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10.15 am

The Bill is a positive measure. The more widely shares are owned in this country, the more successful we shall be. All the studies that have been undertaken here and in the United States show that companies with serious employee share ownership have succeeded markedly better than those without it. We welcome the new clause, which completes the necessary facilities for companies to put in the 10 per cent. block employee share transfers.

The Paymaster General (Dawn Primarolo): I welcome the comments of the hon. Member for Arundel and South Downs (Mr. Flight) on the contribution that employee share ownership schemes can make not only to involving employees in businesses but to the success of the businesses. I do not want to go down the route on which the hon. Gentleman started and dwell on the definition of the difference between capitalism and socialism, but if he has a spare moment over the weekend, he should examine the proud history of the co-operative movement and the Labour party. He will then realise that social ownership, sharing and wealth creation have been at the heart of the Labour movement's philosophy.

I shall deal briefly with take-up of SIPs. So far, it has been satisfactory. To date, the Inland Revenue has approved the plans of some 337 companies. Of those,

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160 never previously had an all-employee share scheme. That is well on track for meeting our aim of encouraging approximately 1,750 companies to adopt an all-employee plan for the first time. Forty per cent. of the approved plans are from unlisted companies and 45 per cent. are small or medium-sized enterprises, with fewer than 250 employees. I am delighted with that progress.

Linda Gilroy: I am interested in my hon. Friend's progress report. Does she hope and expect that there may be increased employment in those small businesses because the business has prospered?

Dawn Primarolo: Indeed, that is the hope and intention of all hon. Members in supporting the Bill, which was promoted by my hon. Friend the Member for Edinburgh, North and Leith (Mr. Lazarowicz). That echoes the point that the Member for Arundel and South Downs made about his direct experience in his company and his broad experience in the City. All the research demonstrates the contribution that these companies make to productivity and growth, and the Government place great value on that.

The broader question that hon. Members touched on earlier—[Interruption.] Bless you! I have just saved the soul of the hon. Member for Arundel and South Downs. That is a superstition; I should say, for the benefit of those not watching the debate, that the hon. Gentleman has just sneezed, and it is an automatic reaction from my childhood to be polite and say such a thing. I am digging myself into a hole here. I hope that I have now converted him to socialism.

The campaigning and information provided by the Inland Revenue, including the roadshows that have been undertaken with those in the industry, are contributing to the successful take-up of share investment, and I hope that they will continue to do so.

Mr. Gareth Thomas: Does my hon. Friend not think that there will be a role for Members of Parliament in the campaign on the benefits of employee share ownership, following the passage of the Bill, to celebrate not only the benefits of the Bill but the wider benefits of employee share ownership? I am sure that she will have confidence that that could happen on this side of the House. I see the hon. Member for Tunbridge Wells (Mr. Norman) sitting behind the Conservative Front-Bench spokesman. I understand that he used to be a director of Asda. Perhaps he will want to intervene on the Minister to say how he thinks his side will champion employee share ownership.

Dawn Primarolo: I urge all hon. Members to view the Inland Revenue website, which lays out the details of the share incentive plans and the benefits that they can bring to companies. I am sure that the hon. Member for Tunbridge Wells is aware of those and plays his part already in encouraging companies to be productive, to grow and to employ more people; he already has a certain reputation for that.

In Committee, I offered to work with my hon. Friend the Member for Edinburgh, North and Leith to table a further beneficial amendment to the Bill. The new clause eliminates the possibility of share incentive plan trustees

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having to pay tax on shares secured with the benefit of the early corporation tax relief during the 10-year period they have to award the shares to employees.

Under the current share incentive plan rules, tax is charged on dividends received by trustees. In the case of shares that are readily convertible into cash, the trustees will be charged income tax if the shares have not been awarded to employees within two years. For shares that are not readily convertible into cash, tax will be charged if they have not been awarded within five years.

In the same way, trustees may also become liable to tax on capital gains when they award shares to their employees. Again, if the shares are readily convertible into cash, and they are not awarded within two years of their acquisition, capital gains tax may be charged. If the shares are not readily convertible into cash, the trustees may become liable if the award takes place after five years.

