Finance Bill

– in the House of Commons at 12:00 am on 10th June 1974.

Alert me about debates like this

Again considered in Committee.

Photo of Mr Maurice Macmillan Mr Maurice Macmillan , Farnham

I beg to move Amendment No. 64, in page 11, line 10, at end add— ' (3) Where a person becomes liable to tax as a result of this section or of section 79(4) or 79(7) of the Finance Act 1972 as amended by Schedule 8 to the Finance Act 1973 and this section his employer shall be entitled to deduct for the purpose of calculating his liability to corporation tax a sum equal to the sum chargeable to tax in the hands of that person '. In moving the amendment I am merely asking the Chancellor of the Exchequer to practise what he preached in his Budget speech and on the Second Reading of the Finance Bill when he said: We have no antipathy towards share schemes as such.… All we say is that the employees of such companies should not get privileged tax treatment because they happen to receive their remuneration in one form and not another. That goes for the managing director and for the shop floor worker.… Any respectable share incentive scheme should be able to stand on its own feet without relying on crutches in the shape of tax privileges."—[OFFICIAL REPORT, 9th May 1974; Vol. 873, c. 610.] In answering our earlier debate the Financial Secretary repeated that he had no intention of attacking incentive schemes or share purchase schemes; but that is exactly what the Bill as it is now drafted does. The Chancellor missed the point, as the Financial Secretary missed the point, that as the law now stands the companies are at a disadvantage by operating a scheme of this sort.

The Temporary Chairman (Mr. Mur-ton):

Order. May I ask those hon. Members who do not wish to listen to the right hon. Gentleman to withdraw quietly?

Photo of Mr Maurice Macmillan Mr Maurice Macmillan , Farnham

This is a highly technical point, but that is no excuse for the Financial Secretary to miss it. A stock option is taxable at full income rates to the individual and yet, unlike other forms of remuneration which are taxable at full income rates, there is no corresponding deduction in computing the profit for tax purposes of the company concerned. That is in marked contrast, for example, to the United States, where legislation specifically provides that if the employee's profit on the exercise of an option is taxed as regular income, that amount is deductible from the firm's profit for the corresponding tax year. If the Financial Secretary is so keen on equitable treatment of share incentive and share purchase schemes he should accept the amendment.

Photo of Dr John Gilbert Dr John Gilbert , Dudley East

As the right hon. Member for Farnham (Mr. Macmillan) so clearly said, the purpose of the amendment is that where there is an increase in the value of shares taxable in the hands of an employee the company shall be allowed to deduct an equal amount in computing its taxable profits. The right hon. Gentleman advanced that proposition in the name of equity, on the basis that a distinct cost to the company was involved. That is where the Government take immediate issue with him.

In computing its profits, a company can deduct those expenses that are wholly and exclusively laid out for the purposes of trade. The sums referred to in the amendment are neither expenses nor sums incurred by the employing company. There is no direct connection with expenditure by the company, and on the face of it there is no reason why the company should be entitled to deduct the growth in the market value of its shares as an allowable expense. There could hardly be a more arbitrary way of trying to assess profits.

The right hon. Gentleman prays in aid United States legislation. But we have made it clear that, in our opposition to any tax benefits for such schemes, we do not accept United States legislation as a model.

The gain to the employee arises in all these cases because the shares have appreciated over a period. It would be artificial to regard such sums as an outlay by the employer.

Photo of Mr Peter Rees Mr Peter Rees , Dover and Deal

Does not the hon. Gentleman agree that share option schemes may result in the dilution of the capital of the company concerned, so that in a broad commercial sense it suffers a corresponding disadvantage? With his wealth of experience of Canadian law, for instance, does not the hon. Gentleman feel that a corresponding advantage should be conceded to the company?

Photo of Dr John Gilbert Dr John Gilbert , Dudley East

I accept what the hon. and learned Gentleman says about dilution of equity. There might be a modest cost there, but there would be no means of quantifying it in terms of the amendment. That is why I invite my hon. Friends to resist the amendment.

A mendment negatived.

Question proposed, That the clause stand part of the Bill.

Photo of Mr Maurice Macmillan Mr Maurice Macmillan , Farnham

I ask the Committee to reject the clause, largely for the reasons given in the debate on Amendment No. 29, on which we divided the Committee. The Opposition do not think that the clause should apply to selective schemes, whether stock option schemes for management and executives or share incentive schemes for employees generally, any more than it should apply to the all-employee scheme, the own-as-you-earn plan that we have so recently debated.

I should like to draw the attention of the Financial Secretary to an anomaly. Under subsection (l)(a) and (b), the benefit obtained by an individual under an approved share option or share incentive scheme will, as of 27th March this year, be taxable as part of the emoluments of the individual. An anomaly arises in respect of the different treatment of share option schemes and share incentive schemes that are already in operation. Clause 13(1)(6) excludes certain portions of Section 79 of the Finance Act 1972 except when the acquisition was made before that date. No such concession has been given under Clause 13(l)(a) if the option is exercised after 27th March 1974. I do not believe that it can be the intention to produce such an anomaly. If the intention is to tax as income any benefit derived by an individual as a result of his employment, then those individuals who have share options under an approved scheme will be brought within the scope of Clause 13 whereas those who have rights under a share incentive scheme will be excluded. I make that point for the consideration of the Financial Secretary in case we do not succeed in defeating the whole clause.

