The Parliamentary Under-Secretary of State, Department of Health (Earl Howe): My Lords, obesity is a complex issue, and there are many factors that contribute to children becoming obese. We are committed to tackling obesity in children. Our call to action on obesity sets out the actions that everyone needs to take. For our part we will continue investing in the Change4Life programme, the national child measurement programme, and the School Games.
Lord Sharkey: My Lords, one-third of our children are already obese, and the fact is that cheap fast food can be a major contributor to obesity. The Government's responsibility deal for calorie reduction has signed up 31 companies, which have promised to reformulate their products to make them less fattening. However, according to the Department of Health's website, not one of these signatories is a fast-food operator. Does this not suggest a failure of the voluntary approach and that we need regulation, as the BMA says, to make food companies play their proper part in reducing obesity?
Earl Howe: My Lords, I am grateful to my noble friend. In fact, the responsibility deal has led to a number of very important gains and benefits, not least from food companies: food retailers as well as food manufacturers. Calorie labelling, for example, has expanded rapidly in out-of-home settings; we now have labelling in around 9,000 outlets across the country, which is to be welcomed. As my noble friend said, 31 companies, some of them household names, have signed up to the responsibility deal calorie reduction pledge. However, this is an area that we continue to work on, and I think my noble friend's comments are well placed.
Lord Wigley: My Lords, will the Minister accept that in Wales the figures for childhood obesity in those aged between 2 and 15 are three percentage points worse than those in England? As responsibility for some aspects of these matters is devolved and for others is not, can his department take up with the Government of Wales in Cardiff how a coherent plan can be undertaken to tackle this?
Earl Howe: My Lords, the noble Lord will understand that we tread warily when it comes to interfering in the affairs of the devolved Administrations. However, I take his point, because on serious public health messages such as this we need to have a co-ordinated approach. Members of my department are in regular contact with their counterparts in Wales.
Baroness Massey of Darwen: My Lords, the Minister mentioned sport. Beneficial as it is, does he accept that obesity is caused overwhelmingly by overeating and eating foods that cause obesity? Are there any media initiatives to direct young people to what is healthy to eat and to foods that cause less obesity, as well as to sports programmes?
Earl Howe: I completely agree with the noble Baroness that for children especially, exercise and sport are vital, which is why there are a number of initiatives in that area. She asked about media campaigns. Change4Life continues to support families to make simple changes to adopt a healthier diet and increase their physical activity levels. We are currently planning a summer campaign to encourage physical activity in children. The campaign remains subject to formal approval but is very much in our minds. Change4Life, I would just add, uses the full range of communication channels, including TV advertising, press, and local supporter activity. It is a well known brand and we intend to stick with it.
Lord Eden of Winton: My Lords, does not the Answer to the first Question on the Order Paper really depend upon the plans that the Minister will deploy before the House in his Answer to the second Question?
Lord Collins of Highbury: My Lords, I am going to take two bites of the cherry because I shall also briefly address the second Question. The noble Lord, Lord McColl, constantly reminds me that eating too many calories, not simply not exercising, is what causes me to be overweight, although I do exercise. However, when I pick up and eat a tub of low-fat yoghurt, which I have been doing for the past few years, thinking that I am eating healthily, I have not been able to read the very small print that states that this "low-fat, healthy" tub of yoghurt is packed full of sugars and calories. Actually, just before Christmas, I stopped eating low-fat yoghurts and I hope that noble Lords will appreciate the effect it has had on me. However, my specific question is: when will the noble Earl take the necessary statutory steps to ensure proper food labelling?
Earl Howe: My Lords, as the noble Lord will know, food labelling is largely governed by EU law and, at the moment, the EU directive is permissive about front-of-pack labelling. However, I take his point that it is very important that consumers are properly informed about what they are eating, and we are working with food manufacturers and retailers to ensure that there is much greater transparency in this area, across the piece, whether it relates to sugar, fats or salt.
Baroness Trumpington: My Lords, perhaps I may ask the Minister two questions. First, does he not agree that cheap food has become far more delicious than it was in the youth of most people in this Chamber? Secondly, children like to copy their heroes. Could not the media be persuaded to make greater use of physical heroes, such as footballers, tennis players or any kind of sporting hero, in order to promote less obesity?
Earl Howe: My noble friend makes a very good point about role models. To a certain extent, that has been tried and tested in the past with some success. As regards food and its taste, I would say each to their own, but she is right that we are encouraged in all sorts of subtle ways to eat more than we used to in years gone by. The responsibility deal calorie reduction pledge specifically enables businesses to contribute to our challenge to the nation in this area, which we issued as part of the call to action on obesity in 2011, to reduce total calorie consumption by 5 billion calories a day.
The Parliamentary Under-Secretary of State, Department of Health (Earl Howe): My Lords, we have challenged business, through our responsibility deal calorie reduction pledge, to take action to help people eat fewer calories. This can include helping reduce sugar consumption. Businesses are already taking action; for example, soft drinks manufacturers which are signed up to the calorie reduction pledge are reducing sugar and calories in their drinks, and we are looking to others to join force.
Lord Rennard: My Lords, does the Minister agree with the Secretary of State for Health that legislation may be required in this area if other measures do not succeed? In the mean time, does he think consideration needs to be given to changing tax regimes so that the tax may be rather higher on very sugary soft drinks, and rather lower on drinks that are less full of sugar? Does he also think that we may need to restrict the amount of sugar provided in some products, such as breakfast cereals targeted at children, so that parents either as consumers themselves or watching their children can see how many spoons of sugar are going on to their cereal, rather than simply accepting the amount of sugar already produced by the manufacturers?
Earl Howe: My noble friend asks a number of questions. I am sure he will have welcomed, as I did, the announcement a few days ago by two major manufacturers of sugary drinks that they were substantially reducing the sugar content of their drinks. This is in part a result of the engagement that we have had with the food industry, which, in public health terms, is taking on responsibility for the products that it makes.
While there are advocates for taxation, in 2012 my department reviewed the international evidence of the effect of taxation on people's consumption of food and drink. There is very limited empirical evidence, certainly from literature, but also in practice that that has an effect on body weight or health outcomes. There is a range of possible unintended consequences, including swapping for other foods which may be even less healthy than the ones that we are trying to cut out.
Lord McColl of Dulwich: My Lords, is the Minister aware that the overeating habits of pregnant women can be programmed into the foetus, so that when born the children will not stand a chance unless people accept that the answer to the obesity epidemic is to eat less? Although exercise is important in reducing cholesterol, for well-being and so on, it has very little to do with the control of the obesity epidemic.
Earl Howe: My noble friend makes a good point, but in healthy children exercise is very important as a preventive measure for obesity and diabetes. The central point he makes is absolutely right. We look to healthcare workers, not only health visitors but also midwives, through programmes such as the Healthy Child programme and Start for Life, to get families and children off to the right start, so that they eat properly and live healthy lifestyles.
Earl Howe: My Lords, we are clear that artificial sweeteners are safe if taken as intended. That is the advice of the European Food Safety Authority and we take that advice. However, encouraging people to take low-diet fizzy drinks, for example, in preference to sugary drinks is problematic because all fizzy drinks have an adverse effect on tooth enamel. We need to be balanced in our messages but we think that artificial sweeteners have a role in a proper calorie-controlled diet.
Lord Berkeley: My Lords, are the Government aware of a study by the Dutch Government which links obesity with exercise-in particular, walking or cycling-in inverse proportion? Given that the same study says that we are the most obese country in Europe, will he encourage cycling to be taken up by more children and persuade the Department for Transport to take this a bit more seriously by get moving in encouraging more children to cycle to and from school and for leisure?
Lord Roberts of Llandudno: My Lords, we have already heard mention of the importance of the proper labelling of foods. Could that labelling be such that even the youngest child, perhaps with type 1 diabetes, would be able to understand it without having to go into some mathematical equation to decide exactly what is good for him to eat?
Earl Howe: My Lords, my noble friend may know that a UK-wide consultation on front-of-pack labelling was held last year. We published a formal response to it at the end of January. The responses identified a number of issues which we need to consider further and officials are working on those. However, my noble friend is absolutely right that not just the calorie content but the clarity of the messages around calories need to be clear not only to adults but to children.
Lord Brooke of Alverthorpe: Does the noble Earl know that drinking alcohol is a big factor in introducing sugar into the body? The drinks industry is totally exempt from any requirement to show the calorific effect of alcohol, or indeed its energy factors. Is the Minister happy that the partners in the responsibility deal within the drinks industry are taking no action on that issue, or is he prepared to say that the Government will push through the responsibility deal to try to bring about some change?
Earl Howe: My Lords, our alcohol strategy includes a commitment for the Responsibility Deal Alcohol Network to seek to make further progress on including energy information as part of the responsibility deal alcohol-labelling pledge. We have already secured provisions in recent EU labelling legislation that will enable companies to provide this information on a voluntary basis. The pledge on improving information for consumers in the off-trade area already includes a commitment to raise awareness of the energy content of alcoholic drinks, and we will continue along those lines.
Lord Howarth of Newport: My Lords, given that the House of Commons has made it absolutely clear that it will not tolerate the challenge to its primacy of an elected second Chamber, given the Deputy Prime Minister's sensible acknowledgement that the best is the enemy of the good and given the undesirability in the interests of good government that the question of Lords reform should overshadow the next Parliament, will Ministers introduce legislation in this Parliament to enable us to resolve the issues of how Members are to be appointed to the House of Lords, the future size of the House, how the balance between the political parties, the Cross Benches and the Lords spiritual is to be determined, the future of hereditary membership and life peerages, and provision for retirement and disqualification, all of which need to be resolved and upon which sufficient consensus could be achieved?
Lord Hill of Oareford: Having picked my way around this landscape over the past few weeks and having had the chance to talk to and understand the concerns of many noble Lords, I am not sure that it would be as easy to secure consensus as the noble Lord, Lord Howarth of Newport, suggests. He is clearly a great optimist if he believes that that is the case not only in this House but between this House and the other place. I obviously understand the points that many noble Lords raised about some of these issues that we discuss but, in the light of last year's debate and the views that the Deputy Prime Minister has made clear, there is no prospect of further legislation for those issues that would require legislation.
Lord Laming: Bearing in mind the financial situation and the concerns expressed all round about the impact of that on the poorest people in our society, does the Leader of the House agree that it would not enhance the reputation of this House for public funds to be used to encourage people to give up the privilege of serving in this House?
Lord Hill of Oareford: I agree personally and in principle with the point raised by the noble Lord, Lord Laming. When the rest of the country is facing huge economic challenges, as the noble Lord said, to spend taxpayers' money in such a way would be difficult, but I also agree with the underlying point of principle, which is that it is an honour and a privilege to serve in this House, and the idea that if one ceased to want to fulfil that honour and privilege, one would need to be compensated financially, sits oddly with the principle it serves.
Lord Forsyth of Drumlean: My Lords, in his role as Leader of the House and as the representative of this House in Cabinet, will my noble friend take the opportunity to draw to the attention of the Prime Minister the article in today's Times by the Lord Speaker, and impress on him that it represents the feelings of the vast majority of people in this House? Further, will he talk to the Deputy Prime Minister and say to him that his refusal to allow the Steel Bill to go forward is unacceptable, given the strength of feeling shown in both Houses about the size of the Houses of Parliament and the importance of getting value for taxpayers' money?
