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Therefore, while I have said that I agree that the Government should report to both Houses on any partnership deal, I believe that it is more appropriate that this should be after the Executive have done their job and a legally binding deal has been agreed with the partner. To erect a parliamentary barrier to any such agreement would operate as a powerful disincentive to any negotiating partner with which we are reaching an agreement, and I would not wish any reporting provision in the Bill to delay a deal being agreed and signed.
Secondly, the amendment sets out the criteria which we have outlined will be used to assess the current partnership proposal. But under this amendment, the obligation to report on these criteria would apply to any potential share sale. It would not necessarily follow that these same criteria would apply to any future sale of shares under the Bill. Therefore, while I support the intention behind this amendment, and indeed do not believe that the noble Lord and I are too far apart on the issue, I cannot support it as drafted. I am, though, happy to agree to consider a variation of the amendment and come back to the House at Third Reading. In the light of this I ask the noble Lord to withdraw his amendment.
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Lord Clarke of Hampstead: My Lords, before the Secretary of State sits down, he made a generalisation about political interference or lobbying. The suggestion was that people could go to the Government and get policies changed. Could we have one instance or example of where that has happened?
Lord Mandelson: My Lords, the practice is so continuous that it would be invidious of me to select one example of what happens. I quite understand that when a workforce feels that it is being challenged or pushed to modernise or bring about change by the management, and feels that the management is being unreasonable or is not taking into consideration the workforce’s or its union’s views, the temptation is only too great and too obvious to go to the shareholder—the Government—and say, “Come on, give us a hand here, get the management to see things more our way or ask the management to delay this until they’ve consulted us”. That is the sort of process that has inhibited change in the Royal Mail for too long and it really has to stop.
Lord Clarke of Hampstead: My Lords, perhaps my noble friend—I have slipped, haven’t I?—perhaps the Secretary of State will answer the question and give one instance of the political pressure to which he refers. I have dealt for many years with Governments and Labour Party executives and I do not know of one instance where political pressure has been applied. If it is continuous and happening all the time, as the Secretary of State says, perhaps he will give us one, so we know what he is talking about.
Lord Razzall: My Lords, we have been given a lecture in the document that has been sent round as to what is supposed to happen on Report. Do the Government propose to stick to those rules, or not?
Lord Tunnicliffe: Yes, my Lords.
Lord Hoyle: My Lords, before my noble friend sits down, may I ask him one question?
Lord Tunnicliffe: My Lords, I am afraid that my noble friend has sat down; we have to work to the rules of Report.
5.30 pm
Lord Hunt of Wirral: In that context, my Lords, may I thank the Secretary of State for his very persuasive response? I would like to consider it carefully and to respond positively to his suggestion that some improvement could well be made in seeking our joint objective. In those circumstances, I certainly beg leave to withdraw the amendment.
Schedule 2 : Taxation provisions relating to re-structuring etc
16: Schedule 2, page 42, line 14, leave out paragraph 4 and insert—
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“4 (1) This paragraph applies if—
(a) at any time, a company would otherwise be regarded (for the purposes of a provision listed in paragraph 1) as ceasing to be a member of a group, and
(b) immediately before and after that time, the company is a subsidiary of a Royal Mail company and is publicly owned.
(2) For the purposes of the provision—
(a) treat the company as continuing to be a member of the group, but
(b) if at any later time the company ceases to be publicly owned, treat the company as ceasing (at that time) to be a member of the group.
(3) References in this paragraph to a group have the same meaning as in the provision.”
Lord Tunnicliffe: My Lords, Schedule 2 to the Bill contains tax provisions relating to a restructuring of the Royal Mail group of companies. This technical amendment changes paragraph 4 of that schedule. It may be helpful if I explain the purpose of that paragraph before I turn to the detail of the amendment. The movement of assets between companies in the same group is generally tax-neutral under existing tax rules. However, anti-avoidance degrouping rules can cause a tax charge to arise when a company which received an asset is subsequently regarded as leaving the same tax group of companies.
As we have previously outlined, the introduction of a partner will require a reorganisation of the current group under Royal Mail Holdings. This restructuring and the subsequent sale of a minority stake in Royal Mail Group Ltd to a partner could result, for tax purposes, in Royal Mail Group Ltd or one of its subsidiaries being regarded as having left the tax group, hence triggering a tax charge. Paragraph 4 is intended to prevent a tax degrouping charge from arising in the case of a subsidiary of a Royal Mail company that is publicly owned. Royal Mail Group Ltd will remain publicly owned, unless primary legislation is introduced to change that. Subsidiaries of Royal Mail Group Ltd that are not themselves designated as Royal Mail companies could, in theory, cease to be publicly owned. We have no plans to do that but, should it occur, the subsidiary would be treated as leaving the tax group at that time.
