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Mr. Djanogly: The hon. Gentleman makes an interesting point. The rationale for the Bill can be considered at various levels. On the one hand, it is a straightforward attempt to encourage employees to become interested in their company, but as we can see from the briefing notes the measure would also provide that SIPs could be used as a another mechanism to promote activities such as employee buy-outs. I am simply saying that that is unlikely to be the case, and that the real benefits of the Bill are likely to be more modest than several hon. Members have implied. Of course, that does not mean that the Bill is worthless.

Mr. Gareth R. Thomas (Harrow, West): The hon. Gentleman is making a distinctive contribution, focusing on many of the technical issues that form a background to the Bill. He spoke about the rationale for introducing the Bill and said that there were several different levels. Has he been influenced by the most basic form of rationale for legislation: the fact that his constituents want the Bill? Would he join me and other Members of Parliament who have been lobbied by employees of the John Lewis organisation in congratulating them on the effectiveness of their lobbying operation?

Mr. Djanogly: I certainly would congratulate John Lewis on that lobbying operation. John Lewis does not have a base in my constituency, but it does close by. As I said, the larger organisations such as John Lewis could enjoy real benefits from legislation such as the Bill because it would give them another way of incentivising their employees. To that extent, I welcome the principle of the Bill.

However, it is important to appreciate that—probably because of the limitations of the underlying legislation—the Government wisely decided not to abolish previous share incentivisation plans, such as the save-as-you-earn share option scheme and the company share option plans. Although they were by no means perfect, they at least—together with the Government's new enterprise management incentive scheme—make available a wider package for tax-advantageous share ownership and

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incentivisation. However, there remain significant problems with all those schemes, which we need to get right. There is still much to do.

The business of a company may not qualify to be included. The company may not be independent—I appreciate that, in a limited context, the Bill identifies that as an issue to be dealt with for certain companies—or its assets may be too great. In practice, there will be many occasions on which, and many different reasons why, a company cannot tick all the boxes that it needs to tick to set up a particular incentivisation plan.

In such situations, the company will need to fall back on the so-called unapproved issue of shares or unapproved grant of options—in other words, schemes that do not have tax benefits. In such circumstances, once the top layer of the schemes is removed, the picture changes somewhat to reveal a system that is extremely complicated and often unfair to company and employees, and in which the tax payable has been substantially increased by the Labour Government.

If the Bill is truly to improve share ownership and encourage the setting up of new companies and the incentivisation of employees who wish to purchase their own company, I would suggest that three issues in particular need to be covered. The first concerns listed companies whose shares have fallen substantially. Many, if not all of their share options will be "under water"—the exercise price of the shares will be greater than the price at which they are currently quoted. Many such companies, which are particularly predominant in the technology sector, will have issued share options up to the maximum permitted level of 10 per cent. of their issued share capital. As a result, many dozens of companies are negatively incentivised. I would suggest that, in such circumstances, it be made easier for companies to terminate existing options and re-issue at the lower current market price.

Mr. Davey: The hon. Gentleman has just put forward an interesting idea. What does he think the impact of his proposal would be on the nature of risk-taking associated with employee share ownership?

Mr. Djanogly: The nature of risk-taking is not relevant because the individual can decide not to exercise those options, so there is no risk for the employee; there is simply no incentivisation in so far as he will not exercise those options. If one wished to incentivise employees who are in that position, one would need to cancel the existing options and re-issue new ones. If a company has had a very high share price and the market collapses, as the technology market did, employees may well have share options at a strike price that is so far ahead of the market price that they are negatively incentivised rather than incentivised by having those share options.

Mr. Davey: Will the hon. Gentleman give way?

Mr. Djanogly: I feel that that issue needs to be addressed, but I shall move on if the hon. Gentleman does not mind.

