Employee ownership: Has the government actually done something right?

Long live co-operatives: At long last, it seems the government (or at least the Liberal Democrat side of it) is offering support to the most successful and supportive business model available - and we can hope that Labour will do the same. But where are the Conservatives in all this?

Long live co-operatives: At long last, it seems the government (or at least the Liberal Democrat side of it) is offering support to the most successful and supportive business model available – and we can hope that Labour will do the same. But where are the Conservatives in all this?

Today, July 4, is officially Employee Ownership Day – did you know that?

Employee ownership means all employees of a business have a significant and meaningful stake in it. This could include financial participation but must include provision of access to organisational structures. Where financial participation does take place, there is currently no set rule on what percentage of issued shares is a significant and meaningful stake, and this is something that I believe should be changed to ensure it is worthwhile.

Employee ownership can generally take one of three forms:

  • Direct employee ownership – employees become individual owners of shares in their company;
  • Indirect employee ownership – shares are held collectively on behalf of employees, normally through an employee benefit trust; and
  • Combined direct and indirect ownership – a combination of individual and collective share ownership.

The Employee Ownership Association estimates that UK-based employee-owned companies had a turnover of more than £30 billion and employed more than 130,000 people in 2011. Employee-owned businesses enjoy greater staff retention, innovation and motivation than non-employee owned businesses and, in turn, these deliver wider economic benefits including increased productivity, profitability and more resilience to economic shocks.

The sector has grown by more than 20 per cent since the start of the recession in 2008; while 65 per cent of conventional businesses survive their first three years, 90 per cent of co-operatives remain in business; and 37 per cent of directorships in co-operatives are held by women, compared with 13 per cent in leading UK companies (this last point should not be relevant in this day and age, but the gender gap is quite clearly still there, so it is).

All of the above is from a government press release issued today, but eerily resembles comments made on this blog in the past – like this one or this.

According to the government, not only will this successful model of business be easier to understand and quicker to set up after Vince Cable publishes new guidance today, but the government is also consulting the public on the possibility of providing two new tax reliefs to help indirect employee-owned businesses get themselves set up.

To my way of thinking, this seems spectacularly useful, but this is the Coalition government so there must be a catch. Right?

It seems the Department for Business, Innovation and Skills will be publishing:

  • Guidance for employees who want to request a move to employee ownership;
  • Model documentation on a move to employee ownership with accompanying BIS and HMRC guidance;
  • Guidance from the Employee Ownership Association explaining the different models of employee ownership; and
  • Guidance from Co-operatives UK on how co-operative principles and ways of working can be implemented into employee-owned businesses.

“The government is committed to supporting this business model and will today launch a consultation on providing two new tax reliefs to encourage employee ownership,” according to the press release.

“This sector has the potential to benefit the wider economy, therefore the government is seeking views from people both inside and outside the employee-ownership sector to ensure the reliefs are supportive and effective.

“The Employee Ownership Association, in conjunction with the government, has helped to organise a number of events in the UK where employee-owned businesses are opening their doors to showcase the benefits of their business model.”

Nick Clegg actually said something I can support: “The benefits of employee ownership are clear. Staff who have a stake are more motivated and are rewarded for thinking in the long-term. That’s good for business and good for families, as it means lower absenteeism and lower levels of staff turnover.” This is something I have been saying for many months; it’s as though he has been reading this blog.

He said the government has set aside £50 million per year, starting next April, to give businesses and employees an incentive to adopt employee-owned models, and will be providing Capital Gains Tax relief for those who sell a controlling stake in a company to their staff.

It will be interesting to see how many firms take up the offer; from that information we can work out whether the greed that increased bosses’ pay by 700 per cent over the last 10 years – while employees got a miserly 27 per cent rise – is still rampant.

There is also a question over whether this is the right time – the middle of the longest economic slump in recent history.

It could be!

Cable reckons “there has never been a more important time to support different ways of running a business”.

He said: “The evidence is clear that employee-owned businesses not only help us build a stronger economy, but boost the retention, innovation and motivation of their employees.”

Co-operatives UK Secretary General Ed Mayo said his organisation would be supporting today’s events by launching its own publication, Simply Buyout – an essential guide to employee buyouts and becoming a co-operative employee owned business.

The consultation on the two new tax reliefs can be found online here. This stage of it will run until September 26 this year. The government will publish a summary of the responses in the autumn, and they will help to inform draft legislation.

The first is a Capital Gains Tax relief which would apply when the controlling share of a business is sold into an indirect employee ownership structure, and the government hopes it will encourage individuals wishing to sell their business to consider it.

The second tax relief is an Income Tax and National Insurance Contributions (NICs) exemption, that would allow indirectly employee-owned companies to pay employees a certain amount every year that is free of Income Tax and NICs. There would also be an employer NICs exemption for the company.

The government announced in the March Budget that it would provide £50 million annually, from 2014-15, to support employee-ownership models and to incentivise growth of the sector.

The press release features a quote from yet another Liberal Democrat – Danny Alexander – who said: “We want to encourage greater use of employee ownership in UK businesses and want to ensure that we provide reliefs that are supportive and effective. Views are invited from both people inside and outside the employee ownership sector.”

So that’s three high-ranking Liberal Democrats speaking up for it, and no Conservatives. Interesting. Do the Blue Meanies have nothing to say in favour of the proles part-owning the firms where they work?

And what about Labour? Does the Party of the Workers support this activity? This Party member hopes it does.

It will be hard to tell from the press coverage, however.

At the time of writing, there hasn’t been any.

6 thoughts on “Employee ownership: Has the government actually done something right?

  1. R Broughdale

    What effect will employee ownership have on their future unemployment benefits claims? Does ownership make them unable to claim should the business fail?

  2. Maria Nelson

    bit late for me now i burnt myself out on poor paid heavy jobs, but it does have possibillities for the future ie workers get money from the shares and profits sounds pretty good to me. a rare time i might agree with the tories, but see my backs gone i suffer depression , my eyesight is getting worse, oh sorry maria say the tories you are now classed as sub human and you shall for ever be rewarded with discrimination to keep you depressed and hopeless. good luck with this, but remember bad ideas can create busts, do the workers share in those too i ask .

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  4. guy fawkes

    Funny how the govt are in favour of employee ownership at a time when a lot of companies are going to the wall.
    Where I live large companies like ICI used to be, at the height of their success gave shares to all of it’s workers for every year of employment, but this never caught on with other large companies.

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