Turning to the amendment, although the intention of paragraph 4 is relatively straightforward, the possible application is not. A range of possible scenarios could arise, depending on which subsidiaries are affected and the timing of asset transfers and degrouping events for tax purposes. We have now identified that although paragraph 4 as drafted delivers the appropriate tax treatment for the majority of those scenarios, it does not do so for all. Failure to address that could result in an unintended tax advantage for the subsidiary leaving the group and the buyer. We therefore seek to replace paragraph 4 with an amended version, ensuring that the appropriate tax treatment will apply in every case. I beg to move.
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Clause 10 : Meaning of “owned in its entirety by the Crown” and “publicly owned”
18: Clause 10, page 5, line 24, at end insert—
“( ) For the purposes of subsection (2) “publicly owned” includes any employee shared ownership trust whereby employees of each Royal Mail company own up to 25.5 per cent of such a company.”
Lord Razzall: My Lords, as your Lordships will be aware, this is a critical amendment for the Liberal Democrat Benches and for our view of the Bill. We have long argued that one reform essential for Royal Mail Group Ltd is to introduce a significant element of employee ownership. We have talked about that as a John Lewis-type trust ownership, or co-operative organisation, and we are suggesting that at least 25.5 per cent of ownership of Royal Mail should be held by the employees. Since we started arguing this, three or four years ago, the decline in the success of the traditional capitalist structure demonstrates even more readily why this model of ownership would be good for the Royal Mail group.
The arguments that have been used against us, in no particular order, are, first, that the union does not want it—well, they wouldn’t, would they? The second argument is that there is no evidence that the employees of Royal Mail Group Ltd want it, which is a dubious argument. The third is that were 25.5 per cent to be put into the shared ownership trust, leaving up to 49 per cent held by the private sector—TNT, or whichever partner is brought in—and only 25 per cent in the hands of the Treasury, then the organisation would no longer qualify as a public sector one. We do not accept that argument, because it would be easy to amend the legislation to ensure that that would not be the case. We have argued this long before the Bill came to your Lordships’ House; we argued it in Committee, and I do not wish to argue it again at length. I beg to move.
Lord Hoyle: My Lords, will the noble Lord explain one thing to me? He talked about the John Lewis trust. I understand that if you leave John Lewis, you are not able to have the shares; they have to remain behind. What concerns me about employee ownership is that when the bus companies went into being owned by employees, as soon as a good offer came from Stagecoach they were quite prepared to sell them. That rather defeated the objective of an employee-owned company or employee shares. I am interested in how the noble Lord would safeguard against that.
Lord Tunnicliffe: My Lords, if the noble Lord has just made a point then the noble Lord, Lord Razzall, can refer to it in his summing-up. It is not appropriate that he should be asked a question.
Lord Hoyle: My Lords, I do not mind if the noble Lord, Lord Razzall, does it in his summing-up. All I am asking is that he gives an answer to the point I have raised.
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Lord Clarke of Hampstead: My Lords, can the noble Lord who moved the amendment confirm that a savings scheme already exists where a bonus is banked for people who are part of it? It was part of the pay and modernisation agreement that I mentioned earlier. Perhaps the noble Lord, Lord Razzall, is not aware that that had the full co-operation of the unions involved—not just the CWU, but others.
Lord Hunt of Wirral: My Lords, how pleased I am that the Secretary of State has tabled Amendment 22, which we are discussing with Amendment 18; it refers directly to an employee share scheme. I also thank the noble Lord, Lord Razzall, for speaking in support of Amendment 18. As both noble Lords will know, we raised the question of employee share ownership schemes in Committee. The amendment tabled by the Government gives us some reassurance, but does not go as far as we would like.
On these Benches, we feel that employee share schemes are one of the most effective ways of engaging employees in the development and success of their employer. By being encouraged to take a stake in the overall profitability of the company, employees are able to share the benefits of Royal Mail’s transformation. However, on this matter I do not see quite eye to eye with the noble Lord, Lord Razzall, and his colleagues. Their preferred type of employee share scheme is not ours. I feel strongly that the incentives and benefits are best enjoyed when the scheme involves ordinary, fully transferable shares. Past examples of employees’ enthusiasm, when offered the chance to take up a proper share in their employer, support our view.
The noble Lord, Lord Clarke of Hampstead, has just raised, as I understood it, the existence of Colleague Share. The existence of that need not present an insuperable obstacle. Given its popularity, I cannot imagine that members would pass up the chance to upgrade their phantom shares into real ones; that is what I mean.
