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Mr. Tom Harris (Glasgow, Cathcart): Will the hon. Gentleman comment on whether putting an extra 1p on income tax might be an appropriate way of meeting the costs?

Mr. Davey: There have been some helpful interventions, but that was not one of them. For the record—Conservative Members are already getting in a bit of a tizz—I should say that the matter under discussion has nothing to do with that pledge, as the hon. Gentleman well knows.

I was referring to the capital gains tax reforms that the Government have cack-handedly implemented over the past few years. They introduced 10-year, five-year and now two-year taper relief, which has implications. People who are remunerated in capital in relation to shares may be able to get capital gains tax benefit fairly quickly. The overall income tax base may well be reduced as changes are made to the way in which people are remunerated. Some people—I do not necessarily exclude myself from them—welcome some of the changes that the Government have made to capital gains tax, and especially those that tidy up some of the original mess. However, we need to take cognisance of these matters in the way in which we estimate the potential cost of the measures and try to find a way of taking the proposed route without undermining the health of the income tax system in the longer term.

I should like to raise another issue that is relatively small, but is important to achieving the benefits that the hon. Member for Edinburgh, North and Leith seeks. The hon. Member for Arundel and South Downs (Mr. Flight) raised the issue with a Treasury Minister in relation to Government proposals that were originally made in the Finance Act 2000. He asked whether low-paid employees who were getting holidays or exemptions from national insurance contributions would lose the benefits because they were not paying the contributions. In an answer given on 19 July 2000 at column 399 of Hansard, a former Treasury Minister said that it would be up to individual employees to decide whether they got the benefits from the contributions, and whether or not to get national insurance relief but buy the shares, or to opt for the shares and tax exemption. That Minister was leaving it to individual employees and suggesting that they had the information on which to base that choice.

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Will the Paymaster General go a bit further? Could there be some protection with regard to the contributory benefits? We have seen similar protection in other reforms that the Government have introduced in the national insurance system, so perhaps it could be provided in addition to the relief that is given to make the share purchase.

It has been clear in this debate that there are some matters with which we shall need to deal in Committee. The hon. Member for Edinburgh, North and Leith is raising some tricky and complex issues. However, as we do that work, we must not lose sight of the fact that we should support the core of the proposals. I hope that the Government will indicate their support and that they will take a constructive attitude to the way in which we negotiate and amend the Bill in Committee.

11.17 am

Linda Gilroy (Plymouth, Sutton): I take great pleasure in congratulating my hon. Friend the Member for Edinburgh, North and Leith (Mr. Lazarowicz), a fellow Labour and Co-operative Member, on his luck in the ballot and on his choice of this Bill, which sits very well with the range of issues in which we take a special interest as co-operators.

My hon. Friend's Bill both widens and deepens existing provision for employee share ownership schemes. As has been shown in all parts of the House, there has been support for such change for many years and under Governments of all colours. Thankfully, the Bill apparently has cross-party support in principle, so I look forward to some of this morning's discussions being explored in more detail later.

The Bill widens existing provisions by making more companies eligible for tax reliefs in relation to any move that they may be considering to distribute shares to employees. It thereby makes that distribution more likely to happen and stands a strong chance of extending employee share ownership to many more people. It also widens existing provisions, enabling companies that are controlled by employees to benefit from tax advantages by setting up share incentive plans. It also deepens the provisions, especially through clause 1(5). I noted that my hon. Friend the Member for Edinburgh, North and Leith said in his opening remarks that people had asked whether the provision was necessary. I believe that it encourages companies to provide for the appointment of employee-elected trustees when drawing up a trust instrument. That should be welcome, for several reasons that I shall outline.

The Bill ensures that employee share ownership schemes will progressively be for the many, not the few, to use a well known phrase. My hon. Friend cited some significant figures to show what employee share ownership means for the prosperity of companies as measured through growth in share value.

The measure builds on the Budget provisions of 2000 and 2001 and should increase the number of employees that have access to such schemes. It contributes to the quality and the added value that arise from employee share ownership schemes. It also builds on what Paul Burden, communications director of the John Lewis Partnership, described to me as increasing the economic biodiversity of ownership. It also introduces greater choice in forms of ownership.

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It is generally agreed that employee share ownership schemes are good for companies, employees and the economy. They are good for companies in many ways. For example, employee share ownership can improve retention; some argue that it also improves recruitment. Through reducing staff turnover, it can lower the company's costs and lead to the productivity that other hon. Members have mentioned this morning. That is an important goal, which creates competitiveness.

Employee share ownership is also good for companies because it allows them to draw directly on employees' special experience. That is especially beneficial to companies that need to progress through research and development and get their choices right in the first instance.

Employee share ownership leads to more commitment, which is especially important when, from time to time, the going gets tough for companies. Employees who are share owners tend to become more aware of any difficulties that face companies earlier, and contribute to heading off problems and tackling them constructively.

The financial stake rewards the employees if the company is doing well. Employee share ownership therefore builds a virtuous circle of commitment. Employees often feel put upon if others benefit from their hard work. When the going gets tough, such schemes give employees a greater sense of influence and control. There is nothing worse than feeling that one has no say or control when things are going wrong, especially when one can contribute skills that make it more likely that a company will pull through.

Employee share ownership is also good for the country. I am sure that many hon. Members agree that we need to encourage long-termism. Such schemes are a way of doing that. "Employees Direct" is a document that comes from a new publishing stable, Mutuo, which belongs to Communicate Mutuality. It is a partnership between organisations that wish to show the value and potential of the mutual sector to a modern society. In the foreword to the document, John Monks states:

The document explores some methods of achieving that. I recommend it to the many hon. Members who are interested in the subject.

Employee share ownership encourages growth. Some argue that it has even wider benefits, such as social cohesion and regeneration. Earlier, some hon. Members suggested that it might anchor footloose companies. I am not sure whether those claims stand up to scrutiny, but research in Italy shows that full employee ownership has wider social effects in the towns where it exist. The benefits include improvements to education and health, reduced crime and greater social participation. The schemes have also affected people's perceptions of their social environment.

Earlier exchanges between my hon. Friends the Members for Cleethorpes (Shona McIsaac) and for Edmonton (Mr. Love) and the hon. Member for Aylesbury (Mr. Lidington) dwelt on the importance of employee share ownership in the United States. Much of the research has been carried out there because the schemes are better developed. Recent research shows that

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employee share ownership in the United States spreads wealth and enables employees to weather periods of unemployment. It thus makes a wider contribution to preventing poverty, including child poverty. Recent research has also shown that companies in which all employees have shares enjoy 50 per cent. more productivity than companies in which only senior employees have shares.

The Bill will open up more opportunities for employee share ownership. It will add to eligibility a small but important sector of employees and encourage owners to transfer to employees. It will help to obtain maximum added value, which arises from such schemes by providing for employees to be more involved in managing trusts that hold shares for their benefit, and by giving employees a significant say in the company's development.

In the best tradition of private Members' Bills, the measure is a win-win Bill, as my hon. Friend the Member for West Bromwich, West (Mr. Bailey) said. The employees, the companies and the country will win. Companies will win when the going is good and a winning outcome is more likely to result when the going gets tough. I support the Bill, wish it a fair wind and hope that it returns to the Chamber in its final form.

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