Lord Hill of Oareford: My Lords, I am sure that all the points that have been raised in this debate are being seen by my colleagues in the Cabinet, including by my right honourable friends the Prime Minister and the Deputy Prime Minister. I understand the points raised about the size of this House. It is important to have the ability to refresh the House, bring in new talent and draw on the expertise for which this House is rightly renowned. One of the reasons why I was particularly keen to do this job is because I saw as a Minister the difference between this House and another place in terms of the quality of the scrutiny that this House provides, and it is extremely important that we should carry on having the Members to enable us to do so.
Baroness Hayman: My Lords, will the Leader reconsider the pessimism implicit in his original reply? It is intolerable that the failure of the Government's plans for an elected House should stand in the way of progress on a reform agenda that is widely supported and which is urgently needed for the reputation of this House. The noble Lord could do the House a great service by championing that reform agenda, as the noble Lord, Lord Forsyth, said. Will he undertake so to do?
Lord Hill of Oareford: My Lords, I hope that I can always be a champion of this House, about which I feel extremely strongly. On the point about me being a pessimist, I like to think that I am an optimist. I am optimistic about this House, about its future and about the contribution that it makes to our national debate. I have, though, to be realistic about the consequence of the debate and the votes that took place. We know that the other place said at some point that it was in favour of an elected House; it did not then will the means for that to happen. Given where we got to last October, I am not a pessimist but I am realistic.
Lord Steel of Aikwood: Is the Leader of the House aware that following consultations with the Chief Whip, and as he rightly advised me, I postponed the Motion that I was to bring forward stopping further introductions until 28 February, which is the day before my Bill is next due to be blocked by the government Whips in the House of Commons. It would helpful if he, I and others could use the intervening time to try to persuade the powers that be at the other end that this is really a housekeeping measure purely affecting the Lords that we would like them to be nice enough to send back to us.
Lord Hill of Oareford: I understand that point. I have great respect for the noble Lord, Lord Steel, and am glad that I have already had the chance to discuss his proposals with him and others. I would be happy to do so again. He, I am sure, can use his powers of persuasion with colleagues in his own party, including the Deputy Prime Minister. I know that he will try and we will then see how we get on.
Lord Hunt of Kings Heath: My Lords, I would like to take him back to his first Answer. He suggested that it would be difficult to get a consensus in your Lordships' House on interim changes. Why does he not put it to the test? There are various groups meeting at the moment in this House discussing these matters. There is a great deal of consensus. Why does he not call those groups together, or have a Leader's Group, to see if we can make progress when there is a clear and huge majority of your Lordships' House in favour of making sensible interim changes?
Lord Hill of Oareford: Again, the noble Lord says there is a lot of consensus around this. The conversations I have had with people so far do not bear out that optimistic gloss. I am keen to talk to Members of this House who have views, and that is something I will continue to do.
The Commercial Secretary to the Treasury (Lord Deighton): My Lords, an organisation must be a charity, under the law of England and Wales, and meet certain other conditions in order to qualify for UK charity tax reliefs. Whether an organisation established in England or Wales is a charity in law is a matter for the Charity Commission. The Government are considering the proposals of the noble Lord, Lord Hodgson, on updating charity law following his review of the Charities Act 2006.
Baroness Gardner of Parkes: I thank the noble Lord for that Answer. I notice that when you complete your tax return, one section asks you to say whether you are a member of a tax avoidance scheme. I am always amazed by that. That makes me wonder whether certain tax avoidance schemes are recognised and approved by the Treasury. Can the noble Lord tell me whether the Cup Trust, which is the one that has been so widely accused in the recent press, is known and approved by the Treasury, or whether it is unknown and that it has come as a shock to the Treasury to have this revelation in the press?
Lord Deighton: My Lords, I cannot comment on the tax affairs of individual taxpayers but what I can do is speak generally. Schemes that abuse the gift aid rules with a view to enabling individuals to avoid tax do fall within the disclosure of tax avoidance schemes rules. That means that anyone who uses such a scheme must disclose it on their tax return. HMRC can then identify those individuals and challenge the reliefs claimed where appropriate.
Lord Davies of Oldham: My Lords, are not the charities that most significantly avoid tax on dubious grounds the public schools? Many of them were granted charitable status when they educated the poor or those of middling incomes. They now clearly educate, overwhelmingly, the children of the wealthy and the privileged, as evidenced by the Conservative Front Bench in the Commons.
Lord Deighton: As I said in my original Answer, the issue of whether an organisation qualifies as a charity is for the Charities Commission. The review of the noble Lord, Lord Hodgson, which reported in the middle of 2012, was given an initial response by the Government just before Christmas. The Public Administration Select Committee is also looking at this and will report, I think, in March. At that point the Government will give their further recommendations on the regulation of the charities sector. That will deal with the issue of which organisations qualify as charities, including public schools.
Lord Strasburger: My Lords, can my noble friend tell the House whether alleged tax avoidance schemes, such as those operated by the Cup Trust, are likely to be caught by the general anti-avoidance rules when they are introduced? Can he also confirm that the general anti-avoidance rules are still scheduled to be introduced in this year's Finance Bill?
Lord Deighton: I thank my noble friend for giving me the chance to shed further light on this issue. HMRC is extremely clear that circular schemes which are designed to exploit gift aid do not work in tax law. It will challenge and litigate enthusiastically against any scheme that it believes does not work in tax law. As the schemes do not work in tax law, the anti-avoidance provisions are not necessary and the schemes should fall at the first hurdle of not being legally acceptable. However, I can confirm that it is the Government's intention to include the general anti-avoidance rules as part of the Finance Bill 2013.
Lord Richard: My Lords, does the Minister agree that it is a principle of English law that that which is not forbidden is permitted? Do not the Government recognise that merely to go on bleating from the sidelines and telling people that they should not avoid tax will have absolutely no effect whatever? Clever lawyers will be able to devise ways of continuing to avoid tax. If the Government want to deal with tax avoidance, they will have to legislate to deal with tax avoidance and stop preaching from the sidelines.
Lord Deighton: The Government are prepared to legislate against tax avoidance in the area of charities law. In both 2004 and 2010, Governments legislated to do precisely that. I see this as two distinct areas. On the one hand, we need to create a tax regime which encourages an enterprise economy and giving to charity. On the other hand, the quid pro quo for that kind of positive environment is that people pay their taxes. I can assure the House that HMRC will pursue diligently those who seek to avoid tax.
Lord Lexden: In relation to the Question from the Labour Front Bench, will my noble friend note that independent schools provide far more in bursaries and means-tested scholarships than they receive in benefits through their charitable status?
Lord Deighton: In this particular case, as I understand it, the Charity Commission, which works closely with HMRC, investigated the trust but found that it did not have the legal basis to make a challenge. In that context, I refer to the review of the noble Lord,
6 Feb 2013 : Column 264
Forty-six Lords completed valid ballot papers. A paper setting out the complete results is being made available in the Printed Paper Office. That paper gives the number of votes cast for each candidate. The successful candidate was Viscount Ridley.
Lord Ramsbotham: My Lords, I understand that no amendments have been set down to this Bill and that no noble Lord has indicated a wish to move a manuscript amendment or to speak in Committee. Unless, therefore, any noble Lord objects, I beg to move that the order of commitment be discharged.
"(d) the conditions regulating the agreement contained in subsection (12) are satisfied."
Lord Pannick: My Lords, Amendments 81D and 92 are in my name and that of the noble Lord, Lord Adonis. They are in the first of a series of groups of amendments which address Clause 27. As your Lordships know, Clause 27 allows employers to buy off employment rights otherwise enjoyed by employees. Under this clause, employees can agree to receive shares worth at least £2,000, in return for which they will lose the right to claim unfair dismissal, the right to claim statutory redundancy pay, the right to request flexible working and the right to request time off for training.
What is so objectionable about Clause 27 is that these employment rights were conferred by Parliament over the past 50 years and have been protected by Governments-both Conservative and Labour-precisely because the inequality of bargaining power between employee and employer means that freedom of contract is quite insufficient to protect the employee or the prospective employee. Therefore, to allow these basic employment rights to be traded as some form of commodity frustrates the very purpose of these entitlements as an essential protection in the employment context.
The concept contained in Clause 27 is especially bizarre when there appears to be no demand whatever from employers for such protection and when responsible employers are introducing genuine share ownership schemes. I can think of only one precedent for Clause 27. It is in Genesis, chapter 25, where Jacob refuses to let his famished brother Esau eat some of the broth he has made until he sells him his rights as the first born. Esau agrees because he is famished and says, "What use is my birthright to me?", compared to the mess of pottage of which he has immediate need. Your Lordships will come in due course to consider whether the correct response from your Lordships' House to this mess of pottage is to reject it in its entirety-for all the reasons so powerfully outlined at Second Reading by the noble Lord, Lord Adonis, in particular.
Amendments 81D and 92 seek to ensure that if we are to have Clause 27 at all, the employee and the prospective employee must at the very least be given the minimum necessary protection to understand what it is that they are giving up. The minimum necessary protection that Amendments 81D and 92 would provide is that the statutory rights could be lost only if the agreement satisfies three essential conditions.
The first is that any agreement in this context must be in writing and must set out the rights being traded and the value of the shares that are to be received. One of the surprising features of Clause 27 is that it does not even require the agreement to be in writing-an invitation to subsequent litigation if ever I saw one. Secondly, the individual must receive legal advice on the consequences of the agreement from an independent lawyer. These matters are surely too important for Parliament to allow employees and prospective employees to give up those basic rights without the legal implications being fully explained to them. The third essential protection is that the individual must have received financial advice from an independent adviser-who must be a regulated person-as to the value and the prospects of the shares that he or she is about to receive and for which they are giving up those basic employment rights
The detail of Amendment 92 is modelled on Section 288 of the Trade Union and Labour Relations (Consolidation) Act 1992. Section 288 is a vital provision. It makes an agreement void if it purports to contract out of the employment rights that Parliament has conferred. At the moment, employees and employers simply cannot contract out of employment rights. Clause 27 conflicts with that basic and fundamental principle. However, Section 288 allows for compromise agreements to settle specific employment disputes in individual cases in employment tribunals. That is a very different concept and entirely acceptable in principle.
Section 288 states that one of those compromise agreements in the context of an individual employment dispute is valid only if it is in writing and if the employee who is settling the case has received independent advice on the terms of the agreement by which he or she is settling the claim-advice from a lawyer, a trade union official or an advice centre worker. Clause 27 involves an agreement much more fundamental in its implications for the individual, who is not just settling an individual employment claim in the tribunal but is generally giving up important employment rights for the future. Therefore, in the Clause 27 context-if we are to have Clause 27 at all-the procedural protection that Parliament confers on the employee must be at least as strong as that which Parliament itself has conferred on the employee who is settling a specific employment claim.
The Equality and Human Rights Commission has helpfully addressed that very issue. It has expressed concern that Clause 27 may indirectly and unlawfully discriminate, contrary to EU law, against those workers and prospective workers whose first language is not English, those with learning disabilities or young workers. Therefore, the commission says that a proper justification is required and that depends, in its view, on safeguards such as the receipt of informed and independent advice.
I emphasise that Amendments 81D and 92 would not make Clause 27 acceptable. Clause 27 would remain a provision that knows the price of statutory employment rights but ignores the value of those rights. However, because the amendments would make Clause 27 marginally less objectionable, I beg to move.
