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Mr. Ken Purchase (Wolverhampton, North-East): The hon. Gentleman raises important matters of detail. Would it not be sensible, however, to deal with elections in the framework of the memorandum and articles rather than including them in the Bill and having to sort them out now?
Mr. Lidington: That is a reasonable point, but I would want to explore in Committee and on Report whether that is the best approach. It might be better to stipulate it in law or, more probably, secondary legislation through regulations, which would receive parliamentary scrutiny.
The third proposal is to change the arrangements for corporation tax relief. I am sure that the hon. Gentleman will not mind my being amused at the irony of ditching tax relief arrangements for some schemes which were introduced by the Government in favour of those introduced by my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) in QUESTs. That also gives rise to some questions. I have not formed a final view on the matter and think that there should be wide consultation with interested parties and the business community in general. Is it right to limit those corporation tax relief advantages to some employee share schemes rather than giving them to all such schemes? Is 10 per cent. the right threshold if we are to distinguish between schemes? How do the corporation tax arrangements set out in the Bill interact with those set out in paragraph 106 of schedule 8 of the 2000 Act?
That leads me to two questions about the Bill as a whole. One is about the possible cost to the Government of the Bill's changes to corporation tax relief. Inevitably, if the Bill provides for more generous corporation tax relief than is covered in present legislation, there is bound to be some cost to the public purse in terms of revenues forgone. Clearly, before Parliament agrees to let the Bill proceed to the statute book, it would be right to know the best estimate of the revenue which will be forgone.
I do not blame the hon. Member for Edinburgh, North and Leith for this, but he has not been able so far in the debate to provide such an estimate. I am sure that the Treasury and Inland Revenue have been doing some number crunching, and I hope that the Minister will be able to come up with an estimate when she speaks—if she catches your eye, Mr. Deputy Speaker.
The House needs to bear in mind not just the immediate cost of the Bill. After all, the reason why the Government decided to change the corporation tax relief arrangements that they inherited was the way in which, they argued, those arrangements were increasingly used by companies to avoid considerable amounts of tax, thus offering scope for growth in legal tax avoidance. In the words of a commentary from ProShare that was distributed at least to some hon. Members this morning:
- "in 1997 clever tax advisers spotted the generosity of the legislation—the upfront Corporation Tax relief for the company—and began to market the use of QUESTs to FTSE companies."
We also need to ask about the compliance costs of the legislation. Again, as the hon. Member for Edinburgh, North and Leith will know, any Government Bill must be accompanied by a compliance cost assessment of what it will mean to industry. It is a private Member's Bill, so I do not expect him to come up with the sort of audit that Whitehall is capable of providing, but the Government's view on that matter would be welcome.
The Government's regulatory impact assessment for the SIP legislation suggested that a large company would face start-up costs of between £200,000 and £750,000 when it first established an SIP, plus annual running costs of between £100,000 and £200,000. The estimates for smaller companies, by which the Government meant companies employing about 50 people, were start-up costs of between £20,000 and £40,000 and annual running costs of between £15,000 and £30,000, possibly capable of being reduced to about £10,000 in some circumstances.
We therefore need to take seriously the possible costs of these measures both to the Treasury in terms of revenue forgone and to businesses themselves in terms of possible burdens. If those administrative costs are excessive, the Bill will not have the beneficial impact that its sponsors wish. We need to consider in Committee and on Report whether it is right to amend the law in that way.
Mr. David Drew (Stroud): I hear what the hon. Gentleman says and am pleased to hear that the Opposition Front-Bench team supports the Bill in principle; but does he agree that there is prevailing unfairness about the way in which we treat mutuals? There is greater complexity than there needs to be. Often, they are exempted from what other public and sometimes private businesses can gain access to. This Bill is about putting right those wrongs.
Mr. Lidington: The Bill is about trying to encourage both employee share ownership in companies that at present cannot take part in the SIP arrangements and worker ownership—greater mutuality, or however the hon. Gentleman wishes to describe it. There are certainly advantages to mutuality. As the hon. Member for
Edmonton said, we should consider carefully why such arrangements appear to be more successful and more widespread in the United States than they are here, and the benefits that they undoubtedly bring, but we do not want to pretend that mutuality is an answer to everything. There are merits in the orthodox idea of a firm with shareholders who hold a board of directors to account. The largest private sector employer in my constituency is what used to be Equitable Life, so mutuality is no guarantee that the right decisions will be taken.
Mr. Love: In the Finance Act 2000, the Government in their great wisdom extended SIPs to redeemable shares of industrial and provident societies. The Bill will extend SIPs to employee trusts. As yet we have not been able to find a mechanism to extend it to mutually owned businesses such as building societies. Will the Opposition parties join the Government in trying to give the benefits of employee share ownership to mutual organisations?
Mr. Lidington: I am happy to say that we are very willing to explore ways in which that may be done, subject to what I have said about costs both to Government and to the business sector, but the principles set out by the hon. Member for Edinburgh, North and Leith are good. It is right to seek to expand the opportunities for employee share ownership and to look for ways in which to make workers feel that they have a real stake in the company by which they are employed. If we can devise the right arrangements in which to embody those principles, I agree that the economy will be more productive and the prosperity of all our citizens will be enhanced. It is in that spirit that Conservative Members will be happy to see the Bill gain a Second Reading and continue to be given the detailed consideration that it merits.
10.28 am
Mr. Adrian Bailey (West Bromwich, West): I support the Bill and congratulate my hon. Friend the Member for Edinburgh, North and Leith (Mr. Lazarowicz) on the slot that he drew in the private Members' ballot. I thank him for choosing this subject as the basis of the Bill.
