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Dawn Primarolo: We have had an excellent debate on an important issue, with thoughtful contributions from hon. Members on both sides of the House. I start by thanking my hon. Friend the Member for Edinburgh, North and Leith (Mr. Lazarowicz) for introducing the Employee Share Schemes Bill and for guiding us so expertly through the technicalities. I am pleased that my hon. Friend and his advisers have been able to work closely with the Inland Revenue so that we can agree on a set of provisions that can be supported.
Let me say to my hon. Friend the Member for Edmonton (Mr. Love) that, despite the Treasury's reputation, we do not always say no. We are capable of spotting good ideas and we are here to help, although hon. Members may not always feel that that is the case.
I join all hon. Members who have spoken in congratulating my hon. Friend the Member for Edinburgh, North and Leith. As my hon. Friend the Member for West Bromwich, East (Mr. Watson) said, he is truly to be congratulated on his tenacity, skill, patience and perseverance in his first year in the House. Now that he is an expert in the procedures in the House, other hon. Members may consult him in future, although he may be more reluctant to have his name in the private Members' ballot. He should sleep easy tonight, as I am sure that the other place will look kindly on the Bill—I certainly hope so. It is a huge achievement for my hon. Friend to have developed his principles to this point.
The Government attach great importance to employee share ownership and participation. Increasing employee share ownership is at the heart of the Government's productivity agenda, which includes points that have been echoed repeatedly in today's debate. In our first term in government we put stability and employment creation first. Building on that, over the next decade we want to secure the fastest productivity growth of our competitors. To achieve this goal we must reform and modernise our product, capital and labour markets and create for the first time a truly entrepreneurial culture that is not confined to the few, but open to all, so that in every community people with ideas and initiative have the opportunity to develop.
We must ensure that business investment increases and we must do more to promote competition, innovation and entrepreneurship. Considerable progress has already been made, but our discussions with business have revealed that we can do more to remove the barriers to opportunity and ambition—the ambition not just to start and build a successful business, but to see the firm in which one works succeed and individuals succeed with it. As my hon. Friend the Member for Glasgow, Maryhill (Ann McKechin) said, when those who work in a firm are able to be truly part of that firm, enormous benefits are derived in ensuring that it can develop.
The share incentive plan introduced in the Finance Act 2000 has made it easier not just for some but for all employees to become stakeholders in their companies. In their contributions today, my hon. Friends constantly returned to the importance of all employees being able to be stakeholders in their company.
The Bill represents a milestone in rewarding long-term commitment by employees and removing, once and for all I hope, the old "them and us" culture in British industry—on which the hon. Member for Tunbridge Wells (Mr. Norman) commented. There is no better incentive and motivation for employees than for their work to be recognised and for them to share in their firm's success. The share incentive plan is an example of how each and every one of us—business, employees and Government—can contribute to achieving our productivity goals.
We want employee share schemes to appeal to all employers and employees, and to companies large and small, quoted and unquoted. There can be no doubt about the Government's commitment to employee share ownership in general, and to the share incentive plan in particular. There is a sound basis for that commitment. As my hon. Friend the Member for Dundee, East (Mr. Luke) said, research has shown that businesses with widespread employee share ownership outperform their rivals.
For the past 10 years, the stock market performance of companies with widespread employee share ownership has been monitored and compared with that of other comparable companies. The results are consistent over that period, showing that companies with widespread employee share ownership have regularly outperformed their competitors by a significant margin, and that has continued throughout the recent downturn in the market. That points to a clear link between employee share ownership and company performance.
We are of course not saying that an employee share plan will automatically lead to enhanced company performance. What the evidence points to is a link between the two, especially when other measures are adopted to enhance employee participation. Ultimately, a range of academic studies has concluded that companies with share schemes have higher productivity than those without.
It is the perceptions of the employers and employees that matter. The hon. Member for Tunbridge Wells spoke of the need for a culture change. Employees need to see and believe in the positive effects of employee share ownership schemes. A recent survey of employers by Proshare showed that 83 per cent. of employers who had introduced a share plan found that it had had, or had exceeded, the impact that they desired. Some interesting results also emerged from a survey of employee shareholders. Of those employees, 34 per cent. said that they were now more interested in the company and what it was doing; 28 per cent. said that the plan had improved their commitment to the company; and 25 per cent. said that it made them stay with their employer rather than change jobs.
Those are powerful results. One clear message from the research findings is that productivity improves where there is employee share ownership combined with wider employee participation. That illustrates the crucial point
made by my hon. Friend the Member for Sheffield, Heeley (Ms Munn) about loyalty, and relates to the comments of the hon. Member for Tunbridge Wells.Throughout our time in government, we have placed great emphasis on the importance of people in any successful organisation, and we are right to do so. People are essential, but so too is the way in which we work together. Without good people a business cannot flourish, but without good management good people cannot flourish. Without maximising the potential of and listening to its employees an organisation is lucky to survive the present, let alone get to the future first. That is what good workplace relationships can achieve—the creation of an environment in which employees can work to the best of their abilities, where they feel empowered and involved and where they know they are listened to.