Baroness Brinton: My Lords, on Second Reading I expressed my concerns about the whole concept behind this clause. Various Ministers have suggested that only a small group of companies are likely to be interested in these proposals: new, high-technology, rapid-growth, micro and small companies which might want to encourage employees into more commitment and endeavour by offering them shares in their company. So far, so good. However, many employers already do this in this sector, especially those running fast-growing, leading-edge, high-tech companies, because they know that they are going to grow much faster than many other companies and they want to commit their staff to working for them, to share the benefits in the longer term and the hardship of trials that most companies face in their start-up phase.
I declare two past interests. First, I have a foster son who has recently been employed by one such firm, joining it from university. He has received a share package as part of his employment. I have talked to him and some of his colleagues about the benefits and whether they would be prepared to talk about giving up their rights. I will come to that later. My second interest is that I advised St John's College, Cambridge, as it created the St John's Innovation Centre in the late 1980s and subsequently was a non-executive director at the centre until 2010. The centre works with entrepreneurs and academics spinning their ideas out of Cambridge and other universities, offering them short-term leases and, very specifically, business, legal and technical advice that is the envy of many other science parks and innovation centres that have developed in the intervening 25 years.
These companies are the exact target audience that Ministers tell us will be interested in the proposals in Clause 27. Having talked to the directors of these small but high-growth companies, I know that many already offer shares, as I mentioned. They, as directors, do not understand why an employer would want to do so in return for a reduction in employment rights. One of their key issues as the company grows is to keep the morale of the staff going during the difficult times. It is very rare for a new company to have an entirely smooth journey to success and reward. Proposing that staff should give up their rights to redundancy pay is an issue, as not all early-stage companies survive and so redundancy is a real possibility. They are also concerned about training. This is absolutely vital in the leading-edge technology sector, where the skills of your workforce are likely to make all the difference against your competitors, particularly the business skills that technical staff may not have had when they arrived at the company. They need those skills in order to progress in their market. Losing part of paternal leave is also a concern, as many of their staff are in exactly the age group likely to be beginning their families.
So if the stick-that is, the loss of rights-is not attractive either to employers or to staff, what about the carrot? The carrot of capital gains tax exemption sounds very exciting but I do not believe that the Government have really understood the two likely outcomes for these high-tech companies. The first, sadly, I have already alluded to. Not all of these companies
6 Feb 2013 : Column 268
The second is the unlikely event that the company will do well enough to make those shares really worth something in the future. However, even this route is fraught to those coming in on the ground floor. Let us assume, for the sake of argument, that the group of employees who joined the company in its first two years were given shares at the then face value. It would not be unusual after their issue, as the company grows and faces all the typical excitements of launching in the market, for those shares to become worthless. But our fledgling company is taking off, and in order to become a really effective player, it will have to take on finance. It often needs to seek that finance when the company is not attractive. So, some business angels or venture capitalists invest in the company, and all the original shares are diluted substantially by this investment. We are only talking about round two of investment at this stage.
Well, the rubric goes, it is better to have a small share of something than a larger share of nothing at all. Often, though, there are three or four subsequent rounds of financing, and those employees are likely to find that their small share becomes a minute one. This is a really risky business. Would many employees understand the risks that they were taking? Would they honestly be prepared to wait 10 years or more for the carrot of the CGT exemption for the one company in 50 to 100 that starts to make a return for its shareholders? I doubt it. I also doubt that many employees would understand the nature of the process that I have just outlined.
That is why my noble friend Lord Tope and I have tabled Amendments 82A, 82B and 91 in this group. For people working in the financial services sector, such as venture capitalists and bankers, the process of growth and new share issues, with the consequential dilution for longstanding shareholders, is common knowledge, but for a young software engineer, perhaps fresh out of university, it is an area that they are likely to know nothing about The amendments in my name and that of my noble friend address this. We believe that employee shareholders under Clause 27 should have access to independent legal advice. More than that, we think that the employer should have a duty to ensure that the employee has a right to receive the appropriate legal advice and that the employer should make a contribution towards that legal advice.
I am reminded of the small print in the public shares issues of the 1980s: shares can go up as well as down. The noble Baroness, Lady Thatcher-I am astonished to find myself praying her name in aid-felt that it was appropriate for the ordinary man or woman in the street to have that advice then, so I am sure that it is right to be provided in these circumstances for employees who are unlikely to have had training in the finer points of share prices and rounds of investment in high-growth companies.
Amendment 92, in the names of the noble Lords, Lord Pannick and Lord Adonis, takes my proposal one stage further, and in a new subsection (12) demands much more specific types of advice as well as a written
6 Feb 2013 : Column 269
Amendment 82B would then put the onus for paying for that advice on to the employer. I am sure that this is correct and only fair. If you are giving up your rights as an employee in return for shares that may, though probably may not, increase in value and will certainly be diluted out of sight in the future, that is a complex decision that needs specialist advice and careful consideration by the prospective employee shareholder.
When we come to discuss clause stand part I will return to some of the principles of the clause in general, but I want to conclude on these amendments by saying that all the evidence that I have heard from both employers and employees, in the sector that Ministers say is the one most likely to take this up, is that it just will not be attractive. I hope that the clause will wither on the vine, but if it does not then we must have protection for the employees who are going to be faced with this sort of proposal.
Lord Vinson: My Lords, I declare an interest in that for many years I was chairman of the Industrial Co-partnership Association. I also happen to be fortunate enough to have floated a company on the stock exchange when we had 1,000 employees, and we gave 10% of the company to our employees.
I am deeply committed to the concept of wider share ownership but I am concerned about Clause 27. I shall give the Committee an example of quite what ownership means to some people. One of the older women in our company came up to me about a month after we had floated it and said, "Guvnor, you just don't know what it means to me to feel I am part of this company. It has made my life". That just brought tears to my eyes. People want to belong, and in smaller businesses they can belong and feel that they are names, not numbers.
However, the whole point of wider industrial shareholding is to try to create a sense of common purpose. I fear that the unnecessary obstacles and quid pro quos put into Clause 27 go in exactly the opposite direction; they negate trust rather than increase it. With great reluctance, therefore, I have to speak against the Government, who I am sure are right to encourage wider share ownership. If you wrap it up in complexity, cover it in advisers and make it all too difficult, it simply will not happen, but it is fundamentally the most attractive and important thing to create a wider capital-owning society in which everyone feels they have a stake.
Baroness Turner of Camden: My Lords, at Second Reading I opposed these provisions. In my view this is yet another attempt by Government to remove employment rights which have been hard fought for by previous generations. In my view, it is a backdoor means of introducing the Beecroft proposals which were recently condemned not only by trade unions but by many employers as well.
The Government maintain that the new status of employee shareholder is voluntary. Really? Are these proposals voluntary in situations where there is already high unemployment, where people are desperate for any sort of employment? A number of the issues have simply not been thought about. What about mergers? Do employee shareholders take their shares with them or do they have to give them up? What happens to TUPE-the Transfer of Undertakings (Protection of Employment) Regulations-which gives protection to employees? According to an opinion provided by the Equality and Human Rights Commission, an employee shareholder is legally still a worker and therefore still has employment rights-hence the Government's insistence on the voluntary nature of this new status, so that the worker voluntary surrenders rights.
Of course, while the employee shareholder may have a right to benefit from shares, he or she also shares the risks involved. For this reason, many people-including the movers of Amendments 82A and 82B, and even Amendment 92-have said that before entering this arrangement, the employer must have access to legal advice of an entirely independent kind. It has even been suggested that the employer should pay for this. These are, of course, modifications on a quite unacceptable set of proposals.
I still oppose the whole arrangement. It is one of a series of arrangements in which the Government are seeking to weaken or remove employee rights. We have already discussed the Enterprise and Regulatory Reform Bill in this House, which has a section on employment which is designed to make it as difficult as possible for employees to access employment rights and to take cases to tribunals. It also includes provisions in relation to health and safety at work, making it more difficult for workers to claim.
The LASPO Act, discussed before, also made it clear that legal aid would not be provided in employment cases. It is already becoming clear that the minimum wage is inadequate, and there is talk of a living wage instead. In April this year, cuts will begin to affect a whole range of people on benefits, particularly housing benefits. The Government claim, however, that much of this legislation is meant to assist small and medium-sized employers-SMEs. However, employers are already benefiting from low wages, which are in many cases subsidised by the taxpayer through the benefits system. Clause 27 is yet another attack by the Government on employment rights and on ordinary workers. It should be opposed for what it is.
Lord Martin of Springburn: My Lords, I support all those who have spoken, especially the noble Baroness, Lady Turner. She is right when she says that these rights were hard fought for. In my working life, I recall a time when people lost their job and went out of the door with a week's wages and, if they were lucky, maybe some holiday pay. It gave dignity to people who were very loyal to their company that, if they were unfortunate enough to lose their job after a decent period of time, they at least got something to tide them over, because redundancy payments are not all that big.
This is an insult to the companies which already give shares to their workers. There is a famous heating company-it is not fair to mention its name-whose
6 Feb 2013 : Column 271
This is bad legislation. We are bringing in a situation where we are saying, "Give up your rights and we'll give you shares". We are giving a financial incentive which, at the end of the day, as the noble Baroness said, is not necessarily a financial incentive because shares go up and down.
I remember being in Committee on the famous Tebbit Bill. The noble Lord, Lord Tebbit, is now a fellow Peer. He and many others argued that the trade union movement had been given too much in the way of rights by the previous Labour Government. One of the things they said was that you could not apply for unfair dismissal unless you were employed for a full, consecutive two years. Under the Labour Government, it was a year. The argument was that you had to show loyalty to the company that you were with.
Under this arrangement, workers who are prepared to show loyalty are giving up their rights on the day that they walk in the door and sign them over for shares. They still have to be employed for two years before they can apply for redundancy, and that proves that they are loyal people. The noble Lord, Lord Tebbit, would recognise that. He said that we want loyalty. Employers are getting that loyalty, but the Government are now saying that they want a facility where people give away their rights.
I can see a situation in places of employment where you will turn worker against worker because some will accept this deal but others will say, "No, I would rather keep my statutory rights". It could be that pressure will be put on them. I bring the Committee back to Sunday working. During the passage of the legislation on Sunday working it was stated that anyone who had deeply held religious beliefs would not have to work on Sunday. That held for a while, but when new employees came in they were told that if they wanted the job, they had to work on Sundays whether they had deeply held religious beliefs or not.
The Bill states that employers will have to respect workers' right to say they do not want shares and that those workers will be entitled to their rights under legislation. But what the Government have not considered is the new employees. People coming in the door will be told: "You must accept the workers' shares, and if you don't like it then you don't get the job". This is bad legislation.
Baroness Afshar: My Lords, I have worked for a long time with minority groups who employ their women in a system that is very similar to what is proposed. They have an interest in the business, they are committed to the business, they have kinship ties, and they have absolutely no rights. They work right through the day, and they share the losses and the gains.