I should make it clear that I have been a lifelong supporter of co-operative principles and of the co-operative movement. Indeed, I was an employee of the co-operative movement for 18 enjoyable and rewarding years. I am proud to stand in the Chamber and say that I am a Labour and co-operative Member of the House.
Although the Bill does not directly promote co-operatives, it reinforces the principle of democratic participation in companies by employees, and gives staff the right to share in the appreciating value of their company, which their labour has helped to build. Both are values and principles held most dear by the co-operative movement. As my hon. Friend the Member for Edinburgh, North and Leith and the hon. Member for Aylesbury (Mr. Lidington) said, the Bill is the latest in a sequence of measures; it would tidy up anomalies that have arisen out of legislation introduced by both Labour and Conservative Governments to provide a corporate legislative framework that will enable capital and labour to work together for the benefit of both.
Historically, Britain's industrial performance has been dogged by tensions between capital and labour. Reading the Bill brought to my mind a book and film that many
hon. Members will remember: "I'm All Right, Jack". Starring the late Peter Sellers, the film caricatured the bitterness of industrial relations under the old-style capitalist management prevalent in the immediate post-war years. I do not claim that the attitudes portrayed in the film were typical of all companies, but there is no doubt that the tensions it portrayed were reflected in our industries for many years following the war.The Bill is the product of a new era. The old tensions led to strikes, the consequences of which were sometimes devastating to our economy, staff employed and companies themselves. Even when companies survived without such tensions, the corporate framework in which they worked meant that they were unable to harness the collective talents of employees or stimulate their collective initiative in a way that added value to the companies' managerial strategy.
There is a world of difference between the contribution of an employee who goes to work, clocks on or signs in, does a conscientious day's work for his day's pay and then goes home, forgetting about his work, and an employee of a company in which employees have a share and participate. He goes into work feeling part of that company, wanting to contribute, looking for ways to increase efficiency; he works with colleagues who are in the same position to promote new ideas and more effective working arrangements. The Bill promotes the sort of corporate framework in which the latter can thrive.
Employees who are confident that their ideas will be listened to and respected, and who know that if those ideas are implemented and are successful they will benefit from the additional productivity generated, are far more likely to be positively committed to their work than those who are not. The Bill is one of those rare pieces of legislation from which everyone is a potential winner.
The economy should gain from increased productivity. As my hon. Friend the Member for Edinburgh, North and Leith said, the latest research in the United States demonstrates the gains made in productivity in companies in which there is wider share ownership and participation. From my perspective as a lifelong supporter of co-operation and the principles that lie behind it, it is good to know that there is now a body of statistical evidence that demonstrates the principle—the instinctive feeling—that the system set out in the Bill embodies the right way forward. No wonder the model is more advanced in the United States than in this country.
The Bill will assist the development of a new enterprise culture, wherein people are encouraged to invest responsibly and develop confidence in doing so. The hon. Member for Aylesbury highlighted the contribution that Conservative Governments made in creating a property-owning democracy—although tempted to intervene, I resisted the urge to point out that for many it subsequently became a property-owing democracy. The hon. Gentleman rightly spoke about the steps taken to increase the number of people who owned shares and became used to handling them. The great virtue of the Bill, as opposed to the Conservatives' privatisation measures, is that it promotes responsible long-term use of shares, rather than their purchase for quick short-term profit. It would be interesting to carry out research into the relative duration of ownership of shares by those who purchase them via the Bill's mechanism, compared to those who purchased shares in the privatisations, but I shall not divert the debate by speculating on that point.
Individual companies are clearly likely to gain from having better motivated staff with lower rates of absenteeism and unpunctuality. Participation in decisions by employee representatives leads to greater understanding of company business and acts as a unifying force among staff. The employees gain from the wealth created by the improved working environment and the confidence created by decision making and being able to take greater control of their lives.
The Bill would correct some of the deficiencies in legislation made under previous Governments. Hon. Members on both sides of the House recognise the merits of its approach. I am pleased to commend the Opposition on following the logic of legislation introduced by Conservative Governments and supporting the Bill in principle. I especially welcome the provisions that widen the range of companies eligible for tax relief on employee share holding. My hon. Friend the Member for Edinburgh, North and Leith spoke eloquently about the irony of a company such as John Lewis Partnership, which is regarded as a model of employee participation, being excluded by previous legislation. The Bill would correct that anomaly.
The Bill also makes provision for companies that set up share trusts, facilitating the process whereby democratic elections can be held to place employee representatives on the trust. Everyone welcomes the reinforcement of such rights of representation. I applaud the changes that remove tax barriers to enlightened company owners who want to hand over their company to employees, or to make a substantial donation to existing employee trust funds. Hitherto, the obligation to pay corporation tax up front when transferring companies has been a major disincentive, especially when the company is experiencing difficulty and the prospect of a transferred company under employee control surviving is made slimmer by the additional costs incurred under existing legislation.
The Bill gives new hope and new scope to a new generation of entrepreneurs—the example of Poptel was quoted. It gives new entrepreneurs, working in new areas, looking for new methods and pioneering new ways of working, new scope to set up corporate models that will maximise the talents of their work force.
When I first looked at the Bill, I could not help but reflect that company law and tax law are probably the driest and most arcane areas of the law. This Bill is a combination of both. However, we must recognise that, despite that, the forces that the Bill seeks to liberate are potentially revolutionary. It seeks wealth creation by recognising and rewarding innovation; wealth distribution by spreading the benefits of wider share ownership; and education and confidence building by including people in vital corporate decision making, which hitherto has been denied them. Despite the Bill's dryness, those are vital parts of a developing new economy, and I hope that everyone who shares the aspirations reflected in the Bill will join me in supporting the measure.
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