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Lord Graham of Edmonton: My Lords, in the bad old days.

Lord Peston: My Lords, yes, in what were called the "bad old days". I wish to make two or three further points. I understand that the group recommends the limitation of contracts for senior management to one year. That is a good point in the sense that, if management is rotten and does not perform, the cost of getting rid of it with a one-year contract is a good deal less than if it is a three or four-year contract. That is a good idea.

The question then arises of the special tax treatment of share options. I have two questions on that. My immediate response was that treating share options as income rather than as capital gains would make little difference to most people. We are talking of huge sums of money and most of those people will already have exhausted their allowances and would therefore be taxed in much the same way.

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What puzzles me is that, whereas this morning's press, in discussing the leakages of this document, said that the Chancellor, in making the tax changes that he forecast for the Finance Bill, said that the yield would be £80 million, there is nothing in the Statement in that regard. It is a pity because it would throw some light on how much benefit has already been received by these people. Perhaps the Minister can say whether there is some reason why we have not been told how much the withdrawal of the income tax relief will yield to the Exchequer. If it is because the Treasury cannot do the sums quickly, perhaps we can be told when we will be given the answer to that question.

My last point concerns self-regulation. If there is to be self-regulation, it must be shareholder-led. The troublesome point about the Statement, although it may be dealt with in the report, concerns the fact that the people who are really responsible are the institutional investors. There are technical problems in relation to them becoming involved in detail because of insider trading and what they may learn. But do the Government have any proposals, by way of changing companies legislation, to encourage the investment institutions to take all these matters more seriously and to speak up on behalf of the small investor? After all, most of the investment institutions are investing on behalf of small savers, even though they themselves are very big. It would not be a bad thing if they took the whole matter more seriously.

Baroness Seear: My Lords, I too thank the noble and learned Lord for repeating the Statement. I shall confine myself to commenting on the Statement because I have not had the opportunity of reading the Greenbury Report and am not prepared to rely on leaks of reports—a practice which I believe to be deplorable.

We welcome certain aspects of the report. We welcome the fact that taxation changes will be made on the share options. That is a recommendation which my party made to the Greenbury group. We need to look at the whole question of pay for directors of privatised industries in a different way from the rest of genuinely competitive industry, particularly competitive industry on an international scale.

The privatised industries still contain many of the most unacceptable features of a monopoly, as many of us said that they would when privatisation took place. It has been and remains difficult to obtain any kind of real assessment of their performance. So many of the suggestions in the report rely on a confidence that one can measure performance. But how does one do that, especially if one is using the market as a major instrument for measuring success or failure, in a privatised monopoly? Those industries need to be approached differently from other industries.

Performance is hard to judge. If one is a monopoly and is free to put up prices, although limited to some extent by the regulator, but one can control most of the factors which lead to the final outcome, it is difficult to say that because profits have gone up that has been due to any one person's efficiency, be it at director or any other level. It has been possible to control what are

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essential elements in obtaining a real measure of performance. That means that a quite different approach to regulation should be taken when considering the privatised industries as opposed to other industries.

I agree that institutional investors are extremely important in that regard. We discussed that in another connection at considerable length earlier this year and the role that they should play having regard to the great amount of money that they use and their potential power. That is something which needs to be examined. We should look at who should have decision-making power of that kind in the privatised sector. I suggest that it is something a regulator should be able to take into account and, unless there is a substantial decrease in prices, a sharp question should be asked about any increases in the remuneration of directors.

When we turn to the non-privatised sector of industry—the market sector—and particularly organisations operating internationally, the position is much more complicated. My mind goes back to the days—a long time ago now—when I was a member of what was called the Top Salaries Review Body. One of our difficulties was that we were dealing with people employed in senior positions on the boards of nationalised industries, some of whom were genuinely in an international market, but others had no place whatever in an international market. That is one reason why so-called comparability proved to be a less effective instrument in trying to decide what people ought to be paid.

The question of how rewards in the non-privatised sector should be determined is something into which I hope the Greenbury Report has gone more fully than is suggested in the Statement. Again, shareholder power is obviously very important and so is openness of all the rewards that people receive. A great deal of attention has been given to the actual amount of money paid in salary, directors' fees or whatever they are called. But in many cases a great deal of total remuneration is made up of other aspects, which are of considerable importance.

I note that the Statement refers to pension benefits. That is of enormous importance. In some cases the value of the increase in pensions is far more significant and expensive than the actual increase in the annual remuneration. But there are other issues to be considered. The determination of British management to have their motoring on the cheap has been one of the most ridiculous developments. It was introduced because under previous governments taxes had reached an absurd level and people were being remunerated in other ways, otherwise they could not be remunerated at all. But it still remains.