My main argument is that share incentive schemes for workers and management are desirable in themselves. Therefore, the arguments which applied to the previous amendment apply also to the provisions of the clause as a whole. I must point out that because such schemes are selective and need not apply to all employees they do not necessarily apply to top management only. There are a number of schemes which have been frustrated by stages 1, 2 and 3 and which will be permanently frustrated by the clause. Many people regard such schemes as extremely valuable for some of their shop-floor employees.

I have had representations from a fairly wide band of opinion within industry. It is considered that what the Government are doing by means of the clause is damaging to industry's relationships with its workpeople. It is now having to go back on schemes which have been discussed with the unions and others concerned and which have received full approval.

We should not underrate the importance of that part of the clause which relates to management. British management in productive industry is probably paid less and taxed more than in any other industrialised country in the world. When the Bill becomes an Act that total situation will be exacerbated. It is hard enough to get good people to take responsibility considering the rewards that they will get. It is hard enough for those who are working in manufacturing industry to acquire any capital in the course of a long working life. It is hard enough for them to enjoy any benefit from any savings that they might make owing to the high marginal rates of tax on investment income and, indeed, on high earnings.

In inserting this clause the Chancellor of the Exchequer is denying the proposition that able executives should be encouraged, as they are in the United States and in Europe, to build up capital during their working lives so that they can, if they wish, change their careers in the 30s and 40s and perhaps—dare I mention it to the right hon. and hon. Members?—go into business in a small way on their own account.

The arguments that have been put forward for many years by those of us who have been working together in the Wider Share Ownership Movement have been both economic and, it might almost be said, philosophical.

10.15 p.m.

Successive Governments, mainly Labour Governments, have created a situation in which the reward for the dealer is better than that for the earner and creator of real wealth. The Opposition argue that we damage our society by failing to encourage those who have the talent and ability not merely to earn a lot for themselves in high income management but to create wealth in the wa> which is essential if our mixed economy is to survive—to create it by savings, by starting small businesses and building them up and passing them on eventually into the larger companies on which we depend.

We impose a burden by our tax system, a burden to which the Chancellor of the Exchequer is adding by this clause. To those who have the capacity to create real wealth in the forms of machines, investment and companies, we are giving an incentive and an encouragement to sell out because that is the only way in which they can get a better reward. We are doing this instead of encouraging them to build up their business, to continue to create wealth—for themselves, yes, but for the community as well.

Of all the damage that the Bill does to talent and ability and to the creation of wealth, this clause is perhaps the most serious of all. It will help to prevent the transformation of the earner into the owner, the manager into the entrepreneur. Yet it is on ability to make such a transformation that a capitalist free enterprise society and a mixed economy must ultimately depend. We need our most able people to start new concerns which add to the real wealth of the country. We must encourage those who do so to retain their investments rather than provide them with incentives to get out.

This clause is, therefore, disastrous in a political as well as an economic sense to a mixed economy. I do not believe that all hon. Members opposite want to damage the creative element in private enterprise to that extent. The only point of damaging it so much is to be able thereafter to criticise private enterprise for failing to deliver the goods when, in fact, the Government's own measures are causing that failure.

Stock option schemes, share incentive schemes, share ownership through own-as-you-earn, schemes giving management and employees generally a stake in the ownership of their firms, or giving people the capacity to build up capital to start out on their own, are all useful first steps in spreading wealth in the way we Conservatives want to spread it—into the hands of the people and not into the hands of the Government.

Photo of Mr John Pardoe Mr John Pardoe , North Cornwall

I endorse almost every word that the right hon. Member for Farnham (Mr. Macmillan) has spoken in support of his view this evening, both on the amendment and now on the clause. The Finance Secretary in his replies to the amendment did not answer any of the major, though some of the incidental, points in that short debate.

One of the Financial Secretary's comments struck me as extraordinary. He said that the Government had absolutely no intention of damaging investment. He said that the Government had done several things to encourage savings. It would be nice to hear from him this evening what those several things are.

I suppose that one could say that increasing income tax was an encouragement to saving, in that if one put money into a pension fund one did not have to pay so much tax, and so I suppose the higher the rate of tax the more encouragement there is to save. But I do not think that that is what the Financial Secretary was thinking of. Nevertheless, it is the only way in which the Finance Bill might encourage anyone to put his money into anything. Why not let us have the answer on a personal basis? We know that the Secretary of State for Employment believes that he is overpaid, so presumably plenty of that money is available for saving. May we have a list of all those things into which members of the Government have put their money since they got their so-called excessive salaries? May we be told where the Financial Secretary has been putting his money in the past few weeks since he came into his new job? I hope that he will give us a long list of these things and a list of all the savings that have been encouraged by the Budget.

Far from that, all the Finance Bill seems to have done in the cause of savings is to create the situation in which the man who more than anyone else in the past 10 years has proved that he knows how best to use money to make money, Mr. Jim Slater, would advise people to put their money into the piggy bank. That does not seem to indicate that the Government have been able to encourage saving, or to encourage the motivation that leads to it.

Clause 13 sweeps away one of the few encouragements to saving that any Government have actually introduced in the past few years. I must immediately make it clear in opposing Clause 13 that I do not want to go back to the previous scheme. There is a new clause that makes certain proposals for replacing Clause 13. The 1972 Finance Act scheme was far too narrow, and we said so at the time. Indeed, it positively encouraged those accusations of class and privilege bias that the Labour Party, then in Opposition, was only too keen to pour on the head of the then Conservative Government. In 1973 the Conservative Government extended the scheme somewhat, and it certainly became better. But in essence the most important aspect of any such scheme is that it must be equally available to all employees on an equal basis. The new clause would go some way to meeting that.

