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9.59 am
Mr. David Lidington (Aylesbury): It is a pleasant duty to congratulate the hon. Member for Edinburgh, North and Leith (Mr. Lazarowicz) on his speech, which showed
that he had immersed himself in the detail of his chosen subject and that he came to it out of a deep belief in the ideas to which the Bill gives expression, and on his success in the ballot. From my experience in my first Parliament, I recall the mixture of delight and terror that one feels when one is successful in the private Members' Bill ballot. He has chosen an important subject that is worthy of debate, and I congratulate him on that.It is important to state on behalf of Conservative Members that we fully support the principle that we should encourage and make it easier wherever possible for employees to own shares in the company for which they work. One of the great achievements in British life since the second world war has been the creation of a property-owning democracy. Conservative Members take particular pride in the achievements of the Governments led by my noble Friend Baroness Thatcher of Kesteven in helping to bring that about.
One of the next steps forward from the achievement of a property-owning democracy must be to search for measures that will build a capital-owning democracy, in which not just those who are fortunate enough to inherit wealth but people from all backgrounds and all parts of the nation will have the opportunity to own and to take responsibility for the sums of capital that can provide them with the security which only a small number of our fellow citizens in previous generations had the fortune to hold. As the hon. Gentleman said, employee share schemes are an important means of seeking to achieve the objective of a capital-owning democracy.
A profile of British shareholders conducted by MORI on behalf of ProShare, the share ownership promoter, showed that approximately 14 per cent. of all shareholders in this country first became involved in the ownership of shares through an employee share scheme of some sort or another. I do not mean this in a partisan spirit, but a larger percentage—30 per cent. of all shareholders—first became involved in the ownership of shares through the benefits of privatisation schemes. It is important to accept that there is more than one route to more widespread capital ownership. The particular method embodied in the Bill is certainly important and deserves further debate and encouragement.
Mr. Andrew Love (Edmonton): The hon. Gentleman refers to wider capital ownership, so does he accept that the figures for the United Kingdom have been disappointing, especially compared with the United States, where there is much wider share ownership? Should we not look to the United States for examples of how we could do better in this country?
Mr. Lidington: I agree very much with the hon. Gentleman. He makes a perfectly valid point. A lesson for those of us on the centre right of British politics is that we should not be afraid to encourage greater employee share ownership. Across the Atlantic, that method of spreading capital more widely is accepted to a greater extent than it has traditionally been in the United Kingdom.
Shona McIsaac (Cleethorpes): If we are to learn from the United States, we must of course avoid scandals such as Enron. We should not accept everything that the United States has done for share ownership.
Mr. Lidington: I look forward to the continuing debate between the hon. Members for Cleethorpes (Shona
McIsaac) and for Edmonton (Mr. Love) about the merits of the United States model. We should never take the methods applied in any other country as a blueprint that necessarily can be applied directly to our circumstances in the United Kingdom. However, since his election to the leadership of the Conservative party, my right hon. Friend the Leader of the Opposition has made a point of stressing that we need actively to consider examples of policy success across the Atlantic and across the channel; and should examine whether some lessons can be applied fruitfully in this country.It is good for employees to have a material stake in the success of their employer. That is an important way in which to shape a corporate culture within a firm so that employees feel that they are valued by the enterprise for which they work and that their contributions are taken seriously by its management and directors. As the hon. Member for Edinburgh, North and Leith said, companies benefit when they are able to unlock the enthusiasm, the creativity and the ideas of their work force and can enhance those to the advantage of the enterprise as a whole. Employee share schemes offer one important way of bringing the interests of employer and employee together.
As the hon. Gentleman pointed out, under Governments of both political colours, there has been a history of initiatives to encourage employee share ownership. He mentioned the save-as-you-earn scheme and the company share option schemes introduced by Conservative Administrations. Those schemes are still in being and currently benefit 1.75 million workers in about 1,200 firms. He also referred to the approved profit sharing schemes and the qualifying employee share trusts—QUESTs—that were introduced by Conservative Governments in the 1980s and that have been replaced by this Government's share incentive plan, the so-called SIP.
At the time of the introduction of SIP in the Finance Acts of 2000 and 2001, we took the view that the Government's measures were in some ways an improvement but in others worse than the schemes that they replaced. However, we were prepared to give the new schemes broad support. I hope that, when the Paymaster General responds to the debate, she will be able to bring us up to date with the Government's assessment of the success of the SIP scheme so far.