The new early corporation tax deduction allows the trustees 10 years in which to award to the employee beneficiaries the shares acquired with the benefit of the deduction. This would not work well with the existing charging rules, to put it mildly. Tax charges arising after two or five years would reduce the benefit of the corporation tax relief. Smaller companies trying to fund the transfer of shares into employee ownership would be particularly badly affected.

I think that it was my hon. Friend the Member for West Bromwich, East (Mr. Watson) who asked whether this provision was another way of ensuring greater take-up of share incentive plans. The amendment secures the benefit that the Bill seeks to provide, because it protects the interaction with the rest of the tax system.

I am pleased to support the amendment, because it will remove this awkwardness. In wishing to see the Bill progress, the House would be a little concerned—I put it no more strongly than that—if we passed the Bill, only to find that the capital gains tax system clawed back what had appeared to be an award of benefit to encourage share incentive plans. As soon as we realised that that was a possibility when we checked the Bill again, I suggested, in Committee, that we should table this amendment. I apologise that we were unable to deal with this in Committee, but it is important that we do so now. The amendment will extend the tax exemptions that share incentive plan trustees now have for two years or five years to 10 years, to match the period allowed for the distribution of shares acquired with the new relief.

The new clause makes three changes to the existing legislation. I apologise for the fact that it is a rather complex clause, but that is necessary to ensure that we deal with this matter properly. The first change is to the rules in paragraph 88 of schedule 8 to the Finance Act 2000, and concerns the exemption for dividend income. The new clause extends the period from two or five years to 10 years for all shares acquired with the new corporation tax relief.

The second change is to the rules in paragraph 98, exempting the trustees from capital gains tax on plan shares that they hold. Again, a change is required to extend the period from two or five years to 10 years in the case of all shares acquired with the benefit of the new corporation tax relief. These exemptions require rules for identifying the plan shares in respect of which the

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exemptions are to be claimed. So the third change requires plan shares acquired under the new corporation tax relief to be identified separately from all other plan shares.

We estimate that the cost of the new clause is likely to be negligible to the Government, although, as I have tried to explain, without it there might have been no cost because we would have recouped it, but that was not our intention. We believe very few share incentive plan trustees are likely to be holding shares beyond the two or five years which give rise to charges on capital gains and dividends under the normal rules.

Finally, it falls to me as the Minister to confirm to the House that the Bill, as amended, is compatible with the European convention on human rights. I therefore commend the new clause to the House.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

Order for Third Reading read.

10.30 am

Mr. Lazarowicz: I beg to move, That the Bill be now read the Third time.

Today's proceedings are the end—or rather, this is the beginning of the end—of a very long process, stretching back to June of last year when I decided, in my enthusiasm after the general election, to enter the ballot for private Members' Bills. As a new Member, I did not fully appreciate the task that I had set myself when I drew a high place in the ballot, but it has been a rewarding experience and I have learned a lot about parliamentary procedure and the passage of legislation. It has also been illuminating for me to learn the degree to which Back Benchers can influence the legislative process—and the strict limits on their doing so.

The fact that the Bill has reached this stage is testament to the staunch support that I have received from a large number of organisations and individuals with an interest in promoting wider employee ownership in the United Kingdom. As we heard from the philosophical exchanges earlier, the approach to employee ownership comes from a number of different perspectives and traditions. The wide interest is to be welcomed, and I am glad that, as well as being of value in itself, the Bill has been a useful way of highlighting the employee share ownership movement to a wider audience, as well as to Members of this House.

Although support for the Bill has been most evident among Labour and Co-operative Members, many of whom are present in the Chamber today, it exists also among some Opposition Members. I am glad to see the hon. Member for Tunbridge Wells (Mr. Norman) in his place; he has supported such a Bill in the past and was unable to be here on Second Reading. Hon. Members from other parties are also present.

Support for the Bill from Ministers and officials in the Treasury and the Inland Revenue has been crucial. I would have had to say, even if it were not true—but it is—that their support has been helpful and, indeed, essential in getting the Bill to this stage. It has been productive for me in so far as I was involved, and those advising me on the Bill have been in contact with the Revenue on many occasions.

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Third Reading is not the time to go into great depth about the detail of the legislation—

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