In reply to the amendment, the Financial Secretary answered the observation about companies that had spent the past two years building up such schemes and that would now find that all their effort had been wasted. The effort put into devising new pension schemes to some extent can be said to have been wasted for the same reasons.

The hon. Gentleman excused the Government's actions on the ground that in opposition the Labour Party fully warned companies that it would reverse this legislation. Good heavens!If companies had to take account of everything that Oppositions said they opposed when Governments proposed nobody would ever take any notice of any legislation.

In our bonkers adversary system of Government anything that the Government are for the Opposition are always against and vice versa—not because it is good or bad but simply because the Government propose and the Opposition oppose. This is one of the reasons why 6 million people voted Liberal at the last General Election and why double that number will vote for us next time. The Minister gave no answer to the point which I made and which the right hon. Member for Farnham supported from the Opposition Front Bench about popular ownership versus public ownership.

Is the Labour Party in favour of spreading wealth? Is it in favour of private ownership, or does it wish to take all private ownership away and put it in the hands of the State? I and my hon. Friends believe that private ownership is a good thing from almost every point of view. What the Government are endeavouring to do is to build a nation of wage slaves.

Photo of Mr Peter Rees Mr Peter Rees , Dover and Deal

I have been privileged to take part in debates in Committee on the tax system dealing with share option schemes and share incentive schemes since 1972. The case against them has almost uniformly been put by the hon. Member who now occupies the position of Financial Secretary to the Treasury. It has been noticeable that there have been few other contributions from the Labour benches. It has struck me, as I have listened to the hon. Gentleman, that there is an unbridgeable gulf of incomprehension between these two parts of the Committee.

The hon. Gentleman has always put the case against share option and share incentive schemes on two grounds. The first is that if all cannot participate, none should. In conformity with the spirit of the great resolution we passed before the recess, I must declare a lack of interest in that I am a professional man and do not, and am unlikely to, benefit from a share option or share incentive scheme. None the less I am entirely in favour of them and I cannot follow the rather mean and squalid approach of the hon. Gentleman.

Secondly, the hon. Gentleman has made the point on previous occasions and tonight that there is no case for putting employees who may benefit from a share option or share incentive scheme into a privileged position. If he and the Committee will allow me to say so, it is at this point that I often wonder whether he has truly grasped the brief which no doubt the devoted gentlemen in the Official Box have placed into his eager hands before the debate.

I hope the Committee will forgive me if I go into a little detail on this point. I know that my hon. Friends grasp the point and that it is entirely clear to them. But the hon. Gentleman who holds this highly important office concerned with our tax affairs seems to be unaware of what, on a previous occasion, his right hon. Friend the Member for Cardiff, Soulh-East (Mr. Callaghan) did to these schemes. The truth is that before the Finance Act 1967 an employee who was privileged to participate was taxed when he was granted his option on the value of the option at that point of time. But he paid no tax when he exercised his option even though, as one would expect, the shares had gone up. That would strike me, and, I hope, my hon. Friends, as perfectly fair, because, although he may have contributed to the rise in the value of the shares that rise in value did not constitute, in any true sense, remuneration for his services.

What the hon. Gentleman's right hon. Friend did, and what he is attempting to do now, was to ensure that an employee would not be taxed when he participated in the scheme but would pay capital gains tax and income tax at the basic and higher rate on the difference between the value of the shares at the date he was granted the option and the value of the shares at the date he exercised his option —an entirely penal provision.

It puts him in a far worse position than an employee who might, at least prior to this Finance Bill, have borrowed money and invested it in his own company. The combination of these two measures makes it virtually certain that an employee without any capital resources will be unable to acquire a stake in the company for which he works. One asks oneself: why is it that hon. and right hon. Gentlemen opposite have this obsessive concern with share option and share incentive schemes? Are they totally opposed to any form of capitalism, any form of capital stake acquired by employees? Are they afraid that employees might become too closely identified with the fortunes of the companies for which they work? Do they in their heart of hearts want to see all employees become the employees of nationalised industry? Is the shadow of that earnest, eloquent Marxist the right hon. Member for Bristol, South-East (Mr. Benn) to be cast over these debates, too? Or are hon. and right hon. Gentlemen opposite frightened that if employees become too closely identified with the capital structure and fortunes of the companies for which they work the influence of the trade unions in them may be undermined?

10.30 p.m.

I was not over-enamoured of the measures introduced in 1972 and 1973. The rules were too complex and too strictly drawn, and more generosity could be injected into them. But they were a modest start. That modest start is to be swept away. I am sure that the Committee and the country will have noticed the arrogant reply of the Financial Secretary to an intervention of mine when I pointed out that many companies have invested considerable amounts of money and thought in starting these schemes, and now they are to be entirely stultified by the ill-thought-out, obsessional measure we are debating.

I hope that my right hon. and hon. Friends and members of the Liberal Party will agree that this clause is based on petty doctrinal spite, and I hope that the country, and particularly employees of companies which have had the forethought to introduce schemes in the past two or three years, will notice it. I shall vote against the clause with absolute enthusiasm.

Photo of Mr John Nott Mr John Nott , St Ives

I hope that the Financial Secretary's reply on this clause will be more reasonable and conciliatory than his reply on the last amendment. If it is not, I intend to continue debating this clause for a very considerable time.

I have heard the Financial Secretary speak on the subject of share options over the last three years, and I accept that he holds a different view from ours. What is not acceptable is the kind of arrogance which the hon. Gentleman displayed when answering the debate on the last amendment. There is no excuse for that kind of arrogance on a matter which is of deep concern to both sides of the Committee.

