Growth and Infrastructure Bill passed, but at what cost?

25 April 2013

Quite extraordinary developments in the House of Lords last night.  The Growth and Infrastructure Bill passed through the parliamentary “ping pong” process and made it to the Royal Assent stage by the skin of its teeth and only after the Government made concession after concession. 

It will be recalled this is the policy that is to give employees the right to exchange certain rights in return for shares in their employers’ business.  The shares issued or allotted will have to be worth between £2,000 and £50,000 to attract relief from CGT, but what was wholly overlooked was the fact that employees may also incur an income tax charge in those circumstances.  Hence the Government has had to adapt the scheme to make clear that there will be no income tax for the first £2,000 of shares either. 

A miscellaneous bundle of employment rights has been put together for the employee to exchange.  Some of these rights are basic, and some would say fundamental (such as the right to claim ordinarily unfair dismissal and the right to a statutory redundancy payment). Curiously, one is also the right to give up the ability to make a flexible working request, and employers will have to be very careful.  Merely because an employee gives up the right to request flexible working, does not mean that an employer will be free of the possibility of an indirect sex discrimination claim in the event that a disgruntled employee is unhappy that they were not allowed to work flexibly. Such an employee may still bring a claim even if they have become a new style “employee shareholder”. 

Also overlooked from the scheme was the fact employees were not given protection from dismissal or other detriment they may suffer following any refusal to become employee shareholders.  This has now been corrected.

One concession which seems superficially compelling was the fact that employees offered these arrangements should be afforded access to an independent legal advisor, before signing off on any deal.  This concession was made quite literally at the last moment.  However, here again it needs to be thought through.  Just who are the lawyers these employees are going to take advice from?  They are going to need to have ready access, not only to specialist employment lawyers who can set in context the rights being surrendered, but also lawyers with expertise in shares in all their different forms and in tax (both CGT and income tax).  That is going to be quite a challenge for some of the smaller firms up and down the country, particularly where they do not necessarily hold all of this expertise in-house -  far less in one and the same person. 

There is already a big debate in this country as to whether the Government was right to restrict the periods they offer for consultation for their various proposals. The previous default period was 12 weeks. Last summer (without consultation!) they introduced a more flexible approach of between 2 and 12 weeks.  Given that the period for the “Shares for Worker Rights” consultation was only 3 weeks, one might argue that the handling of this particular policy initiative represents the very nadir of the “non-consultation” process!

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