We now come to the worst clause in a bad Bill. In the words of the Christmas song, ’tis the season to be jolly, but sadly this out-of-touch Government are dampening the festive spirit with a measure that embodies the characteristics of the classic Dickens character, the miserly employer Ebenezer Scrooge, at his worst. I would never accuse the Minister of State, the right hon. Member for Sevenoaks (Michael Fallon), of being such a character, but I hope that he will prove to the House that he is not, by removing clause 25 from the Bill.
As in that Christmas tale, let us look back at the ghost of Beecroft past. It was back at the beginning of October when, much to everyone’s surprise, the Chancellor announced the Government’s intention to introduce a
new employment status. A company would be able to offer an employee shares in its business in exchange for some of that individual’s rights at work. The proposal has had a quick passage since the Chancellor’s speech, in which he spoke of
“owners, workers and the taxman, all in it together. Workers of the world unite.”
I have to give it to the Chancellor; he has certainly fostered a sense of unity. He has unified outright opposition to this policy from every quarter. It has received a lukewarm response, at best, from the business community, and it has been roundly trounced by employee organisations, trade unions, business leaders and charities. Only five of the 219 consultation responses welcomed the proposals. We therefore believe that our amendment 59 is the only acceptable option, as we can see no way in which the clause could be amended to make it more palatable. I appreciate that amendments have been tabled by my hon. Friend the Member for Hayes and Harlington (John McDonnell), who is in his place, but, to be honest, he is trying valiantly to make a silk purse out of a sow’s ear.
As my right hon. Friend the Member for Leeds Central (Hilary Benn) said on Second Reading, this measure is about cash for repeal. For as little as £2,000-worth of shares, an employee would be able to give up legal rights such as their right to training, their right to unfair dismissal protections, their right to a redundancy payment—even though their shares might be valued at less than the statutory redundancy payment—and their right to flexible working, which would fly in the face of announcements made by the Department for Business, Innovation and Skills only last week.
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Looking at the proposal more closely, we see that the ambiguities are numerous. It is not at all clear whether the new type of employment contract would be genuinely voluntary. In Committee, the Minister said that nothing in the Bill would make the status mandatory, but I am not sure that that clarification is good enough. Paul Callaghan from the respected legal firm Taylor Wessing has commented that
“these contracts will be optional to the extent that eating and drinking is optional.”
We know that employers will be able to offer employee-owner status to new recruits, but it is far from clear how voluntary the scheme will be in reality, or whether employees or prospective employees will be offered a real choice. People will be under undue pressure to take up a position even though they might not be able fully to appreciate the rights that they will be giving up. In truth, few with family responsibilities would want such a contract. We have consistently posed the question of whether employers would be free to decide to employ all new recruits on employee-owner contracts, meaning that individuals would have no choice but to contract out of their basic employment rights if they wanted the job. The Minister has failed to address those points.
I have also raised the fear that there would be nothing to prevent employers from threatening existing employees that they will retain their jobs only if they agree to sign a new employee-owner contract. Existing employees could therefore be pressurised into agreeing to move on to such a contract. No mention is made in the Bill of safeguards for individuals who decide not to opt to
become an employee-owner, and despite our tabling constructive amendments in Committee the Government rejected them outright. I appreciate that the right hon. Member for Hazel Grove (Andrew Stunell) and the Secretary of State tabled amendments relating to this, but the reality in the workplace is much more difficult.
What about people who are claiming jobseeker’s allowance? Members will have received a letter from the Department of Work and Pensions only last month outlining the sanctions available to the Department if people refuse to take a job. It stated that the higher rate sanction would be put in place if claimants
“refuse or fail to apply for a suitable job”.
Would refusing an employee-owner-only contract constitute refusing to take a suitable job? The Minister said in Committee that that would be up to the discretion of the DWP, and that he would reflect on that discretion. That is simply deplorable. I am keen to hear what measures he will propose, having reflected on the matter, to ensure that the scheme is genuinely voluntary, as the Government insist, and that jobseeker’s allowance claimants will not be at a disadvantage, should they rightly refuse to accept a job in which they did not have full rights at work.
The Government are also unclear about the valuation of shares and the cost to the businesses themselves. How is the average employee meant assess the true value of the shares being offered?