At the heart of good workplace relations must be partnership between employers and employees. An employee needs to know and understand what will make the business succeed, and the employer needs to know how to get the best from the staff. That is pretty basic science, and of course good partnership goes beyond that, but partnership is ultimately all about communicating. Unfortunately, with the challenges that we face in the global economy, there are all too many employers who do not appreciate that fundamental fact.
The benefits to business of successful workplace relationships speak volumes: productivity and performance; recruitment and retention; customer service; return on investment in training; diversity within the work force; morale, commitment and loyalty; reducing absenteeism, sickness and stress; and flexibility in staff attitudes, with an ability to deal with change. As my hon. Friend the Member for Plymouth, Sutton (Linda Gilroy) said, that is an impressive list. Why companies would not want to benefit from all that is a matter that we need to pursue. The links between partnership and those benefits is clear. That continues to be demonstrated in modern work practices.
Organisations adopting those principles can be flexible and adapt quickly to change, which is ever important in a global market. They can know the choices that they face, and seize on and develop them, moving employers and employees forward together. They will understand the need for change and react to it instead of fearing and resisting it. Share incentive plans offer share ownership to all employees in a company, and the Bill seeks to amend the provisions for such plans, to the benefit of all.
I congratulate my hon. Friend the Member for West Bromwich, West (Mr. Bailey) on his 20-year campaign. I am sure that he is delighted at this outcome, and I sincerely hope that it does not take him another 20 years to achieve his next goal—I hope that I will be able to play some part in that, if it falls to me as a Minister.
The hon. Members for Arundel and South Downs (Mr. Flight) and for Twickenham (Dr. Cable) referred to the John Lewis Partnership. John Lewis cannot take part in a share incentive plan because of its corporate structure. Its shares are not eligible under the SIP rules. They are not listed on the stock exchange, nor are they in an independent company. They are under the control of a corporate trustee, and the SIP rules are clear that shares used in the plan must be ordinary shares, with rights equal or superior to the company's other ordinary shares, and they must be either listed on a recognised stock exchange
or in a company that is not under the control of another company—or, if they are under such control, the controlling company must itself be listed and must not be a close company.The John Lewis corporate structure means that none of those tests is met. The shares are all under the control of one person—the corporate trustee—and the employees have a mediated ownership, not the kind of individual ownership that underlies the approved share relief. Those rules protect the interests of all employees and ensure that they have a direct stake in the company's real value. However, as I said on Second Reading, I am glad to report that Revenue officials met representatives of John Lewis at the end of April to discuss how the company could meet the requirements of SIP legislation. I cannot pretend that that will be easy or that we have found a way to achieve it, but I am prepared to consider the technical issues and try hard to resolve the outstanding issue, provided that the central principles of SIPs are not breached. In the past, other types of SIPs and share ownership could be used only by a small proportion of the work force, sometimes at considerable cost in tax revenue. I hope that I made clear the Government's belief that all employees should be able to benefit in the ways that we have proposed.
The hon. Member for Arundel and South Downs referred to the take-up of SIPs, which he believed had been rather slow. It has been faster than take-up of previous all-employee share plans. The Government have received more than 600 applications. The approved profit-sharing scheme, which SIPs are designed to replace, will not disappear until the end of the year. As everyone in the House acknowledged, there is still a great deal of work to be done proselytising for the benefits of SIPs.
The hon. Member for Tunbridge Wells spoke about its being difficult for larger companies to participate in the scheme because of the 10 per cent. requirement. The Bill allows an early corporation tax deduction for companies buying shares from owners. We want to assist share owners to pass substantial holdings to trusts for distribution to all employees. In that way, we move from a company with ownership concentrated in the hands of a small number of people—perhaps the founder shareholders of a company—to widespread employee ownership and involvement. Crucially, the same issues do not always arise in larger companies, where ownership is not generally concentrated in the hands of a small number of people. In addition, large companies are likely to pass shares on to their employees quickly and regularly, generating corporation tax relief anyway, assuming that that is done for a SIP.
My hon. Friend the Member for Edmonton (Mr. Love) again raised the issue of mutuals and trusts. Rather like the John Lewis Partnership, mutuals, trusts and owned organisations cannot take part in a SIP or any approved employee share arrangements because they do not have a share structure based on individual ownership. Mutual organisations such as building societies do not have equity, so it is difficult to see how they can participate in a share ownership plan, where tax relief encourages alignment between employee share owners and other shareholders.
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