In my long experience, the children of these minorities, who are some of the best educated children because the families use education, grow up and wish to use their education to get out of the informal sector into the formal sector. They wish for a different experience from that of their parents. They want to be workers
6 Feb 2013 : Column 272
Lord Strasburger: My Lords, I declare an interest. Before I joined this House I was a serial entrepreneur. I have started many businesses from scratch. The most recent one employed 200 staff after being in business for four years. I am a big fan of giving employees a stake in the success of the business so that their goals are aligned with those of the founders. It never crossed my mind that my staff should need to forfeit their employment rights in exchange. Snatching these rights is hardly the best way to win their hearts and minds. Managers who feel they need to diminish the rights of their staff to get their full commitment to the success of the business are bad managers and will almost certainly fail. This idea is complete nonsense.
Lord Flight: My Lords, when these proposals were announced, I was somewhat lukewarm towards them, for some of the reasons that other noble Lords have spoken about today. However, as I thought about the proposals rather more, it seemed to me that there is some sense to them. They are not proposals for everybody. They are not for individuals who work for the public sector or for large companies; they are relevant to individuals who are by nature high risk-reward in their approach. They are willing to be high-risk takers to build up capital for themselves and their families. The proposals are, as has been articulated, for small and medium businesses, and are certainly not appropriate for larger businesses.
The proposals at present are really rather simple and straightforward and may be capable of improvement but not, I hope, of too much embellishment or the whole point of the principle would be undermined. People have the option whether to participate. If you wish to be an employee entrepreneur, here is the chance to benefit with equity on an extremely tax-attractive basis, but you are going to be taking risks just like the entrepreneur himself. One of the problems with small-company share schemes, as I have experienced in my own career, is that they are very limited. Where options have to be used they end up being taxed at nearly 60% and are not particularly attractive. The carrot of tax-free capital gains is attractive.
The subsequent amendment that I will address shortly suggests a template for and guidance on the new scheme. Particularly as it is new and untried, that is needed. The principle of requiring advice I can go along with to some extent, although requiring barristers seems perhaps to be jobs for the boys. The principle of
6 Feb 2013 : Column 273
Moreover, some of the potential problems have already been addressed via amendments in the other place. There are measures intended to stop any form of coercion. Employees also retain the great majority of their employment rights. Partly paid issued shares cannot be used, so people would not be left with a liability if a company went bust. If shares are inappropriately valued, the deal returns employees to their normal employment status. I am not sure how far one should really go to spoon-feed the principles. If someone is not a natural risk taker, this is clearly not for them, and they should not look to accept a job with this sort of deal.
I am a huge believer in employee participation. I built a business based on virtually all the employees having equity in that business. While the business was being built, we really could not afford to pay people what I would call full market rates, and because we needed the money to build the business there was a trade-off there. But those individuals had to pay capital gains tax on their eventual gains, and some had to pay income tax because option arrangements were used. In a sense, the risk-reward tilt of the balance was not ideal at that stage.
If I were 40 years younger, or even still today, if I were offered the ability to participate in a young business that I felt could be a huge success, I would certainly opt for this scheme. I would look, bluntly, to my own potential contribution to the business as being my best assurance of employment, not to legal rights. The other side of the coin is that when entrepreneurs set up a business, they have to take a tremendous risk. People never think about that. Many of them have to put their home and family at risk. If the business fails, there is a charge on the house and they lose everything. There is a degree of fairness in the sort of risks that entrepreneurs take and the slightly higher degree of risk for employees who are bold enough to want to become employee shareholders.
One concern is that, increasingly, larger businesses are being run by HR departments. An element of Beecroft is correct. Yes, it is a sound principle to protect people who need protection, but I very much hope there is a realisation that if this country is to recover and compete with more dynamic economies, there will not necessarily be as much scope for the protections and featherbedding that have been enjoyed in the good days of the recent past.
I hope that the proposers of these amendments will reconsider them and wait to see what suggestions the Government come up with, at least to provide codes and arrangements that achieve some of their objectives but without having to use the complexities and expenses of the law, which are very costly for very small businesses.
Lord Morris of Handsworth: My Lords, the issues in this debate on Clause 27, and the other amendments, have not changed. I take the view that the objectives of the clause and the conditions attached to wider share ownership were wrong then and remain wrong. The
6 Feb 2013 : Column 274
At Second Reading, I said that I was no stranger to the concept. I worked in my company for 18 years and was awarded employee preference shares. I welcomed them, and they caused no harm. But I have to tell noble Lords that they did not influence my loyalty, commitment or motivation in that company. I gave of my best because it was a decent company, with its terms and conditions as well as security. Everything that went with it could be described as a model experience. I did not even give the shares a thought. I could not find my share certificate when the time came to dispose of them. That is how little they meant to me. I was no exception in that regard among the more than 3,000 people employed in that company because the company culture was right and the company met the needs of the industry.
We really ought to look at the deficiencies of Clause 27. It does not address training, productivity or investment, be it investment in people, community or the wider concept of society. I do not see too many words about skills in the clause and do not begin to understand how it could be deemed necessary to bring it forward to secure the loyalty and overall commitment that industries need. Indeed, it could be argued that Clause 27 will have a perverse effect on employee relationships within the workplace, because if the workplace is about anything it is about unity, working together and equity of treatment and approach. What we are doing here will possibly sow the seeds of a divided workforce operating in small units where some people are shareholders and some are not. The legislation does not provide equity of security because at the outset your legal rights have to be forfeited. I am old fashioned enough to think that workers' rights cannot be bartered for sale on the stock market because that brings nothing back into a company.
I say to the Government that sooner or later we will need to address the wider concept of industrial partnership but from a totally different perspective. We are discussing a "buy today, sell tomorrow" concept. If your shares are tradable, do you have any loyalty once you have disposed of them? You certainly do not have any rights because you gave those up at the start point, but do you have any real security? I do not think so. Therefore, I believe that the points that were made at Second Reading and the points so ably made today by the noble Lord, Lord Pannick, in respect of the legality of the issues involved in the different statutes lead to the necessity to rethink this clause. The clause really needs to get back to considering what industry needs, what is required and what will increase productivity, not just a "buy today, sell tomorrow" culture.
Lord James of Blackheath: My Lords, it would be extremely helpful if the clause contained a clearer definition of "profit share" and "equity participation". That is where the confusion will arise and cause the greatest difficulty. Profit share is relatively clear, straightforward, simple and very motivating. I wholly agree with the noble Baroness who talked about that
6 Feb 2013 : Column 275
Further, and worse, I have seen this work to the total detriment of the shareholders. I had a company that had a number of ships-we were opening the North Sea oilfields-that were bought and each put into a separate company. It looked like a good, straightforward, long-term profit opportunity, so we had a lot of participation by Scandinavian banks, which would buy a ship and put it into a purpose-built company. The captain might be offered the opportunity of 20% of the equity in that company, meaning 20% of the ship he was going to sail. If that company did not get the contract work, did not make the money and could not service the debts of that bank, the banks in Scandinavia came at those shareholders and took their homes as a condition of their putting in the extra money.
These hazards are not anticipated in what we have here. There are some fearful risks in inviting people to become locked-in minorities, especially in SMEs where you have nowhere to go if there is a problem. Profit sharing does not have any of those problems, so we should be going down the profit-share path, not the equity-participation route, especially where it is given free into unquoted vehicles.
Lord Adonis: My Lords, first, I congratulate the noble Lord, Lord Flight, on being the first speaker in more than 50 on the Bill so far to defend this shares-for-rights proposal. His reward will no doubt be substantial hereafter.
I also welcome the noble Viscount the Minister to our debates on the Bill. The noble Baroness, Lady Hanham, is looking mightily relieved that she has an afternoon off. Her time will return only too soon. The noble Viscount has the thankless job of defending the indefensible-another practice that, if I may extend the analogy used by the noble Lord, Lord Pannick, goes back to the Book of Genesis, where Adam had to explain why he had misbehaved in the Garden of Eden. We are rather hoping to expel the entire Clause 27 from the Garden of Eden, but we are first debating some mitigating measures and inviting the noble Viscount to respond.
We start with the issue of coercion. The noble Lord, Lord Flight, said that the issue of coercion had been dealt with, but I contend that it has not. One of the reasons why Clause 27 is fundamentally wrong and flawed is that, contrary to the Government's own statements and assurances, it is coercive in that it in effect requires individuals to accept jobs without fundamental employment rights. The coercion involved in these shares-for-rights jobs comes in two ways. First, individuals will in some cases have no option but to accept such jobs. We will come to that issue in respect of benefits claimants in the next group of amendments.
Secondly, these shares-for-rights jobs are in all cases potentially exploitative, because there is no requirement for independent advice before an individual signs up. It is therefore likely that individuals, particularly the
6 Feb 2013 : Column 276
A whole succession of noble Lords, starting with the noble Lord, Lord Pannick, have made a compelling case for there to be protections, including independent advice before shares-for-rights contracts are entered into. The amendment in my name and that of the noble Lord, Lord Pannick, proposes that there should be legal advice on the rights forgone and financial advice on the valuation and prospects of the shares it is proposed to offer in lieu of employment rights. Without such advice, the scope for exploitation is considerable. Such advice should be paid for by the employer, and there should be an explicit agreement between employer-
Lord James of Blackheath: Will the noble Lord draw a distinction between the legal advice to be given in the potential sale of a listed company, where the majority shareholders have a separate set of interests and the minority shareholders-the working shareholders possibly have a very different set of interests? Are we to have two separate and parallel sets of lawyers to avoid a conflict of interest between those types of shareholders? That would seem necessary. How is it to be funded?
Lord Adonis: My Lords, we are talking about individual employees who are seeking to take jobs, which is a different situation from the one that the noble Lord has described. We are not talking about the takeover of companies, which is the issue he raised. However, the noble Lord is right to point out that two different sets of interests are involved. As the noble Lord, Lord Pannick, said, we have these rights purely because of an imbalance of power in the relationship between employers and potential employees. If the noble Lord is saying that we need two lots of lawyers on the job, I understand the point he is making but it makes the proposal even less workable and even more unaffordable.
Lord Adonis: The noble Lord therefore proposes a system that is even more complex and onerous than is envisaged. Such advice should be paid for by the employer, and there should be an explicit agreement between employer and employee stipulating the employment rights that are being foregone and the value of the shares being allotted.
However, this is not a new principle. As the noble Lord, Lord Pannick, said, it is, in fact, a principle accepted by previous Conservative Governments. The great noble Lord, Lord Tebbit, was Secretary of State when this principle was enshrined in law. Under the legislation of the previous Conservative Government, there are minimum independent legal advice requirements on the surrender of unfair dismissal rights in what are now called compromise agreements-a key element of which is a written agreement upon which the employee has received advice from an insured independent legal adviser or other specified and qualified person.
The noble Lord, Lord Pannick, also quoted the advice and recommendations of the Equality and Human Rights Commission, which could not be clearer. Let me read the recommendations to the Committee. They state that,
"In order for objective justification to be established, it is likely to be necessary for the individual to have a right to receive appropriate advice and for the employer to be required to draw this to his or her attention".
The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Viscount Younger of Leckie): Noble Lords will not be surprised to know that I was expecting a somewhat lively debate on this general issue of shares for rights. I very much appreciate noble Lords' contributions. Before I turn to the amendments in the group-Amendments 81D, 82A, 82B, 91 and 92-I should take this opportunity to inform the House about the clause. I will have the chance to expand on this during a stand-part debate, but the House might like to understand why the Government are creating the new employment status and what it is aimed to achieve.
