Clause 1 - Employee share ownership plans

Part of Employee Share Schemes Bill – in a Public Bill Committee at 10:30 am on 27th February 2002.

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Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury) 10:30 am, 27th February 2002

I wish to inform the Committee of some further consideration that the Government have given to these provisions and to indicate some further beneficial changes—normally we would call them concessions, but that sounds more combative and the Government support the Bill and the amendments. The hon. Gentleman asked about the 10 and five-year periods. As my hon. Friend the Member for Edinburgh, North and Leith (Mr. Lazarowicz) explained, setting up a SIP can take some time. Discussions about share ownership centre on what is an appropriate vehicle, which is why we said that 30 per cent. had to be distributed within five years. The Government are trying to recognise, as companies have asked us to do so, how long it takes to set up a SIP and make it work sensibly. Other vehicles give a much shorter period.

Two more changes to the rules exempting SIP trustees from a special tax charge trusts pay on dividend income would also help. The present rules exempt the trustees from the charge, provided that they distribute the shares that they hold within two years of acquisition—I may be edging towards the point made by the hon. Gentleman—if the shares can be readily converted into cash, or five years if that is not the case. I propose to extend that period to 10 years for shares acquired with the new corporation tax relief contained in the Bill.

The second change is to the rules that exempt the trustees from capital gains tax on any gain on plan shares. At present, the rules allow the exemption only if the trustees distribute shares that are readily convertible into cash within two years of acquisition and shares that are not readily convertible, within five. I propose to bring that completely different set of rules in line with the proposals for up-front payment of corporation tax in the Bill, so that there is no contradiction as regards the different elements of the tax system and supporting my hon. Friend's objectives.

We could not produce an amendment to the Bill in time for this Committee. My hon. Friend and his advisers will want to consider my proposal, although I

should not imagine that he will want to look a gift horse in the mouth. I hope that suitable amendments can be agreed when the Bill returns to the House on Report. However, it is correct to inform the Committee today that the Government, in the spirit of the commitments made on Second Reading, are seeking to progress that matter.