My right hon. Friend the Member for Farnham (Mr. Macmillan) made an admirable speech. This country is in competition with every other country, particularly with the United States. That may be a very boring statement to the Financial Secretary. He may regard every statement made from this side of the Committee as boring. By the way in which he raises his eyes to the roof he displays his arrogance once again. I have had to reply to debates from the Government Front Bench, and one thing which I learned, and which the hon. Gentleman still has to learn, is that if one wants to curtail debate one had better accept that other people may occasionally have different political views from one's own.

We no longer have a capitalist society. The people who run the big companies of this country are not capitalists. They are managers. As such they are entitled to ask for the same consideration from the Government, of whatever political complexion, as managers receive in France, Germany or the United States.

If the Financial Secretary insists on supporting the clause, as no doubt he will do, I make only one small request of him. In answering the debate surely he will recognise that there is a genuine and sincerely-held point of view opposite to his own. If he shows that, I shall be happy to go through the Division Lobby and vote against the clause, but if he shows the kind of arrogance that he showed in answering the debate on the previous amendment, I shall keep the debate going until 4 o'clock in the morning by making a five-hour speech.

Photo of Mr Thomas Boardman Mr Thomas Boardman , Leicester South

I ask the Financial Secretary not to adopt the arrogant approach he adopted on previous occasions by suggesting that these schemes were for the benefit of wealthy company directors and high executives, but to direct his mind to the schemes that are to be condemned by the clause, which, as my right hon. Friend the Member for Farnham (Mr. Macmillan) said, is one of the most damaging clauses in the Bill.

To turn from the general to the particular, I will give a specific example. In a company of which I am a director a scheme was devised, in which I cannot participate, which made available to all employees of the company, of whatever salary or income level, a share incentive scheme of the own-as-you-earn type. That scheme will fall under the axe of the clause. The scheme was put to and approved by the shareholders of the company without dissent. It was welcomed by employees on the factory floor, lorry drivers and the like, who wished to have the opportunity to participate in the company in which they worked and had confidence.

Such a scheme should be welcomed by a Government which wanted to encourage investment and participation. Yet the clause condemns it. How can the Financial Secretary justify that position if he really wishes to see worker participation and investment, on which the economy of the country depends? The clause operates in completely the reverse direction.

Photo of Dr John Gilbert Dr John Gilbert , Dudley East

It would be idle to deny that there is a difference of opinion between the two sides of the Committee on this clause, as will be clear to anyone who has sat through the succession of debates on stock options ever since the 1972 Finance Bill.

I will deal first with a relatively minor matter before coming to the general point of principle. I concede immediately to the right hon. Member for Farnham (Mr. Macmillan) that he is right in saying that there is a minor anomaly under Clause 13 of which we were aware. The profit made by someone who, under a share incentive scheme, already owned his shares before Budget day will continue to attract capital gains tax.

The right hon. Gentleman believes passionately in the value of schemes of this sort. He adduced in support of his claim the argument that great segments of industry were in favour of introducing these schemes for all the reasons which are familiar to both sides of the Committee. He did not observe, as is also the case, that there is division of opinion in industry on these matters. There was division in 1972, as I am sure is known to him. There is still division of opinion in industry as to the value of schemes of this sort.

I recognise the right hon. Gentleman's good faith and the work he has done, by his lights, in the Wider Share Ownership Council. But if, as he says, it is necessary for the most able people in this country to get a bigger return—and by "the most able" he talks largely of those fortunate enough to be at executive level in their companies—to do their job properly, surely it is up to the companies to pay it to them out of their profit and loss accounts and not to seek to get a subsidy for the net return to their employees such as would be given to them by the main body of taxpayers out of schemes of this sort.

Photo of Mr Peter Rees Mr Peter Rees , Dover and Deal

Would the hon. Gentleman be kind enough to explain what subsidy companies will be getting from schemes of this kind?

Photo of Dr John Gilbert Dr John Gilbert , Dudley East

Certainly. I shall be happy to explain. I thought the hon. and learned Gentleman was well acquainted with these matters. If a company has to pay a much larger amount of money, as suggested by the right hon. Gentleman, in order to retain the services of its employees or to keep them keen, as it were, to do their jobs more effectively, it has to pay that out of its profits.

Photo of Dr John Gilbert Dr John Gilbert , Dudley East

Whichever it is, we are talking about a net return, which is really what is at stake here—the additional net return to an employee. If it is paid by way of income to him, he will have to pay up to his marginal rate of tax on the full amount of that additional emolument. That additional amount of tax will be available to reduce the tax burdens of everyone else. It is simple. The hon. and learned Gentleman is being disingenuous if he does not recognise that. It is obvious, because if we do it the other way, through share incentive schemes whereby the net gain to the employee is treated for tax purposes only by the capital gains tax route, he will get the same amount of net gain for a far smaller tax burden.

This point was raised, though indirectly, by the hon. Member for Norfolk, South (Mr. MacGregor) in the most reasoned contribution we have had to the debate. It is clear that the same amount of net advantage would be given to an individual employee for a much smaller contribution to the general body of tax which is collected.

Photo of Mr John Nott Mr John Nott , St Ives

I am sorry to trouble the hon. Gentleman but, as I say, we have suffered from him for too long to allow him to get away with this. The fact of the matter is that a share option scheme is nothing more nor less than the shareholders of a company agreeing, in an ordinary general meeting, to give up part of their shareholding to the managers of the company in which they have an investment, and no subsidy is involved whatever. All that is happening is that the shareholders of the company, if the shares rise, are forgoing capital gains tax on their part and are transferring that capital gains liability to the managers of the firm in which they have invested. No subsidy is involved whatever.