The Government are creating a new form of employment contract that companies limited by shares can use. This new status will be known as "employee shareholder". The employee shareholder will be granted shares in the employing company or the parent company but will not have all the rights of an individual with employee status. The Government are taking this action to offer companies and people more choice, and are giving choice to companies on how they structure their workforce to ensure maximum growth and flexibility, more choice for people in the type of jobs that are on offer to them and new opportunities to benefit from growth and meet their long-term aspirations.
This Government, from the outset, have committed to reforming employment laws, and are doing so through the employment law review. Establishing the employee shareholder status is different. With this change, the Government are creating a new type of employment relationship. It is an employment relationship where both the company and person share the risk and rewards for business more than any other employment type.
I now want to address the amendments tabled by my noble friend Lady Brinton and the noble Lords, Lord Adonis and Lord Pannick. This clause is not about making a new employment status compulsory for all. It is about adding to the employment statuses that already exist. It sits alongside existing employment statuses such as employee and worker.
Employment law does not stipulate that individuals should have legal or financial advice before accepting a job with the employment status of either employee or worker, or taking up share ownership possibilities. It would be anomalous to impose these requirements for the new employee shareholder status. Neither do we want to stipulate that employers must pay for legal advice. Noble Lords will appreciate that legal expenses can be high, which would be a burden both in administrative and cost terms, in particular for the type of fast-growing company to which this is most likely to appeal.
There is nothing in the clause that prevents individuals from seeking independent advice. This is about creating a new voluntary employment status and not about creating additional burdens for employers.
As for employment contracts, it is important to leave these to employers and individuals to negotiate, discuss, and agree to, although employees are entitled to receive a written statement of employment particulars within two months of the start of their employment. Government are committed to reducing burdens arising from regulation and therefore wish to keep administration requirements to a minimum.
The status, as we have already said, will be most attractive to fast-growing businesses, which will spend time looking for and investing in the right people to help their business grow, and will be willing to give fully paid up shares to the right candidate. These employers will have to invest in employee shareholders by giving them shares, which is a cost to them. It is likely that they are exactly the type of employers who would then struggle to find the additional cost and time to fulfil the amendments my noble friends and the noble Lords are suggesting.
Lord Flight: Just before my noble friend passes over this matter, I would like to raise one issue that is not clear to me. When the grant of shares is given, is the value of them treated as taxable income? If so, I certainly think that it should not be part of the deal as something that is tax attractive.
Viscount Younger of Leckie: I thank my noble friend for that question. The shares are treated as taxable income, although they are shares, so there would be tax at whatever level payable on the shares received.
I should now like to answer some questions that have arisen. The noble Lord, Lord Pannick, stated that there was no demand for this new status. I can understand his concern from other comments made this afternoon. This new employment status will not be appropriate for all companies or be taken up across the board. It simply adds to the options and flexibility available to companies and individuals in determining their employment relationships.
My noble friend Lord Flight has eloquently mentioned this particular issue in his speech. The new status will probably appeal mainly to fast-growing and small start-up companies and individuals as this is the level where employment rights are seen to impact the most.
I would like to address directly the points raised by my noble friend Lady Brinton to say clearly that this particular employment shareholder status will not suit the examples that she cited in or near the Cambridge area. My noble friend Lord Strasburger also cited some example and I suspect it would not suit-
Viscount Younger of Leckie: Indeed, it may well be the case, but it is not my position to stipulate exactly which particular companies would be right for this particular scheme; only to say that we are offering this as an incentive and an opportunity for business to help the company grow. If it is not suitable for particular companies, that is absolutely fine-it is not suitable.
My noble friend Lady Brinton also asked why we were removing the statutory right to request time to train. The Government recognise that training in the workplace is important and acknowledge the concerns raised. There is currently no reason to suggest that removal of the statutory right to request time to train, which at present is available only to employees of large organisations-that is, those with more than 250 people-would result in employee shareholders being unable to access training or request it if needed. Larger employers tend to have established appraisal and development processes. On that basis, we do not believe that this proposal will adversely affect future employee shareholders. Employee shareholders can still make non-statutory requests for time off to train.
Lord Adonis: Did I understand the Minister to say in response to the noble Lord, Lord Flight, that these shares, including the first £2,000-worth, would be taxable? That is quite an important change in the policy announced in the other place.
Baroness Brinton: My Lords, I apologise for intervening again but this point is absolutely critical to the Government's intended success of the clause, or otherwise-that is, a carrot needs to be available to the employee at the time of the share issue, as well as later when there might be some fruition in terms of the investment. This seems to remove the only carrot at the time of the initial employment.
Lord James of Blackheath: Will the noble Viscount please also assure the Committee that there will be an absolute bar on companies lending individuals the money to pay that tax? They will be in enough trouble already.
Lord Stoddart of Swindon: I have to say that the noble Viscount has not made the position clear to me. It may well be that everybody else is clear about it but, as I understand it, he is saying that the £2,000 will be taxable, and he appears to be saying that it will be taxable as income. If that is so, the value of the shares in real terms could very well be reduced by 40%. Is that right?
My noble friend Lady Brinton expressed concern surrounding the share dilution, particularly when small businesses have additional investment. Additional investment shows that a company has potential and this should benefit the shareholders in the long run. We envisage that it will. Minority shareholders already have some protection under company law, and employee shareholders would be able to make appropriate representations under these rules.
I now turn to a question raised by the noble Baroness, Lady Turner, concerning TUPE. She asked whether TUPE will be affected by employee shareholders. Exactly how TUPE would apply would depend on the precise
6 Feb 2013 : Column 281
The noble Baroness, Lady Turner, also raised the issue of Beecroft. I think she said that this was Beecroft by the back door. I reiterate that it is certainly not. The new employee shareholder status is different from the no-fault dismissal proposal because individuals become shareholders of the company at the start of the employee relationship. That is an important benefit conferred by the employee shareholder status. Unlike no-fault dismissal, the employee shareholder status will be freely agreed between employers and individuals in contractual negotiations. Employers will also be free to offer improved contractual terms, such as contractual redundancy payments, as raised earlier, in an employee shareholder contract. After reviewing the evidence, the Government found no compelling reasons to implement the no-fault dismissal proposal.
My noble friend Lord James of Blackheath was concerned that shareholders might be locked in and subsequently would have to pay the debts of the company. The shares must be fully paid up by the company. No financial liabilities are attached to the shares. No personal guarantee can be demanded from an employee shareholder as a condition of the particular status.
I shall conclude by agreeing in part with the noble Lord, Lord Pannick, on a particular point. There is indeed a large number of sources of quality legal and financial advice available. The Government do not need to stipulate where people should seek advice, nor would it be appropriate to oblige people to seek such advice when they may not need or want it. The best approach is to provide guidance, which we will do, to ensure that people enter into contracts with their eyes open. That is the approach that we are taking. With those reassurances I hope that the noble Lord will withdraw his amendment.
Lord Pannick: I am very grateful to the Minister and, indeed, to all noble Lords who contributed to this valuable and, as described by the Minister, lively debate. It confirmed, as many noble Lords suggested, that this is an ill thought out, divisive and unnecessary provision that ought to be put to sleep as soon as possible.
The Minister suggested that Clause 27 simply creates a choice, and asked what was wrong with creating choice? The whole point of employment rights is that they are needed because the bargaining power of the employee is so limited that statutory protection is required. The noble Lord, Lord Flight, suggested that these proposals might be appropriate for some types of employee in some types of employment. There are two difficulties with that defence. First, Clause 27 is entirely general in its terms; it is not confined to particular types of employment and particular types of protection. Secondly, the employees and the employers for whom the noble Lord, Lord Flight, suggests Clause 27 might be appropriate-entrepreneurial employees in high-tech companies-are not operating in a context where the rights to protection against unfair dismissal and redundancy are of particular significance. It does not inspire a great deal of confidence in Clause 27 that the best point that can be made in its defence is that it will not be used very often.
This amendment is about legal and financial advice, particularly legal advice. The noble Lord, Lord Flight, said that legal advice is not needed in this context because the legal implications are very clear. I have to say that they may be clear to the noble Lord, but I can assure him that the implications of signing away one's basic employment law rights, and what one will receive in return, will not be clear to the ordinary working man and woman who may be invited to sign away these essential protections.
The Minister then said that there was nothing in Clause 27 that would prevent the employee seeking advice. As a judge said in the 19th century, it is rather like saying there is nothing to prevent the employee from staying overnight at the Ritz hotel. Statutory protection is required to ensure that in reality, advice is made available for those who will not otherwise obtain it. The Minister did not address this. I cannot understand why legal advice is-rightly-required by Section 288 of the Trade Union Act in the context of a compromise agreement, but is not required under this clause when the employee gives up his or her employment rights generally.
I hope the Government will listen to the noble Baronesses, Lady Brinton, Lady Turner of Camden and Lady Afshar, and to the noble Lords, Lord Vincent, Lord Martin, Lord Strasburger, Lord Morris of Handsworth and Lord James of Blackheath, all of whom speak from their different perspectives with an enormous range of experience. The Minister and noble Lords will know that there are many other noble Lords who are not here today who are equally concerned by Clause 27. I hope that the Government will listen and do what must be blindingly obvious that they ought to do, which is to withdraw Clause 27 so that we do not need to spend-I will not say "waste", because it is not a waste of time-any more time on this on Report. In the mean time, I beg leave to withdraw the amendment.
"( ) Any individual who declines to enter into an agreement under section 27 of the Growth and Infrastructure Act 2013 shall not suffer any consequential reduction or withdrawal of any state benefits to which they are entitled to by virtue of their current employment status."
Lord Adonis: My Lords, the purpose of Amendment 82 is the same as that of the amendment in the name of the noble Lord, Lord Tope, and the noble Baroness, Lady Brinton. I hope that we can unite across the House on the simple and fundamental proposition that shares-for-rights contracts should be voluntary, and that individuals on benefits should not be forced to accept them for fear of losing their benefits if they do not.
Before getting to the substance of the amendment, I will raise with deep concern a point of procedure fundamental to the issue of what benefit claimants will or will not be required to do, which is the guidance given to DWP decision-makers where appeals are made against the docking of benefits in cases where a claimant has failed to accept an appropriate job or attend an interview. The Government have said repeatedly through the passage of this Bill through the other place and the earlier stages of our debates in this House that they will amend the guidance so that it is fair. This revised guidance is vital to understanding what will or may happen in practice. I have repeatedly asked that noble Lords see the revised guidance or at the very least a draft of it before we consider this clause. We cannot properly consider it without the revised guidance because the issues at stake are so fundamental. For example, will carers be able to decline to take shares-for-rights jobs, or to attend interviews for them, because they may want to request flexible working? Will a youngster with few or no qualifications be able to decline a shares-for-rights job or an interview for one, since under these contracts they will not even have the right to request to undertake study or training?
I wrote to the noble Baroness, Lady Hanham, about the guidance on 9 January. By the time the Committee started I had not even had the courtesy of a reply. I raised this issue on the first day in Committee and the noble Baroness apologised for the absence of a reply-she did so very graciously-and, when I asked whether we would have the guidance by today, she said that she would seek to make sure that we did. We still have not got it. Instead, I have since had a letter from the noble Viscount which is wholly unsatisfactory. He wrote:
However, we need the guidance today. I took the noble Baroness to be undertaking that she would at least seek to ensure that we had it today. In view of the fact
6 Feb 2013 : Column 284
When are we going to see the guidance? Do the Government really intend that we should debate this clause without seeing it? The noble Viscount owes the House an explanation of what is going on and, before I proceed with my speech, I invite him to give us one so that we know the basis on which we are intended to proceed in debating this clause. Is the noble Viscount not intending to explain to us why we have not had the DWP guidance?
