Mr. Timms: The issue here is achieving the right balance between flexibility for employees with the administrative burden for employers.
The Chairman's attention having been called to the fact that ten Members were not present, he suspended the proceedings; and other Members having come into the room and ten Members being present, the proceedings were resumed.
Mr. Timms: The current rules allow employers to set a qualifying period for participation in the all-employee share ownership plan of up to 18 months. That allows employers to exclude certain employees from the planfor example, those on short-term contracts. However, the employer is free to choose whether to introduce a qualifying period. For the purposes of saving for partnership shares, the employer can choose whether to introduce an accumulation periodthe period over which employees save to buy shares. Where the company sets an accumulation period, it will be a fixed period, which applies to all employees. The accumulation period could be the financial year from 1 April to 31 March, or could be much shorter if the company wished. An employee cannot start to accumulate funds to buy shares until they have served any qualifying period set by their employer, and must always start at the beginning of the accumulation period. However, the employee needs to have served a qualifying period of only six months to buy shares through an accumulation period, in recognition that accumulation periods may be as long as 12 months.
The all-employee share ownership plan was designed with maximum flexibility for employers who choose to offer a plan to their employees. It is for the employers to decide what elements they wish to put into plans to reward their employees. Proposed new sub-paragraph 5 would remove some of that flexibility for employers. In addition, the amendment would probably not achieve its intended effect if an employee is to participate in an award of partnership shares. In that case, the employee must be eligible as defined in paragraph 13 of schedule 8 to the Finance Act 2000. Under the amendment, the employee will not be eligible at the start of the accumulation period.
Proposed new sub-paragraph 6 is intended to allow employees to signal the intention to join the accumulation period at some time other than at the start. The current rules governing the all-employee share plan already allow some flexibility. Employees may start or stop paying into the plan at any time, and can choose the dates on which to exercise the choice. All they have to do is tell their employer. On that basis, the amendment is unnecessary. However, the heart of the matter is getting the right balance between flexibility for employees versus the cost for the employer in administering the scheme. Last year's Act set the balance at about the right place.
Mr. Tony Banks (West Ham): Share ownership plans are an excellent incentive for employees. Companies that operate such schemes tend to be more successful in a number of ways. However, share ownership schemes, by definition, can happen only within the private sector. How can the benefits be extended to the public sector? It seems unfortunate, and to some extent unfair, that those economic advantages are not available within the public sector.
Mr. Timms: My hon. Friend is right. There is growing evidence of the beneficial impact of such schemes on the performance of private firms that take advantage of them. He will be pleased to note that we listened carefully to representations from the co-ops in the run-up to last year's Finance Act and so have accommodated co-operative organisations as potential beneficiaries from the plans. He is also right that by definition there is no concept analogous to profit or share value in the public sector, and so the benefits are not available to public sector employees. I have had representations from time to time that we should work up something that would be analogous. I have not yet seen anything that looks as though it may do the job. However, if my hon. Friend, or others, had ideas that we should look at, of course we would be happy to do so.
Mr. Flight: The easiest answer to the question is self-evidently privatisation or PFI-isation of the public service. On the basis of the Minister's response, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That this schedule, as amended, be the Thirteenth schedule to the Bill.
Mr. Flight: Hon. Members will be aware that amendment No. 16 has not been selected because, as has been said correctly, it deals with a national insurance issue, whereas schedule 13 is concerned with tax. However, the Government should consider the issue of certainty of national insurance costs, which they have already addressed in relation to unapproved option schemes. At present, an employer's national insurance is charged on all employee share ownership plan shares in two ways. If an income tax charge occurs during years one to three, it is levied on the market value of the shares at the time; during years four to five, it is levied on the original market value of the shares. That can lead to unpredictable cost exposure for employees, which is analogous to the problem that arose with unapproved options.
As the Government have accepted that unpredictable national insurance exposure is a problem and as they duly acted in unapproved option schemes, would it not be sensible to give employers certainty in national insurance cost for share ownership schemes? The Committee should also note that the charging of national insurance is an anomaly and that there is no national insurance exposure on other forms of the plan.
Mr. Timms: I will respond directly to the hon. Gentleman's point, which was referred to in the unselected amendment. The all employee share ownership plan is not an option plan; it provides tax incentives to employees and employers when employees take a stake in the company for which they work. They have an interest in the shares from the time that they are awarded, and tax benefits apply if an employee holds those shares for five years. If the shares are taken from the plan within five years and there is an income tax charge, there will be a national insurance liability, because the two charges are aligned.
As the hon. Gentleman mentioned, we have made an exception for share options to give special help for the high-growth sector where options rather than share awards often form an integral and substantial part of remuneration packages. In such cases, the timing and amount of the national insurance liability is uncertain and companies can experience problems with investment strategies and growth plans. However, there is no prospect that national insurance liabilities in the all employee share ownership plan will have the same consequences. We do not want employers to pass national insurance liabilities in the plan to employees in this case, because that would act to discourage employees from taking part. The scale is different, and it would not be appropriate to make a change in the schedule analogous to the one that we made with share options.
Question put and agreed to.
Schedule 13, as amended, agreed to.
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