Having said all that, the amendment does not go as far as we would like, although it is a welcome reassurance for Royal Mail employees to realise that the Government have not totally closed off all chances for them to buy into the future of their company. Sadly, it does not promise that the Government will actively support such a scheme. That is a pity, and I hope that the private partner will be much more enthusiastic about pursuing such a worthwhile route.
The Parliamentary Under-Secretary of State, Department for Business, Enterprise and Regulatory Reform & Cabinet Office (Baroness Vadera): My Lords, as the Secretary of State said in Committee, the Government believe that Royal Mail’s employees should be incentivised to deliver modernisation in the business and improved performance. As I said in Committee, Royal Mail’s workers are the backbone of the company, so where those employees contribute to business success, they should rightly share in the benefits it delivers. There was broad agreement across the House on this point, suggesting that employees should receive a stake in Royal Mail as part of the partnership proposals that we are currently considering.
11 May 2009 : Column 857
As the Secretary of State has explained, the Government believe that it is vital that the workforce has a serious stake in Royal Mail’s success, and that is why we have the existing Colleague Share scheme. That runs from 2007 to 2012 and includes for each worker up to £1,600 in profit-related bonuses payable over the life of the plan—half of which has already been paid—plus up to £3,700 for the “capital” value of the shares payable in 2011 and 2012. This could give each employee up to £5,300 in total. The noble Lord, Lord Hunt, pointed out that this could be swapped from phantom shares into real shares but, because this would not be a listed company, the net effect of its transferability would be exactly the same, so we do not believe that it would make any significant difference.
We will not at any point entertain changes to the existing incentive arrangements that would be to the detriment of the workers. The company has commitments which it will have to keep. But we do wish to discuss the future of the existing incentive arrangements and any alternatives with any partner before reaching a view on what best incentivises performance and delivers value for money going forwards in the modernisation plan. This might be continuation with the current scheme, or the introduction of new arrangements that offer better returns to workers, company and shareholders alike, whether through an employee share scheme or otherwise. Whichever route is chosen, the goal has to be a strong workforce with a stake in the company’s success.
The Government therefore believe that it is very important that this legislation allows for an employee share scheme to be introduced. There was some confusion in Committee about whether this was the case. The new clause introduced by Amendment 22 makes it clear that the establishment of an employee share scheme for Royal Mail employees is permissible under the provisions of the Bill. However, it also importantly ensures that any scheme must not breach the requirements in Part 1 of the Bill that the Crown must own, directly or indirectly, more than half of the company. Amendment 18 would make it possible under legislation for the Government to control less than half of the shares in Royal Mail. This is not something that can be dealt with by amending this legislation, as the noble Lord, Lord Razzall, suggested. The classification of the company, whether it is public or private, is determined independently and not by legislation. Amendment 18 would therefore stop the company from being publicly owned, which is not something that the Government are willing to countenance.
Given that the existing Colleague Share scheme is only part-way through and that our discussions with potential partners are ongoing, now is not the time to debate or commit to the precise nature of future incentive arrangements. That is why the Government’s amendment is permissive without being prescriptive. I ask the noble Lord to withdraw his amendment.
5.45 pm
Lord Razzall: My Lords, I thank the noble Baroness for her response. I will turn to the remarks made by the noble Lord, Lord Hoyle. Of course we understand that we do not wish to put in place a structure under
11 May 2009 : Column 858
I do not believe that it will make the slightest different to a TNT or a Deutsche Post or anyone else when they conduct their negotiations with the Government whether 25.5 per cent is owned by the employees and the rest by the Treasury, or whether 51 per cent is owned by the Treasury. We are not talking about an employee share scheme, where of course they will have an interest, as any minority shareholder coming into an organisation is concerned, as to what proportion of the profits of the business are being allocated to an employee share scheme. Of course they have an interest in that; but that is not what we are talking about. We are talking about the principle of a shared ownership trust. This is fundamental to the arguments that we on our Benches have made long before this Bill was introduced. I suspect that I do not have support from the other parties, but I feel that it is important on this issue of principle to test the opinion of the House.
5.46 pm
Contents 59; Not-Contents 131.
Addington, L.
Allenby of Megiddo, V.
Avebury, L.
Barker, B.
Bonham-Carter of Yarnbury, B.
Bradshaw, L.
Campbell of Surbiton, B.
Chidgey, L.
Clement-Jones, L.
Craig of Radley, L.
Dholakia, L.
Dykes, L.
Falkland, V.
Falkner of Margravine, B.
Fearn, L.
Garden of Frognal, B.
Glasgow, E.
Goodhart, L.
Hamwee, B.
Harris of Richmond, B.
Jones of Cheltenham, L.
Kirkwood of Kirkhope, L.