Photo of Dr John Gilbert Dr John Gilbert , Dudley East

I am sorry to take issue with the hon. Gentleman, who has considerable knowledge of these matters. But the objective of these schemes is quite clearly to get a given net return to an employee at the cheapest possible cost to the company. That has been pointed out by the hon. Member for Norfolk, South. That is what is involved. The net effect is that an employee, usually a senior executive employee, will get an equivalent net return at a much lower tax cost. If it is not that, why are hon. Members opposite making such an objection?

Photo of Mr John MacGregor Mr John MacGregor , South Norfolk

The hon. Gentleman was kind enough to refer to my remarks but he has misinterpreted what I said. The point I made was that this had a neutral effect on the profit and loss account. That is a different matter from subsidy. From the way the hon. Gentleman interprets "subsidy", it would seem that if tax were reduced by any small amount it could be interpreted as a reduction of a subsidy. It is a funny play with words.

10.45 p.m.

Photo of Dr John Gilbert Dr John Gilbert , Dudley East

Not at all. The hon. Gentleman was quite clear in what he said. He said that a contribution made to an employee in this way would have no effect on the profit and loss account in the short run. That is why this clause touches such a raw nerve among hon. Gentlemen opposite. If it were not for the fact that tax incentives were so important in schemes of this kind, the Opposition would not be putting up such a resistance to the clause—

Photo of Mr Thomas Boardman Mr Thomas Boardman , Leicester South

The Financial Secretary is saying that there is a subsidy to the company. However, the subsidy comes from the shareholders. There is further taxation paid by the emoluments of the employees coming out of the shareholders instead of coming out of profits which would otherwise be subject to tax.

Photo of Dr John Gilbert Dr John Gilbert , Dudley East

I made it clear in reply to an earlier intervention by the hon. and learned Member for Dover and Deal (Mr. Rees) that there was an element of cost to a company in the degree of share dilution involved in any scheme. I said also that it was a minor element in the cost of such schemes. It is perfectly clear that what is really attractive about these schemes is the capital gains tax treatment of the gains accruing to senior executives if the shares go up in price.

I am surprised that the Opposition make quite so much heavy water about these schemes, because not only are they, by and large, in suspense at the moment, but the fact is that the Opposition have been very keen to point out—and presumably this was the reason for stock option and share incentive schemes at all, regardless of the tax treatment that they are given— how the maintenance of a thread between the effort of an employee and the price of the shares of the company in which he works is a very important element in keeping his loyalty to the company, in giving him a sense of participation in the affairs of the company, and also in giving him a greater incentive to work harder and more productively in the interests of that company.

Photo of Mr Peter Hordern Mr Peter Hordern , Horsham and Crawley

The hon. Gentleman should tell the Committee the purpose of the clause. It has been demonstrated by my right hon. and hon. Friends that the cost of the contribution to stock option schemes is borne entirely by the shareholders. There is no cost to the taxpayer at all. Furthermore, there must be some reason for the clause. Under present arrangements, there is some revenue to be derived in capital gains tax. Under Clause 13 there will be no revenue because there will be no more stock option schemes. What is the purpose of the clause?

Photo of Mr John Nott Mr John Nott , St Ives

Political spite.

Photo of Dr John Gilbert Dr John Gilbert , Dudley East

The point is that if greater rewards are necessary in order to keep keen employees in this country, those greater rewards must come in the salaries paid to them. On those salaries there will be income tax paid up to the marginal rate of each employee, and that is where additional tax will come to the Exchequer.

It is a little surprising to see the Opposition so enthusiastic still in supporting a principle that the efforts of a senior employee can be closely correlated with movements in the price of the stock in his company. When one sees what has happened to the price of shares on the London Stock Exchange over the last two years, I should have thought that that amounted to a serious slander on the main body of senior British management. As will be well known to Opposition Members, since early 1972 the price of shares on the Stock Exchange has fallen by a virtually unprecedented amount, the vast proportion of that fall having taken place while they were still in office. Taking account also of the fall in the value of money over the same period, the fall in the real value of shares on the Stock Exchange has, I believe, been rather greater than that which occurred between 1929 and 1931.

Anyone, therefore, who suggests—it follows immediately from the proposals put forward by hon. Members of the Opposition—that that fall in the value of shares is due to a sudden excess of sloth or incompetence on the part of senior management is making a proposition so implausible that no one would support it. It is a preposterous suggestion. Surely it follows that the converse is equally true. There is no connection between the movement of the price of shares of a company in which an individual is employed and the efforts that an employee puts into his work for that company. We suggest that the correlation is totally spurious and that the reason why the Opposition are getting so worked up about the clause is that the very tax privileges that the clause seeks to take away are particularly dear to their hearts.

This is a privilege which we on the Government side of the House have repeatedly made clear that we find unacceptable. I invite my right hon. and hon. Friends to support the clause.

Mr. Nolt:

We are concerned not so much with general tax privileges granted to senior management but with the fact that the clause also covers those wage-earners in companies who, until the clause was published, were entitled to receive a benefit up to a limit of £1,500. The whole purpose of the legislation which the Conservative Government brought forward was to enable ordinary people working in British industry to participate in some small way, under the Workers Share Incentive Scheme, in the business in which they worked.

