I am tempted to engage in a long disquisition on that subject, having been involved in the debates on IR35 10 years ago. It is primarily a tax issue. As some Opposition Members will remember, the IR35 measures were introduced primarily to avoid a particular form of tax avoidance using national insurance, so if we have to do more on IR35 we will look to my colleagues in the Treasury, rather than this Bill.
Let me turn to directors’ pay. Fairness is important, and never more so than when the fiscal situation we inherited has forced upon us difficult decisions that affect everybody in society. That principle extends to executive pay, which for some years has behaved in a way that is unrelated to the rest of the economy or performance.
There is a well-established case for the regulation of directors’ remuneration, given the inherent conflict of interest when directors set their own pay. Moreover, shareholders in a number of companies have shown that they are increasingly angered by soaring pay for top executives that is unrelated to company performance. Their willingness to challenge rewards for failure is admirable, but I want this “shareholder spring” to be more than just a passing, seasonal phenomenon.
In developing our proposals, we have worked intensively with businesses and investors to create a workable package that helps shareholders to hold directors to account, while avoiding unnecessary red tape on business and unrealistic demands for investors to micro-manage pay. Responses to our consultation showed clear support for strengthened shareholder voting rights in order to improve the link between pay and long-term performance, while still allowing boards the flexibility to devise and deliver pay policy.
In the past it has been too easy for companies to ignore a significant adverse vote from their shareholders. That is why the Bill includes a provision to give shareholders binding votes on directors’ pay. We intend to introduce new clauses in Committee, when we have analysed in detail the responses to our consultation and finalised our proposals in that area.