A press release from ProShare dated earlier this month said that 220 schemes had now been approved and that more than half the firms involved had fewer than 250 employees. That shows that smaller firms are becoming involved to a greater extent than before. That is clearly good news, but the Chancellor's stated aim is to have 1,750 schemes, which is the figure that was produced in the Government's impact assessment when they brought the legislation before Parliament. I would therefore be interested in the Paymaster General's assessment of how long it will be before that target is met. She will know that there have been criticisms from the financial services industry about the new schemes' complexity and the bureaucratic obstacles in the way of operating them. Some fears have been expressed that that might deter firms that might otherwise be attracted to this method of encouraging employee participation.
We welcome the hon. Gentleman's Bill as an opportunity to debate the issue further and to explore the merit of specific proposals for reform. I hope that I do not disappoint him too much if I say that I cannot promise to
adopt his Bill lock, stock and barrel as official Conservative party policy. We take his points seriously, and they are embodied in the Bill. A number of detailed matters need to be debated, however. We do not oppose the Bill's Second Reading and I hope that it will proceed to a Standing Committee and beyond so that it receives the close scrutiny that it deserves and we can resolve some of my questions about its detail.As the hon. Member for Edinburgh, North and Leith said, the Bill's measures can be divided into three. The first is the proposal to broaden the opportunity to participate in a SIP to include employee-owned companies. He mentioned some of those, including the John Lewis Partnership and the Arup group, and demonstrated that there is a gap in existing arrangements. Perhaps that can best be illustrated by referring to the John Lewis Partnership. I am grateful to its representatives, whom I met, for briefing me on the Bill.
Paragraph 61 of schedule 8 of the Finance Act 2000 defines those shares that are eligible for inclusion in a SIP. First, they have to be listed on a stock exchange. The trouble is that the only class of John Lewis shares so listed are preference shares, which the legislation specifically excludes from eligibility. Secondly, shares are eligible if they are in a company that is not under the control of another company. The structure of the John Lewis Partnership means that the shares in the plc are controlled by a corporate trustee and are treated in law as the shares of a subsidiary, which therefore makes them ineligible.
The third criterion for eligibility might get John Lewis out of its hole. Shares are eligible for a SIP if they are in a company that is a subsidiary, other than a closed company, and listed on a stock exchange. The trouble is that the Inland Revenue ruled that the John Lewis Partnership counts as a closed company. It is ineligible for the SIP arrangements because it has fewer than five shareholders, which is a result of its particular corporate structure and the involvement of the corporate trustee. Although it looks like the Bill might fill a gap in the arrangements, I wonder whether it would deliver the benefits that the hon. Gentleman and the Bill's sponsors wish to see.
John Lewis told me that it supports the Bill, but it also explained that it would not be a panacea. My hon. Friend the Member for Chesham and Amersham (Mrs. Gillan) alluded to some of the possible difficulties. It might be hard for such a company to create a class of ordinary shares that meets legislative requirements and complies with the obligations in the partnership's trust settlements. It might be awkward in practice to establish an internal share market, which would have to be created if we were to allow employees in such a company to trade in shares. In addition, as my hon. Friend the Member for Hertford and Stortford (Mr. Prisk) said, many retail workers are part-time or low-paid employees. We have to wonder whether an SIP is the right savings vehicle for such people. Is the five-year period during which planned shares have to be held before tax benefits accrue realistic for them? Again, I have to wonder whether that aspect of the Bill will be as beneficial as the hon. Gentleman hopes it will be.
The second broad proposal is to allow employees who are elected by the work force to sit as trustees. I have no objection to that in principle. If it makes workers more involved with the decisions of a trust and gives them a sense of ownership and a greater stake—in the wider
sense of the word—in the fortunes of their company, then that is welcome. Questions again arise, however. Would it be wise to allow, as the Bill does, the majority of trustees to be non-professional, given the considerable obligations that fall on trustees to look after the assets of their co-workers? Should there be a definition in legislation of the way in which such employee trustees are to be chosen?The hon. Gentleman and some of the commentary in support of his proposals suggest that the Bill would provide for elected employee representatives to sit as trustees, but the Bill does not lay down a method of election, nor does it say that that election should take place. There is not even an enabling power for the Chancellor of the Exchequer to make regulations to define a method of election. The Bill does not specify that there has to be a secret ballot, nor does it stipulate the period of trusteeship before a worker trustee has to seek re-election.
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