‘It will lead to a sud­den in­crease in com­pa­nies with 249 em­ploy­ees’

Yorkshire Post - Business - - FRONT PAGE - Jonathan Ox­ley

The Labour Party has re­cently pro­posed a new scheme for cre­at­ing wider share own­er­ship, the In­clu­sive Own­er­ship Fund. Com­pa­nies with over 250 em­ploy­ees would be re­quired to put up to 10 per cent of the shares of the com­pany in a trust for the ben­e­fit of em­ploy­ees.

Em­ploy­ees would be en­ti­tled to div­i­dends on the shares, up to £500 per an­num each, with the rest go­ing to the Govern­ment. What some would call a ‘so­cial div­i­dend’ and oth­ers ‘con­fis­ca­tory tax­a­tion’ could raise up to £2bn a year for the Trea­sury.

As some­one who works in the area of Em­ployee Share Own­er­ship and Em­ployee Share Op­tion Schemes there is, in my opin­ion, a ma­jor flaw with the blan­ket im­po­si­tion of such a scheme.

The pro­posal of the scheme plays to the gen­eral con­sen­sus that wider share own­er­ship is a good thing with broad sup­port. This has man­i­fested it­self in many forms. They in­clude the Thatcher govern­ment’s pri­vati­sa­tions, the coali­tion govern­ment’s ‘shares for rights’ scheme (a horse de­signed by a com­mit­tee turn­ing out to be a camel, if ever there was one) and the growth in the num­ber of em­ployee-owned busi­nesses in re­cent years.

Em­ployee owned busi­nesses may well be a good model. Sta­tis­tics pro­duced by the Em­ployee Own­er­ship As­so­ci­a­tion say that em­ployee owned busi­nesses in­creased pro­duc­tiv­ity by an av­er­age of 4.5 per cent year on year at a time when the pro­duc­tiv­ity growth in the UK econ­omy as a whole is flat and that the num­ber of em­ployee-owned busi­nesses is grow­ing at an an­nual rate of just un­der 10 per cent.

As well as wholly em­ployee owned mod­els of own­er­ship there is al­ready a wide range of share op­tion schemes avail­able. The share op­tion scheme gen­er­ally ac­knowl­edged as the best for small to medium com­pa­nies is the En­ter­prise Man­age­ment In­cen­tive Scheme or ‘EMI’.

This was in­tro­duced by the last Labour govern­ment and has been widely adopted. It pro­vides tax ad­van­tages for both com­pany and em­ployee and is ex­tremely flex­i­ble. It is de­signed to at­tract, re­tain and in­cen­tivise key em­ploy­ees.

It works best when im­ple­mented early in a com­pany’s growth curve, be­cause any cap­i­tal gain for the em­ployee on the shares is taxed at the low­est Cap­i­tal Gains Tax rate and is not sub­ject to in­come tax. By com­par­i­son the ‘Shares for Rights’ scheme has been a fail­ure, largely be­cause it in­volves work­ers giv­ing up cer­tain em­ploy­ment rights in ex­change for some eco­nomic rights, which are two things which have noth­ing to do with each other.

The new scheme pro­posed by Labour is also flawed in many re­gards. It will lead to a sud­den in­crease in com­pa­nies with 249 em­ploy­ees and also, as with the ‘Shares for Rights’ scheme, con­fuses two more com­pletely dif­fer­ent things, in this case em­ployee in­cen­tivi­sa­tion and tax­a­tion.

But the big­gest prob­lem with it as a cred­i­ble scheme is that ex­pe­ri­ence tells me that one size does not fit all.

You can­not im­pose one sin­gle type of share own­er­ship scheme on thou­sands of dif­fer­ent busi­nesses and ex­pect that own­er­ship to de­liver con­sis­tent ben­e­fit to those busi­nesses.

In­deed, the right ad­vice to busi­nesses look­ing at wider share own­er­ship is some­times that it will not ad­dress their needs and they should look at some­thing else.

One of the range of schemes avail­able may well be ben­e­fi­cial, but they need to be cho­sen and im­ple­mented with a de­tailed knowl­edge of the busi­ness’s ethos and ob­jec­tive.

Labour’s pro­posed ‘in­clu­sive own­er­ship’ does not recog­nise this which is why, for me, it is all about the tax rais­ing op­por­tu­ni­ties and not about the gen­uine ben­e­fits that can flow from wider share own­er­ship.

PIC­TURE: PETER BYRNE/PA WIRE

MAK­ING PLANS:The Labour Party has an­nounced a scheme for wider share own­er­ship but there is a flaw in the pol­icy.

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