schemes will be admitted"?
The difficulty with the Opposition's new clause is that it is unintelligible and would achieve nothing. It states:
New clause 3 does not go far enough and is rather feeble.
Mr. MacShane:
Is not subsection (1) the key part of the new clause? If the new clause is agreed, we will, de facto, be announcing a winding-up of profit-related pay schemes. Lawyers and accountants have made fun of interpretations of subsection (2), but that is a matter for experts and the Revenue and, ultimately, for the courts. We face that problem with all complicated amendments to tax law. However, the thrust of the new clause is quite clear: it is politely to say that no one wants such schemes any more and that it is time to say goodbye to existing
Mr. Smith:
It is not the Minister's new clause. It has been tabled by the Opposition, and we are entitled to ask a few questions about its implications. The hon. Gentleman seems to be shifting his ground and saying that we should place more emphasis on subsection (1), but that is what I have been saying. Why not stick to the first condition and drop the second? Subsection (2) does not make sense. It is no good merely saying that we want to outlaw schemes that are not bona fide and keep those that are. We must draft legislation that achieves the objective, but I do not think that that can be done in one sentence. I certainly do not think that new clause 3 achieves that objective, and that is why I think that it should be thrown out.
Mr. Jack:
I have listened assiduously to the debate. The hon. Member for Rotherham (Mr. MacShane) accused Conservative Members of incompetence, but this is an incompetent new clause. No Opposition Member could answer my question about how the second condition would work. The hon. Member for Bristol, South (Ms Primarolo) shakes her head. I shall give way to her if she can tell me how it would work within the terms of the existing registration scheme. Clearly she cannot do so. She asks the House to approve a new clause that, essentially, will not work.
I caution the hon. Member for Bristol, South that the Opposition have not thought through the full implications of their proposal. She said that in principle Labour supports the Government on phasing out profit-related pay. I assume, therefore, that she supports the argument advanced in the Budget debate by my right hon. and learned Friend the Chancellor, whom I am delighted to see in the Chamber, when he said that he wants an orderly withdrawal of profit-related pay so that companies can adjust their affairs as tax relief is withdrawn. New clause 3, however, would cause a disorderly withdrawal of relief. The Opposition cannot have it both ways.
Ms Primarolo
indicated dissent.
Mr. Jack:
The hon. Lady shakes her head. It is her new clause--let her tell me that I am wrong. Under the new clause, no more profit-related pay schemes could be registered for tax relief after the Bill received Royal Assent. That would eliminate 50 per cent. of profit-related schemes, some of which may be entirely virtuous, according to the Opposition's definition.
How will the Opposition explain their proposal to the 36,000 employees of the John Lewis Partnership--an organisation that was prayed in aid by the Opposition as operating a good scheme? Some Opposition Members did not want such schemes to be affected. How will they explain why such employees will be unable to continue
their profit-related pay scheme and take advantage of phased withdrawal of tax relief? Other companies are in a similar position.
Mr. Jack:
I do not want you to blunder into this and have to face the slings and arrows of outrageous fortune in the form of--
Mr. Deputy Speaker (Mr. Michael Morris):
Order. All Members in the Chamber are hon. Members, not "you" or "I".
Whitbread, with 67,000 employees, Safeway with 60,000, Barclays with 62,000 and many other companies that I could name have annual registration for schemes that the Opposition would call virtuous but that the new clause would eliminate. The House should not be invited to support the new clause.
As for the second condition in the new clause, the registration requirements simply identify the business unit effect, the number of employees, the size of the profit-related pool, how long the scheme would last, the total of profit-related pay that would be required and the upper limit of the profit pool. The new clause would not comply with those requirements; it would not work. It would mean that no more profit-related pay schemes could be registered for tax relief. No serious operator would propose such a measure while claiming to agree with the Government's approach on phasing out profit-related pay. If the new clause is pushed to a vote, I invite the House to throw it out.
"The pay before deduction of tax of employees to whom the scheme relates does not change as a result or consequence of the scheme."
As I understand it, however, to qualify initially as a profit-related pay scheme, a part of one's pay must be variable in relation to the profits of the organisation for which one works. As the hon. Member for Bristol, South (Ms Primarolo) and other Opposition Members said, only a small proportion of someone's pay may vary, but I do not believe that a scheme would be approved if no part their pay varied although the employing enterprise's profits fluctuated. Therefore, new clause 3 would achieve little or nothing.
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