I quite understand that the hon. Gentleman does not agree that the man working on the shop floor in British industry should participate in ownership. But it is no use the hon. Gentleman answering the debate by implying that share option schemes are relevant only to managers, because they are not. We introduced the Workers Share Incentive Scheme as a genuine attempt to try to make ordinary people in British industry feel that they had an opportunity to participate in the firm in which they worked. The maximum benefit that they could have obtained was £1,500. Because of an ideological obsession on the part of the hon. Gentleman and some of his hon. Friends—I do not believe it can be many of them—against the word "options", he is seeking now to deny

the working man in industry an opportunity to obtain a share of his own firm. This is very shabby and cheap. The hon. Gentleman should be ashamed of what his party is doing.

Photo of Mr Maurice Macmillan Mr Maurice Macmillan , Farnham

I heartily support my hon. Friend the Member for St. Ives (Mr. Nott). If he was making heavy water of it, that is probably because the Financial Secretary generated considerable steam.

The Financial Secretary is wrong. There is no effect on the profit and loss account in the short term of the firm which would have paid capital gains tax, but in the longer term there is a transfer of ownership from the existing shareholders who would have paid capital gains tax on their shares to the management, who also should pay capital gains tax, as we provided, but not income tax, as the clause provides.

The hon. Gentleman talked a great deal about shares quoted on the Stock Exchange. I hope that he will remember his words when we discuss the new clause about capital gains being expressed in real and not just inflationary terms.

The clause will be destructive, not just for the employees of large, quoted companies, but for the greater number of employees of those smaller firms which offer participation in ownership and which in many cases retain their good senior management through such participation. The Financial Secretary should not lead such a blinkered life when dealing with matters like this affecting the realities of the shop floor and management—in fact, the whole of our industry.

Question put That the clause stand part of the Bill: —

The Committee divided: Ayes 239, Noes 202.