Lord Adonis: My Lords, I note that the noble Viscount is not even defending the fact that the guidance was not sent to us before this debate started. The first issue he needs to address is why we have not had the guidance before us in Committee even though we were given assurances that the Government would seek to get it to us; and we need to know precisely when the guidance will be forthcoming. I give him notice that if we do not have that guidance by Report there will be significant arguments about the way in which the Government have treated the House. I have been on that side of the Dispatch Box and I regard it as wholly unsatisfactory that we should be expected to debate a fundamental change in the way benefits claimants are treated without knowing what it will mean in practice.
Viscount Younger of Leckie: The noble Lord makes a very good point. I stick by the words in my letter that further guidance will be forthcoming. We have some guidance already but we are working hard to improve and expand it. I will come back to the noble Lord as soon as I can to explain when it will be available.
Lord Adonis: My Lords, the House needs to be aware of the situation that we are in at the moment. The defence that the Government make in respect of the proposal that benefits claimants will not be treated unfairly is that the DWP guidance will be redrafted. That is what the Minister, Michael Fallon, said in the other place and what the noble Baroness, Lady Hanham, said at earlier stages of our debate. We are now being told that the Government are not even prepared to undertake to allow your Lordships to see that guidance before we debate amendments which go to the heart of whether or not claimants will be required to take jobs.
Viscount Younger of Leckie: To be fair, I did not precisely say that. I said that I would get back to the noble Lord as soon as possible: I did not say that I would not get the guidance to him before Report. I stick by what I said, both in my letter emphasising that the guidance notes are extremely important and are being worked on at the moment, and, secondly, that I will come back to him as soon as possible-possibly even this afternoon-to give him a time for when the guidance notes will be available. I hope that it will be before Report.
Lord Adonis: My Lords, with each intervention the noble Viscount is more forthcoming. Now it is possibly later this afternoon. I know the Box is working hard and I hope that "possibly" later this afternoon becomes "definitely" later this afternoon.
The provision before us is completely contradictory and wholly indefensible. On the one hand the Government say-the noble Viscount said it again this afternoon-that this is about creating a new voluntary employment status which, therefore, potential employees have the right to choose. When the Bill was first before the House of Commons, Michael Fallon said:
"With regard to the new status being voluntary ... people will choose to apply for and accept employee owner contracts".-[Official Report, Commons, Growth and Infrastructure Bill Committee, 6/12/12; col. 497.]
This principle, however, is then flatly contradicted by not allowing benefit claimants to make such a choice. On the contrary, if benefit claimants decline to apply for or accept shares-for-rights jobs, they stand to lose their benefits or have them docked. This is a fundamental point that goes to the heart of this debate. Michael Fallon was explicit about this in the House of Commons. He said:
"The Government believe that jobseeker's allowance claimants must actively seek and be available for work ... it is right that employee-shareholder jobs should be as much a part of that consideration as any other".-[Official Report, Commons, 17.12.12; col. 649.]
It is simply impossible to square that statement with the Government's commitment that acceptance of jobs on such contracts would be voluntary. It is clear that benefit claimants will be pressurised into
6 Feb 2013 : Column 286
Baroness Brinton: My Lords, these two amendments are trying to achieve the same objective. I commend the noble Lord, Lord Adonis, on the wording of Amendment 82. My Amendment 90 echoes those sentiments. We have already discussed, in the previous group, the complex decision required of an individual being asked to become an employee-shareholder, who must take account of current employment rights versus the slim chance of future capital gains. However, there is a further and even more worrying aspect for one particular group of individuals: those who are currently unemployed and in receipt of jobseeker's allowance.
What will happen to those offered a position in a company on the condition that they become an employee-shareholder and give up some of their rights? I am aware of people who find themselves being made redundant, through no fault of their own, not once but twice, or even more frequently. I am reminded of a friend in Luton who, following the closure of Vauxhall, moved from one company to another in the supply chain and was made redundant four times in the short space of a year. For people with that sort of history, the idea of giving up the right to future redundancy pay will be horrifying and would make the job extremely unattractive. This is not a run-of-the-mill job offer and I would be extremely concerned if an individual turned down a job and share ownership opportunity, and then discovered that his or her JSA was to be cut.
"The Government believe that jobseeker's allowance claimants must actively seek and be available for work ... and it is right that employee-shareholder jobs should be as much a part of that consideration as any other. If a claimant applies for an employee-shareholder job and is offered a position, they should normally accept the offer".-[Official Report, Commons, 17/12./12; col. 649.]
It is this quote from the Minister that underlies the concern that the noble Lord, Lord Adonis, has laid out in some detail. I echo that because we have to see the guidance and information to make it exactly clear where the boundaries lie. I will not go back through the timescale of this, but it is essential that all sides of the House-all sides of the House have concerns about this clause-have time to consider the very serious implications for jobseeker's allowance for people who are sent off for that type of post.
In addition, some people may send off hundreds of job applications but receive only one reply; some may get one interview; some may even get one offer. A job offer for shares-for-rights is a job: do the Government seriously think that someone will turn it down after months of searching? Many people cannot pick and choose jobs, even if they are worried about the reduction in rights, especially in the current climate, with many businesses folding. I cite Paul Callaghan from the legal fund Taylor Wessing, who suggests that shares-for-rights contracts will be optional to the extent that eating and drinking are optional.
The amendment would write into the Bill a statement that makes it absolutely clear that the Department for Work and Pensions and Jobcentre Plus will not penalise an individual who makes the difficult choice to turn down a job. Should they accept it, they must have access to the same legal and financial opinion that we discussed under the previous group of amendments. That needs to be written into the Bill to ensure that protection and to provide Jobcentre Plus with clear and unequivocal direction.
Lord Pannick: My Lords, I share the concerns expressed by the noble Lord, Lord Adonis, and the noble Baroness, Lady Brinton, about the absence of the guidance that the Government are eventually to publish. The whole point of Committee on a Bill is that we can debate in detail the implications of the Government's proposals. By not publishing the guidance at this stage, the Government are preventing the Committee discussing the essential detail of their proposals. For my part, I do not find it satisfactory, even if the noble Viscount produces answers this afternoon. It should have been done in time for noble Lords to debate the matter today.
In the absence of any guidance, we can proceed only on the basis that Clause 27 does not at all protect the prospective employee from being denied welfare benefits if he or she refuses to take up a job offer which involves the absence of employment rights. Even if there were adequate guidance, I share the view of the noble Baroness, Lady Brinton, that guidance is in principle inadequate. The Bill must state clearly the legal position in order to protect the prospective employee.
Clause 27 is bad enough in its implications for employees, as we explained in a previous debate. It is even worse for the prospective employee. Under Clause 27, the employer can refuse to offer employment to applicants who decline to enter into one of these agreements giving up statutory employment rights. The irony is that the worse the job market, the more willing prospective employees will inevitably be to take the job, even if employment rights are lost. However, the poorer the job market, the greater the employee's need for the statutory protection against unfair dismissal and redundancy that the employee will be giving up. It is a vicious circle indeed.
Amendment 82 and the amendment of the noble Baroness, Lady Brinton, each address a particular vice of Clause 27 in that respect. The vice is clear. It is that the prospective employee who wishes to maintain his or her statutory employment rights-during the previous debate, the noble Viscount emphasised that this is a matter of choice-and refuses to be bought off, is at risk of losing welfare benefits. That is indefensible for a simple reason. Clause 27 can only be based on a theory of equal bargaining power. It is a wholly unrealistic theory, but that is the theory. That is the fig leaf which shelters the substance of Clause 27. Even the fig leaf-the theory of equal bargaining power-is removed by the fact that the prospective employee's bargaining power is wholly removed if he or she is going to lose welfare benefits if he or she does not agree to take the job in the absence of the statutory protection of employment rights. Therefore, the absence of protection against losing welfare benefits for the job applicant inevitably means that, in practice, Clause 27 does not simply provide for a choice, it imposes an obligation.
Viscount Younger of Leckie: My Lords, Amendments 82 and 90 seek to add protections for jobseekers, should they refuse to apply for a job or accept a job offer that is on an employee shareholder contract. I understand the concerns that my noble friend Lady Brinton and the noble Lords, Lord Adonis and Lord Pannick, have expressed here and at Second Reading, that jobseekers could be coerced into accepting the new employment status and that jobseekers could lose their benefits.
Jobs that will be offered on an employee shareholder basis will not be better or worse than any other job offered on an employee or worker basis. These jobs are as good as any other and should not be treated differently. It follows that the Government do not believe that a blanket ban on mandation is the right way forward. The different terms and conditions on offer for different jobs do not in themselves make it acceptable for a jobseeker to turn a job down. They are still good jobs.
There are circumstances where a job offered under the employee shareholder scheme would not be suitable for an individual because of their particular circumstances or perhaps because of the particular terms and conditions on offer. Please note that the following is a non-exhaustive list, as all reasons cannot be captured and are dependent on the individual case, but I will list a few circumstances where a job might not be suitable for an individual: if a claimant is not capable of doing the job through a lack of suitable qualifications or experience; if a claimant is not physically capable of doing the job due to a physical or mental impairment; if a claimant has an agreed pattern of caring that is not compatible with the job; if a claimant is unable to get to the place of work by their normal mode of transport in time to start work; or if the expenses incurred by working would be an unreasonably excessive proportion of a claimant's pay. I believe that the noble Lord, Lord Adonis, brought up the issue of carers. If a claimant is a carer or is doing voluntary work they will have good reason for refusal or failure if the job requires them to start within less than one week. If a claimant has caring responsibilities for a child and is permitted to take up employment and been given 28 days' notice, they will have good reason for refusal or failure if the job requires them to start within 28 days. I could go on.
The Government believe that there are already strong safeguards in place that ensure that a benefit claimant will not be forced into an unsuitable role. The sanction will only be applied if a claimant refuses to apply for or accept an offer of employment, including for an employee shareholder's position, after that claimant has been mandated to apply for a job by a jobcentre adviser. The decision whether to mandate claimants will be considered on a case-by-case basis by jobcentre advisers. Advisers will seek to ensure that the job is suitable for the claimant; for example, that it fits within the hours a claimant is available, taking into account any caring responsibilities, as mentioned earlier, in particular for young children.
There is now guidance for advisers that is publicly available-and I will revert on this issue in a moment. We will supplement that guidance to cover any particular issues that may arise with employee shareholder jobs.
6 Feb 2013 : Column 289
Baroness Brinton: Does the Minister accept that even if the Government say that it is likely that very few companies will be offering this type of employee share ownership, having a couple of points of guidance buried in 3,000 pages, or even 300, would mean that the average member of staff at a Jobcentre Plus would probably be unlikely to find the relevant information straight away? Does this not argue for the need to put this very special interest in the Bill?
Viscount Younger of Leckie: I would like to pick up only one of the points made by my noble friend. It is important, and I am sure that the officials are working hard on this, to ensure that the guidance that is offered is simple, and that there is a way that those involved who need to go to the guidance can do so quickly and effectively, despite the fact that it is 3,000 pages long.
