Lord Myners
Main Page: Lord Myners (Crossbench - Life peer)Growth and Infrastructure Bill
Lord Myners Excerpts
Lord Bilimoria
I appreciate that the Government have made several concessions in trying their best, as has been explained, to make sure that this is not compulsory and has not been forced on people. It is another option to add to the several share option schemes that already exist. The huge issue, as the noble Baroness has just said, is why it has to be linked to giving up any employment rights. That is the part that is fundamentally unnecessary.
The last time we debated this, before it went to the other place, I asked the Minister two questions, which he did not answer. The first was whether the Government consulted business properly before going ahead with this. The noble Lord, Lord Adonis, said in his closing speech last time, if I remember correctly, that 160 responses were received when the Government consulted and only three of them were in favour of this scheme. I am sorry, but unless I have got something fundamentally wrong, if you get three out of 160 you do not go ahead with something. You either consult further or you bin the idea because it is no good.
We have heard unanimously all round the House that, from a businessman’s point of view, this does not sense. It is absolutely unnecessary to do this, and it is fundamentally wrong for me to ask any of my employees to give up any rights at all. I would want to give them share options because they believe in my business and its future and they will earn the increase in value of their share options.
The next question I asked the Minister was whose idea it was. Why are the Government pursuing this? This House is greatly respected. We defeated this. It went to the other place. It came back, and the last time we voted on it it was defeated by an even bigger majority. To go back and come back again is disrespectful to this House and to what we have done. I appreciate that concessions have been made, but I think that the Government defending it so much is linked to whose idea it is. The press say that it is the Chancellor’s idea. If it is, I really question his priorities in trying to push forward something like this when tomorrow it is quite possible that we will hear that we may be in a triple-dip recession, and if not we might certainly bump along the bottom for ever.
We have huge problems and we are trying to push something like this on to business. I can guarantee that it will not work, that it will not be taken up by business, that it has wasted a lot of parliamentary time and that it will waste a lot of legislation. The Government say that they will reduce red tape. This is going to create huge amounts of red tape. Lawyers will have to be consulted; employers will have to compensate for lawyers being consulted. This is not just a dog’s breakfast; it is a mad dog’s breakfast.
Lord Myners
My Lords, I disagree with one of the comments made by the noble Lord, Lord Bilimoria. I think this will be a very popular scheme for employees and employers, but in only one small sector of the economy. This is not about creating employment, business and economic growth. SMEs and new innovative companies are not going to offer these schemes, and employers are not going to be attracted by them. When we last discussed this issue, the noble Lord, Lord Forsyth of Drumlean, said that he was not sure whether this was being looked at by people who plan tax avoidance. I assure him that it is being looked at by those people with alacrity.
Lord Forsyth of Drumlean
I defer to the noble Lord’s expertise in tax avoidance and the ways of investment bankers and investment management people in the City, but will he not give some credit to my noble friend who said that the Treasury will look at this and consider whether further measures are needed to avoid this? Some of the obvious possibilities, such as multiple contracts or changing contracts for the purposes of gaining the capital gains tax exemption, are matters that could be looked at. Surely the noble Lord should give some credit to my noble friend for taking that on board.
Lord Myners
The question is whether we give credit to the noble Lord’s noble friend or to your Lordships’ House. I think it is the latter that deserves credit for the improvement in this provision. We will see the statute book and regulations getting thicker and thicker as the Government try to head off all the strategies that will be developed to seek to take advantage of this provision. We have come up with something that is of infinitesimal consequence to the economy but that will nevertheless lead to huge red tape. I am afraid that the experience of previous Governments, including the Government of which I was a member, and of this Government is that tax avoidance continues to be sharper and more effective than HMRC and others will ever be in stopping it.
I am happy acknowledge that the Government have said that they will seek to address this issue—they need to—but it will be a nigh-on impossible task.
Lord Burnett
I wonder why, when he was in government, his Government did not introduce a general anti-avoidance rule of the sort now being introduced by the coalition Government. That should aid and assist the very matters to which the Minister has referred.
Lord Myners
I welcome the general avoidance rule, which of course is not the matter that we are discussing. Even there, though, while I was not directly responsible for HMRC or Inland Revenue matters when I was a Minister, we all knew that the agility of tax planners should never be underestimated. We need to be slightly careful that a general tax avoidance rule is not going to create a new nirvana and will not suddenly change things. It is a good thing and I welcome the Government’s proposal; indeed, I think that the Opposition have supported it, so I do not think there is a political point here. However, on this subject we need to be realistic about what will be achieved. We are up against mighty forces in tax planning. One has only to look at structured finance unit at Barclays Bank, which appeared to help people avoid billions of pounds of tax. It really is quite a challenge.
This small proposal will create a huge loophole that tax avoiders will, quite correctly in their view, seek to exploit.