I have a second suggestion for improving the Bill. Since April 1999, national insurance has been charged to companies on gains arising from the exercise of unapproved options. That has been nothing more than a

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staff tax. In practice, companies have been amending their documentation to say that they can get the employees to pay the extra tax on their behalf, but it is conceptually wrong that a company has to pay national insurance on the open-ended growth of the value of its own shares. Finally, where a company agrees to deliver shares and those shares are forfeitable due to performance conditions—resembling an SIP but without the tax breaks—the gain becomes taxed on the value of those shares at the point when they become non-forfeitable. As with the options, the gain would be unascertainable on grant, but worse than with options, the company could not recover national insurance from its employees. Clearly, the position should be aligned with share options or, better still, national insurance on the growth in value should be abolished.

The reference to the United States by the hon. Member for Edmonton (Mr. Love) reminds me that employees there have the opportunity to choose whether to pay up front or later, and we could do much by adopting the same position. I conclude by repeating that the measures that we are debating today will do no bad at all and some good, but they will tinker at the edges of the issue and fail to get to the heart of the problem.

12.5 pm

Ms Meg Munn (Sheffield, Heeley): I am delighted that the House is giving such serious consideration to the Bill and that it has received support from hon. Members on both sides of the House. As a member of the Labour and Co-operative parties, and as a representative of those parties in Parliament, it is interesting to hear the issues and values that my hon. Friends and I stand for being discussed.

The Bill would make three significant changes to the law to encourage wider employee share ownership, by improving representation for employees with shares and changing corporation tax and tax reliefs. My hon. Friend the Member for Edinburgh, North and Leith (Mr. Lazarowicz) explained those aspects of the Bill in detail, and in supporting it I wish to focus more on the positive aspects of employee shareholding and to say why I believe that it is particularly positive for individuals, companies and societies.

In doing so, I hope to provide a balance to the speech made by hon. Friend the Member for Huntingdon (Mr. Djanogly). Although he went into a great deal of technicality, he seems to have considered this issue as merely a matter of money, bonuses and incentives, whereas I believe that it is much more fundamental to the way in which we run companies and people operate in this society.

Employee share ownership is about enriching the experience of working life. After all, people spend a lot of time at work—some of us more than others. One of the key factors in having a positive experience of work is how much we feel in control of our own lives. The people who suffer the most stress in their working lives are often those at the bottom of the pile—those who do the jobs that keep the rest of us going, but who have very little say in what goes on.

When I became a Member of Parliament I noticed that there was something a little different from my previous occupations and the other workplaces of which I am

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aware. It is certainly not unusual elsewhere for people to look for opportunities to take early retirement. Interestingly enough, that does not seem to be true of Members of Parliament. Many Members continue to make valuable contributions and to enjoy this job long beyond the usual age of retirement. I pondered why that is so and wondered whether it is because of the convenient working hours and the fact that we are often so close to home and that we have our own place on the Benches and never have to fight to sit down, or because of the supportive and friendly atmosphere in which no one ever criticises us, looks for our mistakes or writes to the papers about the worst way in which we have put our foot in it recently—which I am probably doing at the moment.

Many people get so much job satisfaction from being a Member of Parliament because they can largely control what they do with their time; they are self-directed—Whips permitting, obviously. They can decide to concentrate on various subjects and to pursue particular interests. They feel that they are making a contribution and doing something worth while. That sense of job satisfaction and having control and a stake in what happens is crucial to employee share ownership.

The first benefit of employee share ownership is that it encourages an active participation in decision making. Employees are not always on the receiving end of decisions that other people have made and that seem to have no relevance to the employees or to the company for which they work. That taps into the motivation of employees and gets back from them a level of commitment.

Employee share ownership also helps to enable work to be designed to encourage the fullest contribution from employees. If they want their companies to do well, they are more committed to using all their skills and abilities and to becoming more fully involved in what the company is trying to do. That also ensures and enhances the competence of the employees, as they become committed to taking up training opportunities and to pooling their knowledge and abilities for the best of all concerned.

The Bill is welcome because it would improve the current situation. Importantly, it would seek to democratise share owning in UK companies. It is about introducing mechanisms to translate individual employee shareholding stakes into a collective voice, making sure that those interests are represented and convincing employees that their shareholdings can give them a stake in the whole enterprise.

