My Lords, I want to start by thanking the Government for the concession on jobseeker’s allowance candidates and the fact that they will be not penalised, but I have to also agree with other colleagues on both sides of the House who have admitted that this is really the rectification of a mistake rather than a major concession. However, it is essential. It is critical because before it, any of the guidance to the DWP and Jobcentre Plus offices would have been unusable and unworkable for this system, and would have put candidates for such jobs at complete peril.
I am also pleased—I will not go into detail about this, but want to refer to it—that throughout the passage of this Bill we have consistently talked about
the necessity of independent legal advice. That is not just for those who are currently unemployed and are being sent to interviews by Jobcentre Plus; it actually applies to anyone. I think of a young 23 year-old that I know who has just joined a high-tech company in Cambridge where I think hardly any of the employees do not have at least one degree and most have at least two. However, if you asked that 23 year-old about the way shares work, he would not understand them at all and would clearly need advice as well. Helpfully, the firm that he has joined has made sure that any new employee who gets access to the share scheme gets that advice, so there are some good examples around.
However, if this scheme does not offer that advice where there is an element of two tiers of employment, that means that such advice must be made available. Frankly, I agree with the noble Lord, Lord Pannick, and others who say that it is on a par with the formal legal advice required for compromise agreements.
Following the debate in the Commons last week, I shall focus on the Minister’s referral yet again to this being suitable for small high-tech companies, particularly in university areas and high-tech areas. Confession time: in the 1980s I was a venture capitalist, spinning ideas mainly out of universities, although not only Cambridge University, and that is one of the reasons why I have quite a lot of experience and knowledge of what is happening in those companies now.
It is quite clear that good, small high-tech companies already use employment share schemes, or share schemes for all their employees who come in right at the start. The reason why they do this is that they know it is going to be a very hard road to make the product successful, particularly if it has not even been developed yet. They know that as time goes on further rounds of money will be coming into the company, and that they will be diluted not just once or twice but to a very minimal amount. Therefore, £2,000 worth of shares on day one, which for argument’s sake might represent 10% of a brand new company, might actually end up being a tiny percentage once you have had three, four, or five rounds of venture capital and hedge fund money going in. As a result, an employee will have to wait a very long time before they see any benefit.
Again, having to pay for those shares up front is not just an issue for those who come from unemployment; it is an issue for those coming in at a very low starting salary who, in addition, have to give up their employment rights and are being told, quite frankly—in Cambridge, which I know quite well, everyone freely admits this—that it is extremely unlikely that you will see any return on any investment in the first 10 years of a high-tech company. If you do, then it is a real star and is to be applauded. However, the vast majority, 95% of firms, do not do that, and 90-plus% of the firms do not actually provide a return to shareholders because they are often sold at the point at which the shares are virtually worthless. So please can we stop deluding ourselves that small high-tech companies are perfectly suited to this? The good ones do it already, but why on earth would they then want to give up employment rights in return for an extra part of this very risky journey? It just does not add up.
I was slightly concerned when the Minister referred to self-employment for these sorts of firms. I understood from the chart that we have received with the Minister’s letter, for which I thank him, that they are outside employment law, and I think that the House would accept that. The references being made implied that self-employment might be an option for those working for the firm, and I think that would definitely be against HMRC guidance; if somebody is working principally for a firm then they should not be self-employed. I am concerned that we are perhaps beginning to develop a dialogue of a third tier of employment, and I hope that the Minister will be able to make it absolutely clear that self-employment is only for those who actually have a range of clients and customers and do not work for just one firm.
The noble Lord, Lord Deben, talked about how this might be a point for experimentation, but I think the experiment is already happening and has been happening through the examples that I have been giving, without the need to give up employment rights. In summary, I believe that this legislation is unloved, unnecessary, unwanted and, frankly, likely to be unused. I am concerned that this is not the best use of Parliament’s time. I am in the same position as the noble Lord, Lord Deben; I do not like voting against my own Government, but I just feel that there are too many flaws in this. It is not a hopeful scheme for the future; they are there working at the moment. Please, let us not compromise employment rights in return for shares that are very unlikely, for the vast majority of employees, to be worth anything at all.