Clause 1 - Notices relating to share optionsacquired before 19th May 2000
Social Security Contributions
11:00 am
Mr Howard Flight (Arundel and South Downs, Conservative)
I was in the middle of saying that we are unlikely to win a Division on amendments Nos. 32 and 33. Nevertheless, the principles that tax liabilities should be payable when they arise, and that there should not be an element of gambling in the tax system, are, in our view, correct.
Last May's measures had the net effect of putting a 47.3 per cent. tax charge on employees' unapproved options. The thinking behind that assumed that option remuneration is the same as pay, when in fact it is entirely different. If a talented person, working for a mature company such as Unilever, is considering working for a new, small, high-tech company, it will be unable to pay him his previous salary, so it will attempt to attract and motivate him with an options package. Whether those options will ever be worth anything is a complete risk. If he works hard and the company succeeds, they could be worth a great deal, but large numbers of new businesses, especially in the high-tech sector, do not succeed. The safe pay packet and perks offered by a mature company are different from the risky options that form part of the package from new businesses.
If the Minister talks to the many accounting firms that specialise in employment, they will tell him that a 47.3 per cent tax charge has altered the risk-reward ratio for unapproved options, which will kill their use. New businesses will be forced to increase pay, which they cannot afford. The overall impact will be to discourage entrepreneurial endeavour.