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Last updated: March 21, 2013 6:28 pm
George Osborne is looking to sceptical Liberal Democrats to help him push through his controversial “shares for workers’ rights” plan, in the face of a remarkable rebellion by senior Tory peers in the House of Lords.
Former Conservative cabinet ministers in the upper house claimed the plan was variously “foolish” or “stupid” as they helped to inflict an embarrassing defeat on the chancellor by 54 votes on Wednesday.
Mr Osborne’s aides said he was wedded to the plan where staff could be asked to give up rights on unfair dismissal, redundancy pay, flexible working and time off for training, in return for capital gains tax relief on £2,000-£50,000 of shares.
The Osborne camp said the revolt was down to “a handful of Tory rebels”, although those included former Thatcher era ministers including Nigel Lawson, Tom King, John Gummer and Michael Forsyth as well as Gus O’Donnell, former cabinet secretary.
The chancellor expects to overturn the amendment to the growth and infrastructure bill when it returns to the Commons, with the help of Liberal Democrat MPs – many of whom detest the scheme.
Vince Cable, Lib Dem business secretary, also sees the policy as misguided but agreed to support it after Mr Osborne agreed to give Treasury backing to a new industrial policy. His allies say he will not renege on that deal.
But Chuka Umunna, Labour’s business spokesman, urged Tory and Lib Dem MPs to think again.
“The cross-party revolt, which included five Conservative ex-ministers and a former Tory chancellor, in the House of Lords has dealt a blow to George Osborne’s discredited shares for rights plan,” he said. “Ministers should now dump this ill-conceived and nonsensical scheme for good.”
The plan has also provoked strong opposition from advocates of employee ownership, who fear their movement will be tarnished by association with it.
Iain Hasdell, chief executive of the Employee Ownership Association, said member companies feared the “infamous” scheme would redefine employee ownership as a model that involved sacrificing rights in areas such as redundancy and unfair dismissal.
He added: “MPs and the government would get a far better return on investment if they abandoned this flawed scheme and instead used the £100m earmarked for it to help increase the number of genuinely employee-owned businesses in the UK.”
In the Budget, Mr Osborne postponed the scheme’s launch until September but announced that the first £2,000 of shares would be free of income tax and national insurance, removing a barrier to take-up.
The Office for Budget Responsibility warned last autumn that shares for rights could ultimately mean up to £1bn in lost revenues, though now it simply says the cost is “uncertain”. The Treasury thinks the price tag will be only £75m a year by 2017-18.
But the policy was derided by senior peers. “In the old days the price of slavery was 20 or 30 pieces of silver – is it now £2,000?’’ Lord O’Donnell said.
Lord Forsyth of Drumlean, a Tory former cabinet minister, said the plans were “ill-thought through, confused and muddled’’.
The scheme is a variant on employment law reforms proposed in 2011 by Adrian Beecroft, a venture capitalist and Tory donor, which was resisted by Lib Dems.
The Treasury says the scheme will “give staff a stake in their firms’ future success and give firms greater choice about the contracts they can offer to individuals”.
But of 209 responses to a government consultation from companies, business groups and others, only a tiny number supported the scheme. Just 11 per cent thought it would encourage employers to recruit.
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