Lord Pannick: Does the Minister agree that the simplest way for the guidance to address the matter would be for it to state in one sentence that it was reasonable for the prospective employee to refuse to accept a job because he or she did not wish to give up statutory employment protection rights? Is that what the guidance is going to say or is it not?
There are two further safeguards for jobseeker allowance claimants. Should a claimant refuse to apply for a job after mandation, a sanction will be imposed only if the claimant does not have good reason. A decision-maker within DWP will be responsible for making that determination. In reaching a determination, they will take into account the claimant's circumstances, the specific job and the terms and conditions on offer. Again, the Government will supplement the DWP decision-makers' guidance around any particular issues with the employee shareholder scheme that need to be considered.
Lord Adonis: Several times the Minister has said that the guidance would be updated with regard to any particular issues that arise from employee shareholder contracts. The particular issue that arises is precisely the issue raised by the noble Lord, Lord Pannick, which is that these rights are being withdrawn. If that is not the issue that arises, could the Minister tell the
6 Feb 2013 : Column 290
Viscount Younger of Leckie: As I explained earlier, I am not in a position to give the Committee that information just at the moment. The issues will be outlined when the guidance is available. That is the only answer that I can give at this stage.
Lord Adonis: My Lords, the Minister has come to the Committee to tell us that he cannot begin to tell us the basis on which the guidance is going to be revised, which is his own defence in response to the arguments that the guidance itself will not be reasonable in the circumstances.
Viscount Younger of Leckie: I can only reply to the noble Lord that I am not in a position to explain the guidance because I have not seen it because it is being revised. That is the only answer that I can give at the moment.
Lord Pannick: I am grateful to the Minister for his patience in giving way. Will he deal with this point? If the guidance does not make it clear that the prospective employee is entitled to refuse a job offer because that offer involves sacrificing employment protection rights, the prospective employee does not have a choice. The defence that the Minister has put forward to Clause 27 is therefore simply inapplicable.
Viscount Younger of Leckie: On that particular point, it is important again to emphasise that each case involving an employee shareholder or a would-be employee shareholder will be looked at on a case-by-case basis. I hope that I have set out the process by which that will be undertaken by the jobcentre in negotiation and discussion with the potential employee shareholder. That is where we are at the moment. However, the guidance-which, I repeat, is coming-will go much further towards setting out the details and indeed the guidance for that process to work.
The Government do not believe that the right way of providing the protection sought by the noble Baroness, Lady Brinton, and the noble Lords, Lord Adonis and Lord Pannick, is through amending this clause. As I mentioned earlier, the jobseeker's allowance system works on a case-by-case basis, with all decisions made on the merit of the case. The system is sufficiently flexible and robust, and jobseeker allowance decision-makers, with the support and guidance which we have committed to providing, will be able to understand the new employment status. With these reassurances, I hope that the noble Baroness, Lady Brinton, and the noble Lords, Lord Adonis and Lord Pannick, will not press their amendments.
Baroness Warnock: I wish to raise one question. How can a case-by-case examination of a claimant's refusal determine whether or not it is reasonable for an employee to be asked to give up his employment rights? This is nothing to do with a case-by-case basis, but an absolutely universal principle that would apply
6 Feb 2013 : Column 291
Viscount Younger of Leckie: I can only re-emphasise that when a case is taken on a case-by-case basis, this means that, if an individual is seeking a job and an employee shareholder position comes up, the Jobcentre Plus and the officials within the system will be looking at the individual's case. It is their job to determine the way forward in relation to the employee shareholder position that has arisen.
Lord Adonis: My Lords, the noble Viscount ended by saying that he hoped that I would withdraw the amendment in light of the reassurances that he had given. With great respect to the noble Viscount, he gave no reassurances whatever. Though I am not intending to press the matter today, the Committee will have to draw its own conclusions from the total absence of reassurance which the Government have provided so far. Not only have they not provided any reassurance, but they have not even given the Committee the basic information that we need to be able to make a judgment as to whether there is any validity in the statements that the Government have made to the effect that issues relating to the new employee shareholder status will be taken account of by DWP decision-makers.
The noble Viscount has a disarming manner, and we commiserate with him for having to defend this proposal to the Committee-I would not wish to have to do so myself. However, when he says that we need to be sympathetic to the Government's position because this guidance is 3,000 pages long, I feel bound to point out that it is the Government who are seeking to change the law; it is not Members of your Lordships' House who are seeking to do so. The fact that the guidance is 3,000 pages long is not a defence for the Government not having prepared for changes which they are proposing to inflict on the country and declaring them to Parliament before we change the law. They say that changing 3,000 pages of guidance is a laborious job. I am sure that it is: I spent a good part of this morning trying to read the guidance and to make sense of it. Goodness, even legal eminences of the height of the noble Lord, Lord Pannick, would struggle with the complexity of the guidance which the DWP issues. If the Government are saying that they need more time, your Lordships would be very happy to give it to them if they wish to withdraw Clause 27 from the Bill and then bring it back when they have got their guidance in order so that we can then look at it with the clause to which it refers. There would be a generally warm reception to such a proposal from the noble Viscount.
Viscount Younger of Leckie: I just want to re-emphasise what I was trying to say about the document being 3,000 words long. I wanted to reiterate that this is no small task. One may well say, "You should've done it before Committee stage today and certainly before Report", but as the noble Lord knows, I cannot at the moment give a guarantee that it will be ready by
6 Feb 2013 : Column 292
Baroness Brinton: My Lords, I apologise for intervening on an intervention, but I just wanted clarification on this. The noble Viscount just said that the document was 3,000 words long, but I understood that we had been told earlier that it was 3,000 pages. There is some difference.
Lord Adonis: My Lords, I repeat: it is the Government's responsibility to prepare the changes to the law and the guidance that they wish to make and to present them to the House before we change the law. The fundamental point is the one that the noble Lord, Lord Pannick, made-the difference in respect of these contracts is that employment rights are being withdrawn. The fundamental question, on which we need to see the guidance, is whether the withdrawal of these rights is itself a reason why unemployed people are permitted to decline to attend interviews or accept jobs. If it is not a reason then nothing has changed. This clause therefore flatly contradicts the assurances that have been given to Parliament that the new employee shareholder status is voluntary. I think that that is a very significant point which your Lordships will wish to take into account when we get to Report. I beg leave to withdraw the amendment.
Lord Adonis: My Lords, I shall speak very briefly at the beginning of this debate because I want to comment on the noble Viscount's contribution. In the amendments in my name in the group, I simply specify all the rights that it is proposed should be withdrawn through the new employee shareholder status so that the Government will have an opportunity to defend their decision to withdraw them in each case and also to provide a longer notice period for early return from maternity and adoption leave. As the noble Viscount knows, we are opposed to each of the withdrawals of rights in Clause 27. The Government have not had the opportunity before your Lordships to explain their justification for the withdrawal of each of these rights. By putting these amendments down, I am giving the Government the opportunity to do so. I beg to move.
Lord Strasburger: My Lords, when I spoke to the first group of amendments I declared my interests as an entrepreneur. I forgot also to declare that in a former life I used to play cricket with Mr Adrian Beecroft,
6 Feb 2013 : Column 293
I have two specific questions to address to the Minister. First, which of the rights that this clause requires employees to forfeit is going to enhance their business's chances of success? Secondly, which of those forfeited rights do the Government think will improve the motivation and commitment of these second-class employees?
On these amendments, I also declare an interest as the founder of a successful small business and as having worked in other successful small businesses. I have to say to my noble friend that I cannot imagine any circumstances whatever in which this would be of any use to any business that I have ever come across in my entire life. One of the problems with government is that not many people who run businesses are in it. I can genuinely say that in 16 years as a Minister, I was one of the few people who had run a big business. Since ceasing to be a Minister, I have run a number of small businesses which are happily getting larger. That is the right way round.
I hope that the Government will take this opportunity to explain in detail why these changes, which are now open to businesses, will be of help. I have not found any businesses that thought that they would be of help. Having explained that, perhaps my noble friend would be kind enough to explain why, if the changes are good in these circumstances, they are not done for everybody. If there really is a huge advantage that would make lots more new jobs, perhaps the proposal is rather limited. I do not think the Government think that, otherwise they would not have limited it in this way.
My problem-and this is why these are very useful amendments-is that difficulties can arise because some employment law is complex. Surely the answer is to deal with employment law as whole, try to make it simpler, remove the anomalies and face up to some of the real difficulties. I speak as someone who, in a relatively small business, had five people on maternity leave at the same time. I do not think that it was the fault of anybody in the business that that happened, but it had an impact. It is very hard indeed for a small business to handle. However, if I were setting up my business again, I certainly would not do it on this basis. I would not take on anybody without proper protection. I have always found it better to be more generous than absolutely necessary by law in the provision one makes. I want a business in which people feel they will have a real say and will play a real part.
I suppose this is a plea, really; I do not understand the connection. I have thought hard about it but I do not see it. Unless the Government can explain the connection-and the amendments in this group enable the connection to be made-I do not know what this proposal is doing in this Bill. I do not know where it comes from and I do not see the need for it. For me, this is the most mystifying moment of a pretty mystifying Bill. This particular moment is more mystifying than others.
I say that as somebody who is entrepreneurial, works hard, believes in capitalism and deeply disagrees with some of the words in the other parallel Bill where I have had to deal with the terribly old fashioned trades union approaches that sounded as if they were coming from 1945-
Lord Deben: The noble Baroness, Lady Turner, speaks from her seat, but she has put forward some opinions that I have not heard since 1945. I am not on that side but I still do not see this. I hope that the Government will help those of us who are naturally on their side to get out of this miasma-this difficulty of understanding the connection of the two halves. I have great sympathy with the question asked earlier by the noble Baroness, Lady Warnock. What is the connection and how will it improve things, one by one? I am very ready to be converted but at the moment I am finding it rather difficult.
Lord Pannick: The noble Lord, Lord Deben, posed a series of questions about the benefits of Clause 27. Perhaps I may add to the burdens on the Minister, who is playing a very straight bat-he would be a credit to the cricket team of the noble Lord, Lord Strasburger. I will put these questions to the Minister in the hope that he can explain whether the Government have taken account of two very troubling legal consequences that will follow from the current contents of Clause 27 and which are relevant to the amendments in my name and that of the noble Lord, Lord Adonis.
First, some of the rights that the employee or prospective employee is being invited to sell are concerned with issues that are particularly sensitive in anti-discrimination law. There is the right to request flexible working, which is obviously of particular importance to working mothers-as is the eight-week notice period that would be imposed for the return to work after maternity leave. These are very sensitive matters. It is inevitable that employers who seek to rely on an agreement which purports to override rights in this context will face legal challenges under EU law, the expense of which will far exceed the amounts that they would pay to employees for giving up those rights. Have the Government taken that into account in deciding on the merits or otherwise of Clause 27?