There are other benefits which should certainly be included when one is looking at the remuneration of top managers and directors; namely, pensions, motorcars, school fees and sickness benefit. All those can add up to a much more significant amount than that paid out in salaries. The Greenbury Report may deal with that; if not, some other body ought to.

Lord Fraser of Carmyllie: My Lords, I begin with the technical questions asked by the noble Lord, Lord Peston. He will appreciate that this is a private sector

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report rather than one commissioned and paid for by the Government. It is available at £10. However, my understanding is that a number of copies are being made available in the other place. If that is confirmed, I shall ensure that a comparable number is made available to your Lordships.

My understanding of the situation is that the group certainly took evidence from a large number of interested parties. I do not know whether it intends to publish all the evidence which it received. That is clearly a matter for the group rather than for the Government. The institutional investors were represented on the group, which produced a unanimous report. My understanding is that their representatives have welcomed the report and will be encouraging their member companies to comply with it. Indeed, I would not have thought that a weatherman was necessary in order to see which way the wind is blowing at the moment. Investors are already playing a more active part than they did at the time Greenbury was established.

I was asked whether there might be an opportunity for a considered response on some aspects of the matters considered by the Select Committee in another place. Noble Lords will appreciate that I cannot give an immediate answer now, but I have no doubt that it is something which will be of interest to your Lordships. Those with responsibility for that will doubtless have regard to what has been said.

The noble Lord, Lord Peston, was right. I suppose that the clear focus of the concerns which Greenbury was established to address relates to the privatised utilities. Perhaps I may make it absolutely clear that we look to all companies, including privatised utilities, to pay careful attention to the recommendations in the report. One of its recommendations is that the board of any company whose remuneration policies have attracted controversy may wish to seek explicit backing for them from shareholders by tabling a resolution at the annual general meeting. That is a strong recommendation at paragraph 5.31, and one which I know the President of the Board of Trade is encouraging companies to implement.

I am not sure that I entirely agree with the noble Lord, Lord Peston, that payments made to executives are out of balance or kilter with the rest of the world. Executives are not overpaid by international standards. As I have said, the total remuneration levels are well below those of the United States. A survey shows that a chief executive of an industrial company with annual sales of about 250 million dollars, would earn £512,000 in the United States compared with £249,000 in the United Kingdom. I agree that it is difficult to make comparisons, but that would seem to indicate that those companies are not marching in step.

What concerned me more was that the noble Lord seemed to be suggesting that somehow, and through a back door, we should be establishing some sort of pay policy, even a maximum pay policy. If that was his intention, I do not believe that he will be surprised to hear that I would strongly disagree with any such approach. If there have been substantial increases in pay

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for directors of former nationalised utilities, that may in part be due to their pay catching up with that in private sector companies.

The noble Lord suggested that we might address this matter by giving the regulator within the utility area the power to adjust salaries or prices by requiring them to be reduced. The noble Baroness, Lady Seear, also addressed that point. To give an example, perhaps I may deal with the matter in relation to British Gas. If the totality of the remuneration of the British Gas board were to be removed, that would mean a saving of something like 1p a week for all gas consumers. Against that, this self-same board has achieved a saving of about £77 per average consumer each year. It would be an extraordinary proposition that, if one assumed the oddity of taking out altogether any remuneration, that is a real way in which prices could be adjusted. If there were to be a direct intervention as regards salaries, the regulator could not be expected to judge on the merits of individual board members and set their remuneration. The regulator should serve the interests of the consumer, concentrating on lower prices and better services.

As regards one-year contracts, I agree with the noble Lord that that is an extremely important part of what is proposed. My understanding is that the Stock Exchange will require listed companies to comply with certain specific recommendations. One of those is the disclosure of any service contracts which provide for or imply notice periods in excess of one year. That seems correctly to emphasise what is happening with the proposed changes. A set of core requirements will be imposed on companies. But if they do not follow through other recommendations, they will be under an obligation to disclose and to give their reasons for not so doing. That seems to be an appropriate way to go forward.

Finally, as regards taxes, value would be lost. I understand that the latest figure for 1995-96, with the removal of this relief, which is what it amounts to, is something like £80 million. That is an arrangement which, if the noble Lord has not sought it, I certainly understood Mr. Gordon Brown was urging. The one respect in which he got the matter wrong was to believe that something like £200 million was the value of that relief. He was clearly wrong there.

I hope that I have answered most of the points in this detailed matter as fully as I can. I can announce that 100 copies of the report have been placed in the Vote Office.

4.7 p.m.

Lord Boyd-Carpenter: My Lords, can my noble and learned friend say whether the House will have an opportunity fully to debate this matter very soon after we return in the autumn? Can he give a firm assurance to that effect? The report raises a number of extremely important matters on which I believe the House will wish to express a view. Is my noble and learned friend in a position to say what additional revenue will accrue to the Exchequer as a result of the tax changes?


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