Division No. 35.]AYES(10.57 p.m.
Abse, LeoBlenkinsop, ArthurCarter, Ray
Allaun, FrankBoardman, H. (Leigh)Carter-Jones, Lewis
Archer, Peter (Warley, West)Booth, AlbertCastle, Rt. Hn. Barbara
Ashton, JoeBoothroyd, Miss BettyClemitson, Ivor
Atkins, Ronald (Preston, N.)Bottomley, Rt. Hn. ArthurCocks, Michael
Atkinson, NormanBoyden, James (Bishop Auckland)Cohen, Stanley
Bagler, Gordon, A. T.Bradley, TomColeman, Donald
Barnett, Guy (Greenwich)Brown, Hugh D. (Glasgow, Provan)Colquhoun, Mrs. M. N.
Barnett, Joel (Heywood & Royton)Buchan, NormanConcannon, J. 0.
Bates, AlfBuchanan, Richard(G'gow,Springbrn)Conlan, Bernard
Benn, Rt. Hn. Anthony WedgwoodCallaghan, Jim (M'dd'ton & Pr'wlch)Cook, Robert F. (Edinburgh, C.)
Bennett, Andrew F. (Stockport, N.)Campbell, IanCox, Thomas
Bidwell, SydneyCant, R. B.Craigen, J. M. (G'gow, Maryhill)
Bishop, E. S.Carmichael, NeilCrosland, Rt. Hn. Anthony
Cryer, G. R.Janner, GrevillePrice, Christopher (Lewlsham, W.)
Cunningham, G. (Isl'ngl'n.S&F'sb'ry)Jay, Rt. Hn. DouglasPrice, William (Rugby)
Cunningham,Dr. JohnA. (Whiteh'v'n)Jeger, Mrs. LenaRadice, Giles
Davidson, ArthurJohn, BrynmorRichardson, Miss Jo
Davies, Bryan (Enfield, N.)Johnson,James(K'ston upon Hull,W)Roberts, Albert (Normanton)
Davies, Denzil (Llanelli)Johnson, Walter (Derby, S.)Roberts, Gwilym (Cannock)
Davies, lfor (Gower)Jones, Barry (Flint, E.)Roderick, Caerwyn E.
Davis, Clinton (Hackney, C.)Jones, Dan (Burnley)Rodgers, George (Chorley)
Deakins, EricJones, Gwynoro (Carmarthen)Rodgers, William (Teesside, St'ckton)
Dean, Joseph (Leeds, W.)Jones, Alec (Rhondda)Rooker, J. W.
Delargy, HughJudd, FrankRose, Paul B.
Dell, Rt. Hn. EdmundKaufman, GeraldRoss, Rt. Hn. William (Kilmarnock)
Dempsey, JamesKelley, RichardRowlands, Edward
Dolg, PeterKerr, RussellSandelson, Neville
Dormand, J. D.Kilroy-Silk, RobertSedgemore, Bryan
Douglas-Mann, BruceKinnock, NeilSelby, Harry
Duffy, A. E. P.Lamble, DavidShaw, Arnold (Redbridge, llford, S.)
Dunnett, JackLamborn, HarrySheldon, Robert (Ashton-under-Lyne)
Dunwoody, Mrs. GwynethLatham, Arthur(CityofW'minsterP'ton)Short, Rt. Hn. E. (N'ctle-u-Tyne)
Edelman, MauriceLeadbitter, TedSilkin, Rt. Hn. John (L'sham.D'ford)
Edge, GeoffLestor, Miss Joan (Eton & Slough)Silkln,Rt.Hn.S.C.(S'hwark,Dulwich)
Ellis, John (Brigg & Scunthorpe)Lever, Rt. Hn. HaroldSillars, James
Ellis, Tom (Wrexham)Lewis, Arthur (Newham, N.)Silverman, Julius
English, MichaelLewis, Ron (Carlisle)SKinner, Dennis
Ennals, DavidLoughlin, CharlesSmith John (Lanarkshire, N.)
Evans, Fred (Caerphilly)Lyon, Alexander W. (York)Snape, Peter
Evans, loan (Aberdare)Lyons, Edward (Bradford, W.)Spearing, Nigel
Ewing, Harry (St'ling,F'kirk&G'm'th)McCartney, HughSpriggs, Leslie
Faulds, AndrewMcElhone, FrankStallard, A. W.
Fernyhough, Rt. Hn. E.MacFarquhar. RoderickStewart, Rt. Hn. M. (H'sth, Fulh'm)
Fitch, Alan (Wigan)McGuire, MichaelStoddart, David (Swindon)
Flannery, MartinMackenzie, GregorStonehouse, Rt. Hn. John
Fletcher, Ted (Darlington)Maclennan, RobertStrang, Gavin
Foot, Rt. Hn. MichaelMcMillan, Tom (Glasgow, C.)Strauss, Rt. Hn. G. R.
Ford, BenMadden, M. 0. F.Summersklll, Hn. Dr. Shirley
Forrester, JohnMagee, BryanSwain, Thomas
Fowler. Gerry (The Wrekin)Mahon, SimonThomas, D. E. (Merioneth)
Freeson, ReginaldMallall, J. P. W.Thomas, Jeffrey (Abertlllery)
Garrett, John (Norwich, S.)Marks, KennethTierney, S.
Garrett, W. E. (Wallsend)Marquand, DavidTinn, James
George, BruceMarshall, Dr. Edmund (Goole)Torney, Tom
Gilbert, Dr. JohnMayhew, Christopher (G'wh.W'wch.E)Tuck, Raphael
Gourlay, HarryMeacher, MichaelVarley, Rt. Hn. Eric G.
Graham, TedMellish, Rt. Hn. RobertWalnwright, Edwin (Dearne Valley)
Grant, George (Morpeth)Mikardo, IanWalden, Brian (B'm'ham, Ladywood)
Grant. John (Islington, C.)Millan, BruceWalker, Harold (Doncaster)
Griffiths, Eddie (Sheffild, Brightside)Miller, Dr. M. S. (E. Kilbride)Walker, Terry (Kingswood)
Hamilton, James (Bothwell)Mitchell, R. C. (S'hampton, Itchen)Watkins, David
Hamling, WilliamMorris, Charles R. (Openshaw)Weitzman, David
Hardy, PeterMorris, Rt. Hn. John (Aberavon)White, James
Harper, JosephMoyle, RolandWhitehead, Phillip
Harrison, Walter (Wakefield)Mulley, Rt. Hn. FrederickWhitlock, William
Hart, Rt. Hn. JudithMurray, Ronald KingWigley, Dafydd (Caernarvon)
Hattersley, RoyNewens, Stanley (Harlow)Willey, Rt. Hn. Frederick
Hatton, FrankOakes, GordonWilliams, Alan (Swansea, W.)
Heffer, Eric S.Ogden, EricWilliams,Rt.Hn. Shirley (H'f'd&St'ge)
Hooley, FrankO'Malley, BrianWilliams, W. T. (Warrington)
Horam, JohnOrbach, MauriceWilson, William (Coventry, S.E.)
Howell, Denis (B'ham, Small Heath)Ovenden, JohnWise, Mrs. Audrey
Huckf'ield. LeslieOwen, Dr. DavidWoodall. Alec
Hughes, Rt. Hn. Cledwyn (Anglesey)Palmer, ArthurWoof, Robert
Hughes, Mark (Durham)Park, George (Coventry, N.E.)Wrigglesworth, Ian