I would be grateful if the Minister would comment also on a second legal implication. If the law allows for the sale of unfair dismissal and redundancy rights, it is inevitable that aggrieved employees, when they are dismissed or made redundant at some stage in future, will not go quietly. Having sold their unfair dismissal
6 Feb 2013 : Column 295
Baroness Brinton: Clause 27 requires employees to give up a range of rights. Many of these rights are ones that the Beecroft report recommended should be removed from employees more generally. The Secretary of State, Vince Cable, hit out at Beecroft's unfair proposals. He said:
"One of Mr Beecroft's recommendations was a suggestion to bring in no-fault dismissal. In my daily conversations with businesses, this has very rarely been raised with me as a barrier to growth. Businesses are much more concerned about access to finance or weak demand than they are about this issue".
Given that the clause is in the Growth and Infrastructure Bill and that the Secretary of State does not believe that giving up the right to claim unfair dismissal is a barrier to growth, why should we ask workers to give it up under this new status? In fact, Mr Cable went even further and stated that it would be counterproductive. He said:
I never thought that I would support Mr Beecroft, but he recommended a compensated no-fault dismissal. The Government are going one step further and do not even provide compensation for no-fault dismissal under the employee shareholder status. Given how controversial Mr Beecroft's proposals were in the first place, and the Secretary of State's protest, does this not give us further reason for the removal of subsection (2)(c) and (d)? Beecroft also recommended the removal of the right to request flexible working-another of his recommendations that the Government are trying, perhaps, to sneak in by the back door through this status for certain employees. However, I have to say that this directly contradicts the coalition agreement and the mid-term review, which states that the Government will extend,
Viscount Younger of Leckie: My Lords, Clause 27 is about providing further choice to the range of employment statuses that employers can consider and choose. I want to take this opportunity to explain to the House the difference between "employee shareholder", "employee" and "worker". This will help us understand the context of the noble Lords' amendments.
People and companies already have a choice in how they wish to work and how they structure their workforce. The choice is usually between hiring someone as a worker, an employee or on a self-employed basis. The difference between these employment statuses is the level of obligation and mutuality to provide and carry out work, and the rights associated with the statuses. I hope that the following explanation goes a little way to answering some questions that my noble friend Lord Deben raised.
Workers have limited rights such as the right to be paid the national minimum wage, protections against unlawful deductions from their pay, paid annual leave and rest breaks, and protection against discrimination, which includes on the ground that they work part time. Employees who meet the relevant conditions have the following additional rights: a general right not to be unfairly dismissed after two years working with the same employer; automatically unfair dismissal rights; statutory redundancy pay; statutory minimum notice period; statutory collective redundancy notice period; TUPE, which was mentioned earlier by the noble Baroness, Lady Turner; the statutory right to request flexible working; and, finally, if they work in a large business of more than 250 employees, they have the statutory right to request training.
The self-employed have limited employment rights linked to discrimination and health and safety. The new employee shareholders will have more rights than someone taken on as a worker, but not all those of an employee. They will not have: first, the right to unfair dismissal except for automatically unfair reasons or on discriminatory grounds; secondly, the statutory right to request flexible working or certain statutory rights to request training; and, thirdly, statutory redundancy pay.
I turn to employee shareholders wishing to return to work earlier than originally planned from maternity, additional paternity or adoption leave. When returning early from these types of leave, employee shareholders will need to give 16 weeks' notice, compared to six weeks for employees returning from additional paternity leave or eight weeks for employees returning from maternity leave or adoption leave. The noble Lord, Lord Pannick, proposes with Amendments 83 to 89 to take out the employment law references in Clause 27, where it states what rights the employee shareholder will have that are different from those of an employee. This includes removing the distinguishing features of the clause and therefore it will remove choice from the options that employers can consider when taking on staff. The amendments would create an employment status that is essentially the same as that of "employee", but where the employee shareholder would be given fully paid-up shares. In effect, we would be regulating for an additional employment status that essentially already exists in that of "employee" in order for the individual to be given shares. As the noble Lord, Lord Pannick, knows-he is supported in this by the noble Lord, Lord Adonis-employee ownership, either through direct employee share holdings or shares held in trust on behalf of and for the benefit of employees, is already a well known concept that is in use in the labour market. Companies are already free to offer shares to their employees.
My honourable friend Jo Swinson, the Minister for Employment Relations and Consumer Affairs, is chair of the implementation group taking forward the recommendations of the Nuttall review which is promoting the employee ownership agenda. The Government do not want to create an additional burden by regulating for something that can already take place in the labour market and that an employer can already offer. Such action would not help growth.
I should like to answer some questions that were raised by noble Lords. First, my noble friend Lord Deben stated that, as he saw it, there was no support from business. I have listened very carefully today to the comments made by other noble Lords. It might be helpful for noble Lords to know that Neil Clifford, the chief executive of Kurt Geiger, the shoe retailer, has stated that this measure would,
The noble Lord, Lord Pannick, raised the issue of why we think there is a statutory right to request flexible working and why it is unnecessary for employee shareholders. The statutory right to request flexible working creates a structure for conversations between employees and employers about changes to ways of working that will be mutually beneficial. Employee shareholders will have a greater interest in the performance of their employer as it is linked to the value of their shares. We consider that employee shareholders are more likely to request flexible working if they think it will help them and the company and do not need the statutory right to request. Employee shareholders can still make non-statutory requests for flexible working.
My noble friend Lord Strasburger raised the issue of which rights will increase motivation. As we see it, this new employment status will increase motivation as the employee shareholder will own shares from the outset and capital gains on these shares of up to £50,000 will not attract capital gains tax.
Lord Strasburger: I thank the noble Viscount for giving way. That was not my question. My question was: which of the removed rights is going to increase the motivation of the employees and therefore improve the performance of the business?
Viscount Younger of Leckie: The overall package of the employee shareholder, with the extra risk as well as the extra reward, is designed to ally the employee with the employer more readily. The motivation will be there because the employee will feel more aligned to the objectives of the company and will help more towards building and growing the company. That is one of the clear objectives behind this scheme.
The noble Lord, Lord Pannick, raised the issue of the legal consequences of selling rights. A full equality impact assessment has been done and no significant
6 Feb 2013 : Column 298
My noble friend Lady Brinton asked whether we can ensure that an employee shareholder is treated fairly and not sacked just because their employer does not like them or has argued with them. An employee shareholder would still retain the majority of protections such as, as I mentioned earlier, automatically unfair dismissal rights and rights underpinned by EU law and discrimination legislation. If an employee shareholder was dismissed in any other circumstances, they would not be able to claim unfair dismissal at an employment tribunal, which we understand. Employees do not get the general right to protection against unfair dismissal or to statutory redundancy pay until they have been with their employer for two years, so there are already employees who currently do not have these rights.
In conclusion, Clause 27 creates a new employment status that gives companies and people more choice. This new status is a creative scheme for companies and people who wish to use it. It gives them a new opportunity to better share the risks and rewards of the business. I hope noble Lords realise that this new, innovative status is a force for good in the labour market, and that they will withdraw their amendments so that companies and people can benefit from this additional choice.
Baroness Brinton: I was slightly confused by some of the Minister's earlier response on the employee status for employee shareholders. I would welcome clarification on whether they are actually regarded as employees, generally, or whether the only respect in which they are not employees is where those rights have been specifically removed by the Bill.
Viscount Younger of Leckie: I can confirm that it is an entirely new status, so the individual who agrees with their employer to a contract to be an employee shareholder is not the same as an employee.
Lord Deben: Could my noble friend help the House, before we come to Report, by giving some estimate of how many businesses the Government think will take up this proposition? Given that many of us feel there will be few, it would be helpful to know why we need this big piece of legislation if we do not think many people will take it up. How many employee shareholders of this kind do the Government expect to have in two years' time?
Viscount Younger of Leckie: I thank my noble friend for that question. It is extraordinarily difficult to ascertain a precise figure. It can be only a guesstimate, and I hope that the House will respect that. However, from the figures that we have ascertained, we think that around 6,000 companies will look at this seriously and take up this issue. However, that is, as I say, a guesstimate.
Baroness Turner of Camden: The Minister has just said that it is not clear whether an employee shareholder is an employee. I remind him of the advice that we have received from the Equality and Human Rights Commission, which looked at this situation in some detail. It came to the view that an individual who is an employee shareholder was nevertheless a worker, so workers' rights would normally be applied to that individual. The Government have tried to get over that by saying that because this is all voluntary, the employee voluntarily gives up their rights. During the course of our recent discussion, it has become clear that that is certainly not voluntary. In a situation in which people face either unemployment or the possibility of loss of employment support from the state, it is not really very voluntary, is it?
Viscount Younger of Leckie: It may help the noble Baroness if I state again that the employee shareholder agreement between the employer and employee is a specific new contract for a new employment status. However, if, for example, the employer has not fulfilled the basic criteria for ensuring that the employee is properly included and for meeting the criteria for that employee to be an employee shareholder, there is a default position whereby the employee shareholder would revert to being an employee or worker, whatever is applicable. There is a safeguard in place for them.
Lord Pannick: The noble Viscount said a few moments ago that it is the Government's estimate that up to 6,000 companies might wish to take advantage of Clause 27. Would he kindly undertake to publish before Report the evidence upon which that assessment has been made?
Viscount Younger of Leckie: I would be delighted to furnish the noble Lord with whatever information I can find, but I remind him-he may well know the statistic-that the total estimated number of businesses in the UK is 4,794,000. Therefore, breaking down the figure to 6,000 perhaps re-emphasises that this employee shareholder status is not for every company. It is aimed at a particular type of company, and it is important to round off this debate by emphasising that this is not as big a deal as some noble Lords are making it out to be.
Baroness Brinton: I apologise for intervening again. Can the noble Viscount explain what niche group of companies this provision would interest, given that in our discussion on the first group of amendments, when I outlined the problems facing high-tech, leading-edge companies going through rapid growth-which Ministers have told us was exactly the audience the clause was aimed at-the Minister said that it was probably not appropriate for them? Perhaps he could cite the type of company it is appropriate for.
Viscount Younger of Leckie: I re-emphasise that the Government stick by their idea and plan that the provision will suit small start-up companies, but not
6 Feb 2013 : Column 300
Lord Adonis: My Lords, we are full of admiration for the way the noble Viscount seeks to defend these proposals before the House. However, I am afraid that I find myself with the noble Lord, Lord Deben, who said that this was a mystifying moment in a mystifying Bill. The mystification gets greater the longer the Government seek to defend the proposal, and does so in three respects. The first is the figure of 6,000, which is in the impact assessment and which the Minister has undertaken to write to noble Lords to defend. However, I have read the impact assessment and the figure appears to be simply plucked out of the air. There seems to be no justification whatever for a figure of 6,000, as opposed to-
Viscount Younger of Leckie: I apologise for interrupting and thank the noble Lord for giving way. I made it absolutely clear that this was a guesstimate. When pressed by the noble Lord, Lord Pannick, on the figure, I felt it appropriate to give a figure to the House, and I am quite prepared to come back to the House on it. That figure may indeed change, but I reiterate it and suggest that it is not worth going further on this particular issue.
Lord Adonis: My Lords, all I need to do to let these proposals collapse is allow the noble Viscount to carry on speaking because, proposal by proposal, his case disintegrates. It turns out that the 6,000 figure is indeed a mystifying figure that has no basis in fact. I am thinking of why he might have chosen that figure-it appears to be twice as long as in the guidance for DWP decision-makers. Perhaps that is the basis on which the figure has been devised. We look forward to hearing the justification for it, and therefore whether this measure is incidental or fundamental.
|Next Section||Back to Table of Contents||Lords Hansard Home Page|