I particularly welcomed the contribution of the hon. Member for Aylesbury (Mr. Lidington), who recognised that employee share ownership enables individuals to build up capital. This country has a problem with savings and we know that sectors of the population have no capital to provide for their families in the long run. Although the Bill might make only a minor contribution to solving that problem and might affect only a few people, the issue should not be ignored.

Other Members have made it clear that employees who feel that they have a stake in their workplace are more likely to be committed to their jobs, to stay longer in the company and to become valuable members of a team. That will lead to a company's longer-term prosperity and, as other Members have eloquently pointed out, research shows that employee share ownership often boosts productivity.

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Companies face difficult issues of corporate governance and in ensuring that things are done properly. When stakeholders take a long-term interest in their investments, that is more likely to lead to good corporate governance and to good outcomes for companies. Employee shareholder trusts are an excellent way of encouraging just that. The employees involved have a long-term interest in the company and in their own future. It is a win-win situation.

If employees can participate in decisions and are not merely the recipients of shares, share options or bonuses in the way that the hon. Member for Huntingdon suggested, that will help to generate and sustain company loyalty and commitment to the organisation. It helps to combat the long-term British disease of short termism. We need companies that will be successful in the long term and, in a rapidly changing world, innovation is important. Employees who are involved in their companies are able to contribute to decisions about what is produced and about the processes used in production.

As my hon. Friend the Member for Edinburgh, North and Leith said, the Bill would broaden the definitions involved to cover more employee participation companies. It must be right that the tax benefits available to companies under existing schemes should be spread to those organisations whose fundamental purpose is to include employees in their running. They include worker co-operatives, in particular, and the Bill represents a step forward in recognising that companies, such as the John Lewis Partnership, about which we have heard a great deal, should receive the same benefits and opportunities as other employee shareholding arrangements receive.

Employee share schemes also raise issues for society in general. Does it matter who owns companies? My hon. Friend the Member for West Bromwich, West (Mr. Bailey) talked about the distinct views that were expressed on that a few decades ago, and employee share schemes might be a different approach—a third way, perhaps. However, it is a case not of public or private ownership, but of recognising that our society benefits from different ownership structures. There are different ways to produce profits and to reward employees. Those different structures add to the richness of our society and the proposals will help us to consider new ways to operate that will also improve efficiency, which we all want.

Hon. Members mentioned what happened a few years ago when many financial mutuals converted to plcs, which was resisted by those of us with a strong interest in mutuality. Anything that encourages people to become involved in companies again is welcome because it allows us to have a more balanced society. Such an approach allows us to recognise the contributions of individuals and the fact that people who work together often achieve more than people who work against each other.

Unfortunately, with private ownership shareholders' interests often come first. The benefits of being responsive to the interests of employees, consumers and local communities is often forgotten. There is the opportunity, in companies in which employees have a much greater involvement, to raise such issues and put them higher on the agenda, ensuring that the long-term interests of the enterprise are promoted, but not at the expense of the interests of those other important stakeholders.

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Society is changing and the economy is much more skills driven and knowledge based. We know that those attributes come from employees and that it is not possible to go out and buy those skills as part of a mechanistic process. It must be a good thing if we ensure that people who have that knowledge and those skills are involved in a company and committed to it.

We must welcome the fact that the Government have promoted employee share ownership, as reflected in previous Budgets. However, the Bill would tidy up some of those provisions and take us significantly further forward. Hon. Members demonstrated how extending employee share ownership can benefit individuals, companies and the wider society. We have discussed whether the Bill would bring about huge changes in society. Are the proposals radical or just minor tinkerings that will not do what people expect? We need to make it clear that the model is optional. People can choose it and it is important that the Government encourage them to do so. For those who see the potential of encouraging active employee participation, the Bill will be an improvement. It will clear up anomalies that penalise those organisations that are at the forefront of involving their employees.

I conclude by congratulating my hon. Friend the Member for Edinburgh, North and Leith on introducing the Bill. I am especially delighted, as I am sure he is, with the cross-party support that it has received.


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