Let me refer again to the wonderful contributions by Paul Callaghan when he gave evidence in Committee. He highlighted the significant potential costs to business of putting these proposals in place: the costs of valuing, issuing and allotting new shares in small numbers to a great number of employees. He said that small firms might not wish to dilute their share ownership in this way in any case, and might have internal restrictions preventing them from doing so. What happens when small businesses have additional investment, as often happens in the technology sector, at which these proposals are directed?
Critically, the loss of unfair dismissal rights may lead to grievances being construed as other claims. This could lead to an escalation in discrimination and whistleblowing claims, which are more time consuming, more costly to the employer and take up more tribunal time. This could be catastrophic for business.
Overall, the adverse impacts on employees, the disincentives for employers and the inconsistencies with existing legislation all tend to suggest that this has not been properly thought through, which is really bad for business. There are also issues with insolvency and when businesses run into trouble. Given that these contracts will mean employees giving up their redundancy and unfair dismissal rights in exchange for as little as £2,000 in shares, when a company needs to shed staff it will surely sack those on employee-owner contracts because the share value will be at its lowest, or, indeed, be completely worthless.
What about the hot topic of tax avoidance? The Institute for Fiscal Studies attacked the Government for condemning tax avoidance as they
“prepare…to put another billion pound lollipop on the table”.
The IFS said:
“Just as government ministers are falling over themselves to condemn such... behaviour, that same government is trumpeting a new tax policy that looks like it will foster a whole new avoidance industry.”
In the autumn statement, the cost of the policy was estimated to be rising to £1 billion. The IFS concluded:
“Much tax policy is made carefully and with extensive consultation. But it doesn’t take very many of these sorts of rushed, ill thought out and badly designed bits of policy to undermine the rest of the system.”
Let us move on to the Business Secretary. In “A Christmas Carol”, the Business Secretary is the Bob Cratchit to the Chancellor. He came out following the Government’s conference announcement to appease those in his own party who recognised how ridiculous the policy is. The Business Secretary wrote:
“This is categorically not a case of us allowing no-fault dismissal—a scheme championed by Tory donor Adrian Beecroft—by the back door and condemned by Liberal Democrats as introducing a ‘hire and fire’ system.”
The Business Secretary is absolutely right. This is not compensated no-fault dismissal by the back door; this is the ghost of Beecroft present. What we have here is a final attempt by the Chancellor not just to deliver his Beecroft-compensated, no-fault dismissal by the back door; instead, given the issues around the paper value of shares, particularly in non-quoted companies that might sack employees when business falters, it is a step even further than Beecroft. This is simply no-fault dismissal—without any compensation.
Worst of all is the second “Tory tax bombshell” of this Parliament, this time involving income tax and national insurance. The Liberal Democrats will remember the phrase, given that they coined it in 2010 in relation to VAT, which they subsequently put up. In Committee, the Minister read out the section from the autumn statement:
“The Government is also considering options to reduce income tax and National Insurance contributions…liabilities that arise when employee shareholders receive their shares, including an option to deem that employee shareholders have paid £2,000 for shares they receive. This option would mean that the first £2,000 of shares received under the new status would be free from income tax and NICs.”––[Official Report, Growth and Infrastructure Public Bill Committee, 6 December 2012; c. 490.]
This is, quite frankly, in the words of the Government “bonkers”. An employee who received as little as £4,000-worth of shares would be hit with PAYE and national insurance charge of hundreds of pounds in their first pay packet, despite having never realised the value of these shares—if, indeed, they ever have any value at all. Share plans expert Matthew Findley of Pinsent Masons has said:
“The Government’s decision to press ahead, despite widespread criticism, is not surprising given the amount of political capital originally invested in the idea…The level of opposition to the proposal is clear from the Government’s response to the consultation but little of what has been said so far is likely to improve the position. Critically, the income tax position of employee owner shares has yet to be finalised.”
This is simply not good enough.
In conclusion, we fully support employee ownership, but this policy has the potential to undermine all the good employee schemes that exist. There has been little or no proper consultation, as the Government rushed this through in eight weeks in order to produce a response and an impact assessment before we got here today.
Justin King, chief executive of Sainsbury, who until last week served on the Prime Minister’s business advisory group, cautioned that the policy is
“not what we should be doing”.
He continued:
“What do you think the population at large will think of businesses that want to trade employment rights for money? Our agenda, if the government want to help us, should be making employing people easier and less costly.”