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Dawn Primarolo: The amendment has two legs. First, as the hon. Gentleman said, it seeks to provide a safe haven to ordinary investors from the scope of the revised chapter 4 provisions. Ordinary investors undertake transactions with an investment purpose. Those transactions should not deliver employment reward to an employee. The amendment is unnecessary; and in the complexity of its wording it could create legislative opportunities for people to exploit future avoidance schemes.
I reiterate what I said to the hon. Gentleman earlier, when I made it clear that the change does not bring a tax and national insurance charge on all benefits derived from securities. Benefit in the context of schedule 2 means employment reward, or the passing of value to the employee in return for the employee's labour. When investors are carrying out their normal investment transactions, the change will not affect them. Frankly, that statement clearly covers the point that the hon. Gentleman makes in the example.
The second leg of the amendment introduces a clearance procedure for benefits received in relation to employment-related securities. I answer briefly, because I have said it a number of times already. A clearance procedure is not necessary. The statement of 2 December 2004, which was made alongside the pre-Budget report, made it clear that in the area of employment rewards, people can find certainty by considering the statement in the context in which it was made, which is that legislation by successive Governments over a number of years deals with the avoidance of income tax and national insurance on remuneration in that narrow area.
Clearance is not necessary. All the information is in the public domain; it is for each taxpayer to comply with it. This is not the time for a debate on whether clearance should exist or about its purpose, but clearance is not necessary in this case because the statements are clear. The taxpayer should be clear about our intentions from the Bill. I therefore ask the hon. Gentleman to consider withdrawing the amendment. If he wishes to press it to a Division, I shall ask my hon. Friends to oppose it.
Mr. Field: The Paymaster General will be relieved to know—probably no less relieved than I am, looking at the somewhat depleted state of our Benches—that I will be happy to withdraw this particular amendment.
However, there is a worthwhile discussion to be had at some point on the whole issue of the clearance procedure. The Paymaster General may well be right when she says that here and now are neither the place
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nor the time for that particular discussion. I am glad we have had a chance, however, to at least put some of these concerns on the record. Insofar as the business angel appears and potentially might lose out, I hope that the words of the Paymaster General will have gone some way to ensure that any loss is minimised. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That this schedule be the second schedule to the Bill.
Mr. Field: With your indulgence, Sir Nicholas, we have a brief stand part debate on schedule 2. I wish to open it with a side discussion, perhaps even a discussion on the clearance procedure. This might be that appropriate moment.
Above all, however, Conservative Members are keen to know what this Government's policy on equity-based remuneration is. We have had a clear statement—dare I say it, five or six times over—from the Paymaster General, in forceful terms, that the policy of the Government is clearly to stamp down hard on tax avoidance and any antics by investment banks to deprive the taxpayer and the Revenue at large of many hundreds of millions of pounds on an annual basis. We wish to have some idea of where the equity-based remuneration policy is.
Do the Government wish to encourage the giving of greater incentives to staff together with the Chancellor's much-lauded 10 per cent. tax on capital gains for individuals? All Conservative Members would support that. I personally was someone who benefited in part—but not from 10 per cent.; it was 20 per cent. when I sold my business within a few months of entering this place four years ago. None the less, we are concerned; if tax and national insurance contributions are all taxed in the way that has been suggested, what would be the purpose of the 10 per cent. tax on capital gains if it is to become increasingly restricted?
There is a particular concern that, whereas the capital gains benefits work very well for entrepreneurs, many employees would potentially find themselves falling foul of much of this tax avoidance. What forms of tax planning do the Government accept as valid for companies who wish to incentivise their employees by giving them a long-term equity stake in the business, especially those who work for organisations that are not quoted companies, such as mutuals and partnerships? Do the Government want prescribed share option schemes to be the only valid mechanism by which companies can so incentivise their employees? That is what the current tax law, which is becoming increasingly narrowly focused, is saying.
I will not try your indulgence any further, Sir Nicholas. I hope that we can at least engage in a brief discussion, although I accept that we have had quite a detailed discussion on a number of specific issues in schedule 2 during the course of the debates on the amendments.