Hughes, Robert (Aberdeen, North)Parker, John (Dagenham)Young, David (Bolton, E.)
Hughes, Roy (Newport)Parry, Robert
Irvine, Rt. Hn. Sir A. (L'p'I.EdgeHilI)Peart, Rt. Hn. FredTELLERS FOR THE AYES:
Irving Rt. Hn. Sydney (Dartford)Perry, Ernest G.Mr. James A. Dunn and
Jackson, Colinphipps, Dr. ColinMr. Laurie Pavitt.
NOES
Adley, RobertBiff en, JohnCarlisle, Mark
Alison, Michael (Barkston Ash)Boardman, Tom (Leicester, S.)Carr, Rt. Hn. Robert
Allason, James (Heme! Hempstead)Boscawen, Hon. RobertChataway, Rt. Hn. Christopher
Ancram, M.Boyson, Dr. Rhodes (Brent, N.)Clark, William (Croydon, S.)
Archer, Jeffrey (Louth)Braine, Sir BernardClarke, Kenneth (Rushcliffe)
Atkins, Rt.Hn. Humphrey (Spelthorne)Bray, RonaldClegg, Walter
Awdry, DanielBrittan, LeonCockcroft, John
Banks, RobertBrown, Sir Edward (Bath)Cooke, Robert (Bristol, W.)
Barber, Rt. Hn. AnthonyBrown, Ronald (H'Kney.S.& Sh'dltch)Cope, John
Beith, A. J.Bruce-Gardyne, J.Corrie, John
Bell, RonaldBuchanan Smith, AiickCrowder, F. P.
Bennett, Dr. Reginald (Fareham)Budgen, NickDavies, Rt. Hn. John (Knutsford)
Benyon, W.Bulmer, EsmondDean, Paul (Somerset, N.)
Berry, Hon. AnthonyBull'er, Adam iBosworth)Deedes, Rt. Hn. W. F.
Dodsworth, GeoffreyKershaw, AnthonyRalson, Timothy
Drayson, BurnabyKing, Evelyn (Dorset, S.)Redmond, Robert
Durant, TonyKing, Tom (Bridgwater)Rees, Peter (Dover & Deal)
Dykes, HughKltson, Sir TimothyRees-Davies, W. R.
Eden, Rt. Hn. Sir JohnKnight, Mrs. JillRenlon, R. T. (Mid-Sussex)
Edwards, Nicholas (Pembroke)Knox, DavidRhys Williams, Sir Brandon
Elliott, Sir WilliamLamont, NormanRifkind, Malcolm
Eyre, ReginaldLane, DavidRippon, Rt. Hn. Geoffrey
Fairgrieve, RussellLangford-Holt, Sir JohnRoberts Wyn (Conway)
Fenner, Mrs. PeggyLatham, Michael (Melton)Rodgers, Sir John (Sevenoaks)
Fisher, Sir NigelLawrence, IvanRoss, Stephen (Isle of Wight)
Fletcher, Alexander (Edinburgh, N.)Lawson, Nigel (Blaby)Rossi, Hugh (Hornsey)
Fletcher-Cooke, CharlesLloyd, Ian (Havant & Waterloo)Rost, Peter (Derbyshire, S.-E.)
Fowler, Norman (Sutton Coldfield)Loveridge, JohnShaw, Giles (Pudsey)
Fox, MarcusLuce, RichardShaw, Michael (Scarborough)
Fraser,Rt.Hn.Hugh (St'fford&Stone)McAdden, Sir StephenShelton, William (L'mb'th,Streath'm)
Freud, ClementMacfarlane, NeilShersby, Michael
Gardiner, George (Reigate&Banstead)MacGregor, JohnSilvester, Fred
Gardner, Edward (S. Fylde)McLaren, MartinSims, Roger
Gilmour, Sir John (Fife, E.)Macmillan, Rt. Hn. M. (Farnham)Sinclair, Sir George
Glyn, Dr. AlanMadel, DavidSmith, Dudley (W'wick&L'm'ngton)
Godber, Rt. Hn. JosephMarshall, Michael (Arundel)Spicer, Michael (Worcestershire, S.)
Goodhew, VictorMather, CarolSproat, lain
Goodlad, A.Maude, AngusStanbrook, Ivor
Gorst, JohnMawby, RayStanley, John
Gow, Ian (Eastbourne)Maxwell-Hyslop, R. J.Steen, Anthony (L'pool, Wavertree)
Gower, Sir Raymond (Barry)Mayhew,Patrick(RoyalT'bridgeWe!ls)Stewart, Ian (Hitchin)
Grant, Anthony (Harrow, C.)Meyer, Sir AnthonyStokes, John
Grieve, PercyMiller, Hal (B'grove & R'ditch)Stradling Thomas, J.
Griffiths. Eldon (Bury St. Edmunds)Miscampbell, NormanTapsell, Peter
Grimond, Rt. Hn. J.Mitchell, David (Basingstoke)Thatcher, Rt. Hn. Margaret
Grist, IanMoate, RogerThomas, Rt. Hn. P. (B'net,H'dn S.)
Hall, Sir JohnMoney, ErnieThorpe, Rt. Hn. Jeremy
Hall-Davis, A. G. F.Monro, HectorTownsend, C. D.
Hampson, Dr. KeithMoore, J. E. M. (Croydon, C.)Trotter, Neville
Hannam, JohnMore, Jasper (Ludlow)Tugendhat, Christopher
Hastings, StephenMorgan, GeraintTyler, Paul
Havers, Sir MichaelMorgan-Giles, Rear-Adm.van Straubenzee, W. R.
Hawkins, PaulMorris, Michael (Northampton, S.)Vaughan, Dr. Gerard
Hayhoe, BarneyMorrison, Charles (Devizes)Viggers, Peter
Henderson,Barry (Dunbartonshire,E.)Morrison, Peter (City of Chester)Waddington, David
Hlggins, TerenceMudd, DavidWalnwright, Richard (Colne Valley)
Holland, PhilipNeubert, MichaelWakeham, John
Hooson, EmlynNewton, Tony (Braintree)Walder, David (Clitheroe)
Hordern, PeterNott, JohnWalters, Dennis
Howe, Rt.Hn. Sir Geoffrey(Surrey,E.)Onslow, CranleyWeatherill, Bernard
Hurd, DouglasOppenheim, Mrs. SallyWells, John
Hutchison, Michael ClarkPage, John (Harrow, W.)Winstanley, Dr. Michael
Irvine, Bryant Godman (Rye)Pardoe, JohnWorsley, Sir Marcus
James, DavidParkinson, Cecil (Hertfordshire, S.)Young, Sir George (Ealing, Acton)
Jenkin, Rt.Hn.P. (R'dgeW'std&W'fd)Pattle, GeoffreyYounger, Hn. George
Jessel, TobyPercival, Ian
Johnston, Russell (Inverness)Pink, R. BonnerTELLERS FOR THE NOES:
Jopling, MichaelPrice, David (Eastleigh)Mr. Hamish Gray and
Joseph, Rt. Hn. Sir KeithQuennell, Miss J. M.Mr. Spencer le Marchant.

Question accordingly agreed to.

Clause 13 ordered to stand part of the Bill.

To report Progress and ask leave to sit again.—[Mr. Harper.]

Committee report Progress: to sit again tomorrow.