Lee of Trafford, L.
Lester of Herne Hill, L.
Listowel, E.
Livsey of Talgarth, L.
McNally, L.
Maddock, B.
Mar and Kellie, E.
Methuen, L.
Newby, L.
Northover, B.
Palmer, L.
Ramsbotham, L.
Razzall, L. [Teller]
Redesdale, L.
Rennard, L.
Roberts of Llandudno, L.
Rodgers of Quarry Bank, L.
Rogan, L.
Saltoun of Abernethy, Ly.
Scott of Needham Market, B.
Sharp of Guildford, B.
Shutt of Greetland, L.
Smith of Clifton, L.
Steel of Aikwood, L.
Taverne, L.
Teverson, L. [Teller]
Thomas of Gresford, L.
Thomas of Walliswood, B.
Thomas of Winchester, B.
Tonge, B.
Tope, L.
Tordoff, L.
Wallace of Saltaire, L.
Walmsley, B.
Walpole, L.
Williams of Crosby, B.
Williamson of Horton, L.
11 May 2009 : Column 859
Adams of Craigielea, B.
Adonis, L.
Amos, B.
Andrews, B.
Archer of Sandwell, L.
Bach, L.
Barnett, L.
Bassam of Brighton, L. [Teller]
Berkeley, L.
Bew, L.
Bhattacharyya, L.
Billingham, B.
Bilston, L.
Blood, B.
Borrie, L.
Brett, L.
Brooke of Alverthorpe, L.
Browne of Belmont, L.
Butler-Sloss, B.
Cameron of Dillington, L.
Carter of Coles, L.
Clark of Windermere, L.
Clinton-Davis, L.
Colville of Culross, V.
Craigavon, V.
Crawley, B.
Cunningham of Felling, L.
Davidson of Glen Clova, L.
Davies of Coity, L.
Davies of Oldham, L. [Teller]
Dean of Thornton-le-Fylde, B.
Desai, L.
Donoughue, L.
D'Souza, B.
Dubs, L.
Eames, L.
Elder, L.
Elystan-Morgan, L.
Erroll, E.
Evans of Parkside, L.
Falkender, B.
Farrington of Ribbleton, B.
Faulkner of Worcester, L.
Filkin, L.
Ford, B.
Foster of Bishop Auckland, L.
Foulkes of Cumnock, L.
Gale, B.
Gibson of Market Rasen, B.
Giddens, L.
Gilbert, L.
Golding, B.
Gordon of Strathblane, L.
Graham of Edmonton, L.
Greenway, L.
Grocott, L.
Hannay of Chiswick, L.
Harris of Haringey, L.
Hart of Chilton, L.
Haworth, L.
Henig, B.
Hilton of Eggardon, B.
Hollis of Heigham, B.
Howarth of Breckland, B.
Howarth of Newport, L.
Howells of St. Davids, B.
Howie of Troon, L.
Hughes of Woodside, L.
Hunt of Kings Heath, L.
Jones, L.
Jones of Whitchurch, B.
Jordan, L.
Kennedy of The Shaws, B.
King of West Bromwich, L.
Kingsmill, B.
Kirkhill, L.
Lipsey, L.
McIntosh of Hudnall, B.
Mackenzie of Framwellgate, L.
McKenzie of Luton, L.
Mandelson, L.
Massey of Darwen, B.
Meacher, B.
Mitchell, L.
Montgomery of Alamein, V.
Morgan, L.
Morgan of Drefelin, B.
Morris of Aberavon, L.
Morris of Handsworth, L.
Morris of Manchester, L.
Morris of Yardley, B.
Murphy, B.
Myners, L.
Patel of Bradford, L.
Paul, L.
Pendry, L.
Pitkeathley, B.
Plant of Highfield, L.
Powell of Bayswater, L.
Prys-Davies, L.
Puttnam, L.
Quin, B.
Radice, L.
Rendell of Babergh, B.
Richard, L.
Rosser, L.
Royall of Blaisdon, B.
Scotland of Asthal, B.
Sheldon, L.
Simon, V.
Smith of Gilmorehill, B.
Snape, L.
Soley, L.
Symons of Vernham Dean, B.
Taylor of Blackburn, L.
Temple-Morris, L.
Tenby, V.
Thornton, B.
Tomlinson, L.
Triesman, L.
Tunnicliffe, L.
Uddin, B.
Vadera, B.
Wall of New Barnet, B.
Warner, L.
Warwick of Undercliffe, B.
Whitaker, B.
Wilkins, B.
Williams of Elvel, L.
Woolmer of Leeds, L.
Young of Norwood Green, L.
5.56 pm
Clause 11 : Indirect ownership of companies
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