Rob Marris (Wolverhampton, South-West) (Lab): The hon. Gentleman has struggled hard on this, and I
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take my hat off to him. It is a very complex area, but I would like, in my own small way, to try and simplify it for him. I draw his and the Committee's attention to the explanatory notes to this schedule, paragraphs 61 and 62. If you will indulge me, Sir Nicholas, it is not a long quote, but I will read it. It is to do with:
''Part 7 of the Income Tax (Earnings and Pensions) Act 2003 . . . which was amended by the Finance Act 2003 to make the regime fairer, provides the income tax rules in cases where securities, interests in securities or securities options are acquired in connection with employment . . . The amendments made by the Finance Act''—
it says 2003, but it may mean 2005—
''are designed to ensure that all of the value received by way of remuneration in the form of shares or other securities is subject to income tax and NICs at an appropriate time.''
That is the crux of it.
The hon. Member for Cities of London and Westminster, when he was speaking to this stand part debate, talks about companies incentivising their employees and so on. There are different ways to incentivise an employee; a good way—the first way—is to pay him. I am not ruling out others, but I start with that one. That is the way most people earn their living. They are not self-employed: they are employees. They do not have share options or shares in the company or partnership for which they work; they get paid. On that pay, they are charged pay-as-you-earn contributions, income tax and national insurance contributions. Why should an employer pay an employee? Because it incentivises them to work, leaving aside the arguments about the minimum wage.
I understand that an employer—here we get on to the schedule, Sir Nicholas—may wish to bind the employee more to the company by giving him or her a practical sense of ownership, in the literal sense, and by giving them some shares in that company, or options on shares. It is often options on shares for the richer, but not always; some low-paid people get options on shares. That is an incentive for that employee to work. Every hon. Member would agree that such incentives can be helpful for a company.
If a company chooses to incentivise its employees in that way, both the company and the employee should recognise that there is a price to be paid. There is, potentially, tax and national insurance to be paid. That goes back to what my right hon. Friend the Paymaster General said: in many, but not all, of these cases it is difficult to concede that the employee does not recognise that they are getting something from the boss to incentivise them to work. That something has pound signs attached to it, although it may be a share certificate rather than something that they can trade in at the grocery store or whatever. Most employees expect that when they get something from their employer with pound signs attached to it, they have to pay some tax on it. It really is as simple as that.
Although there are very complex schemes that some companies go into to incentivise their employees, to me—and I am a solicitor by background, not an accountant—it comes down to pay for work, and we expect to pay tax on pay for work. I remember when I was employed, before I became a partner in a law firm, we had company cars. Without being big-headed, I have to say that I was probably the only employee who
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bothered to understand the company car tax regime—what a surprise. My fellow employees used to come to me and say, ''If I get a car with this specific cubic capacity, what will the tax be?'' And then we would get on to the tax on fuel benefit in kind, and how much private use would be allowed, and a fuel card could only be obtained from the employer and so on. All those employees took as their starting point the fact that there was a price to be paid, although they did not know all the finer points of it. The price to be paid is called tax; they all knew that. People know that.
The amendments seek to undercut the thrust of schedule 2, which is to clamp down on artificial manoeuvres—tax avoidance manoeuvres—where those engaged in them know that there is tax to be paid, and are trying to get around it. I laud the Government's attempts.
Mr. Newmark: I do not want to get too philosophical, but as a student of Marx, I should say that Marx talked about the alienation of the worker from capital. The amendments try to address that; we are trying to encourage workers to buy into the companies of which they are becoming part and parcel. The hon. Gentleman discusses the importance of paying employees fairly and so on to incentivise them, and I totally agree with that; but part of being in the 21st century is accepting that capitalism, fortunately or unfortunately, is what makes the world work. Historically, evidence shows that part of the incentive scheme, in order to incentivise employees and improve companies so that they move forward and make profits, is to give employees shares. The hon. Gentleman seems to believe that becoming a stakeholder, which the Chancellor has tried to encourage as well as the Prime Minister—they have both said that we are all part of a stakeholder society—and which I agree with—[Interruption.] It is an intervention; I apologise again. Would not the hon. Gentleman agree that part and parcel of improving companies' profitability is encouraging employees to become shareholders of those companies and rewarding them accordingly?
6.30 pm
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