Baroness Brinton
My Lords, I was going to leave the issue of tax loopholes until the end of my contribution, but given the preceding debate I remind the House that at an earlier stage I reminded the House of the business expansion schemes that were set up by the then Government in the late 1980s and early 1990s and targeted at new small high-tech companies that were looking for investors and considerable tax benefits to investors and shareholders in those companies. They progressed reasonably well over the subsequent two or three years, but then the accountants and lawyers found the loophole that enabled at the very least the university sector to entirely rebuild its student accommodation using those schemes. I confess, as bursar of a Cambridge college, that my college and all the other colleges used them in exactly the same way.
An interesting point to note, which the Chancellor might want to consider himself, is that the Treasury immediately closed the schemes down. I suspect that if the noble Lord, Lord Myners, is right, the Treasury would have no option but to close this down immediately, and I think that would signal the death knell of this entire clause. I apologise; that was going to be my peroration at the end but, given the debate that we have just had, I have started with it. Given the debate that we have had, the experience of the business expansion schemes is one that I hope this House and indeed the other place will take note of.
To go back to the beginning, I thank the Minister for negotiating the concessions, which have been vital. At all stages of the Bill on all sides of this House we have insisted that employees and prospective employees must have truly independent legal advice. To repeat the comments of the noble Lord, Lord Forsyth of Drumlean, I, too, went through this with a fine-toothed comb to see where the lacunae were but could not find any. It is extremely helpful that the clause echoes the compromise agreement legislation with regard to the necessary independence of the legal advice that the payment for reasonable advice must come from the employer. By the way, I think that will completely put off the Gradgrinds, who we talked about at some length on Monday, who want to use this as a quick and easy route.
There has been some discussion today about the value of shares. I am less concerned about the value of shares when the shares are first purchased, because we keep being told that this is for brand new companies when their shares are virtually at par value. There is a much bigger issue when an employee leaves if they have to sell the shares back, or at a point at which the company might be sold on and an employee may want to disagree with an arrangement that the company directors have come to with a prospective buyer. Unfortunately, I absolutely cannot think of a way of legislating against that. Let us hope that, should that happen, the increasing value of the shares would be such that the employees found it beneficial. However, my experience of working with high-tech companies throughout the 1980s and early 1990s was that the vast majority of small high-tech companies, which we are told this would be useful for, never make the sort of glorious gains where capital gains tax is a real benefit. There may be a very minor benefit, and that is wonderful, but not for most. The Cambridge silicon technology companies are the stellar ones; they account for less than 5% of such companies.
I wonder whether the Minister could assist the House by sending around the revised draft guidance notes for employers, companies, employees and Jobcentre Plus staff, given the concessions that we have seen during the past two or three days. Having reread them before today’s debate, I realise that they are substantially out of date. It would be extremely helpful to those of us who have been following this in detail.
I am in the same position as the noble Lord, Lord Pannick, in that I do not like this clause. I do not think it is workable. Even fewer companies are now likely to take it up because of the safety net of the independent legal advice, for which I am grateful. I have yet to meet an employer who thinks that it is appropriate to reduce employment rights in return for sharing in growth in the future. That remains my fundamental position. Perhaps unwittingly, though, the Government have made it so unpalatable that most employers will just ditch that and go for the traditional route of offering employees a future share through a straightforward shareholding where everyone shares the gain and there is no disbenefit.
Lord Flight
My Lords, my noble friend Lord King has summed up the position extremely well. It is of interest that this largely appointed House has effectively achieved the democratic changes to Clause 27, for which there was clearly significant support.
The last time that we debated this, my noble friends Lord King and Lord Deben were saying similar things to me about this proposed piece of legislation but from the other side of the fence. As I said from the outset, it is clear that it is applicable only to the sort of situations that my noble friend Lord King described—to entrepreneurial situations, start-ups and groups of bright, young, ambitious people getting together and wanting to keep down the potential costs of their new enterprise. It would not be suitable, nor be taken up by large organisations. It would be strange to have some employees with one sort of equity and others with another sort, and some with one sort of employment contract and some with another. De facto, to the extent that it used, it will be in the territory described.
I may be naive, but I think the noble Lord, Lord Myners, exaggerates the scope for tax avoidance. It seems to me that it will be much smaller-scale, more analogous to the EIS scheme, which has been extremely successful in generating some £10 billion of risk capital for small companies and has more than paid for itself tax-wise. It may be that the noble Lord is a cleverer tax avoider than me—sorry, he is more knowledgeable than I am—but I do not think that the sort of structure to which he referred would work. I would have thought that HMRC would outlaw such things fairly quickly. I do not quite see how it would work to make individuals huge amounts of money that they would not make otherwise. I think the tax avoidance point is overstated.
Lord Myners
Will the noble Lord, Lord Flight, at least acknowledge that the OBR has also expressed serious doubts about how this provision, which is not affected in any way by the laudable proposals now made by the Government, will be exploited for tax advantage? I believe that the OBR projected a cost of £1 billion.
Lord Flight
I thought that what the OBR was effectively saying was that if capital gains tax on these arrangements were payable, that is the sort of revenue it would generate and the extent of the capital gains tax revenue that will be lost is because capital gains tax will not be payable. I am not clear that the OBR was citing fancy and wrong tax avoidance schemes for which it picked up intentions that they would be used. I stand to be corrected.