My Lords, how we are changed from the heady days of only a few days ago when we were in the Chamber debating the ERR Bill and voting on this and that, to be reduced to only three people here for this purpose, although two seem to have drifted in for other reasons, and we are outnumbered by those in the Box. That is the reality of so much of the work that we do here, which is of course of very good quality and great importance but does not reach the heights of some of the other things that we do.
The Nuttall report is interesting. As the Minister said, it argues forcefully for an increase in the employee share ownership arrangements and makes its case with some verve. It is, however, short on detail on costs. The Minister kindly said that he thought that the outcome of what is in this modest proposal, to which I do not object, by the way, is that administrative burdens would be reduced, there would be more flexibility inside companies to provide shares for employees and that it would help growth.
Can the Minister explain how he arrives at that conclusion, because the impact assessment statement which accompanied the measure, which I have read, contains remarkably little about the costs? The assertion made early on is that there is simply no way to identify the various costs one way or the other. I do not disagree that it would be difficult, but it does seems rather odd to base an argument on the benefits that will flow to businesses if you cannot identify them in cash terms. Perhaps the Minister can reflect on that point and give me any update that he may have received.
Secondly, I note that the intention is that there will be a post-implementation review three years after enactment. Paragraph 56 of the government response to consultation, on pages 15 and 16, covers the issues
that and explains what areas will be looked at. Once again, it does not come up with anything tangible in cash terms. It just states that the review,
“will also look at any available evidence of monetised or non-monetised costs or benefits from the changes that have been made”.
Again, I would be grateful if the Minister would reflect on whether the post-implementation review goes far enough. It would be helpful, when government measures of this nature are being brought forward which strike at the heart of the legal structure within which companies operate, if some cost consequences were provided.
My third point is whether this will achieve any lasting value. The general view that I have read in the comments about the Nuttall review is that it may have some effect but, as the impact assessment states, there are unlikely to be many benefits from employee ownership if it is not combined with enhanced engagement practices to reap the full benefits. There is a lot of literature that says that this should do a lot. The Minister said that he thought that staff would be happier, that turnover might be up and profitability greater. I am not saying that I am sceptical, but it would be interesting to know on what he bases that argument. Clearly, none of that will happen if more work is not done to introduce the benefits of employee ownership. Can the Minister explain what the department and the Government are doing to promote employee share ownership more widely so that people are happier, that turnover goes up and profitability is increased?
My final point is that employee share ownership affects significant tax issues. The Minister did not mention that, partly because it is obviously not for his department. However, for example, tax rules say that where a company buys back shares from a former employee within five years of that employee leaving, all the income paid to the person who is leaving has to be taxed as though it is a dividend. Is that to continue? If it does not change, it does not seem that there is much benefit in making sure that the shares of a former employee are bought back, whether or not it is done with sequential permissions under the articles. If the tax is going to be so great that no one is interested in doing it, it seems that that will vitiate what is being applied. However, there are ways around that in the sense that the scheme that seems to apply most to companies in this area is the creation of employee share ownership trusts, because sales to the trusts are taxed only as capital gains and, in the present environment, that is quite reasonable.
All those issues are ignored in this report. Therefore, as I said, my final point concerning tax is that it would be helpful if, in carrying out the post-implementation review, an additional point could be made that the taxation implications should be considered, perhaps with a view to looking again more widely at the whole way in which employee share ownership taxation takes place. If one could correct that, I think that there would be more take-up of the scheme and it would have an impact. However, until that time, it will not have much effect.