Will Labour’s 10% employer equity plans deliver share ownership?

Lubbock Fine, 26 September 2018

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By Clare Munro, senior tax partner
020 7490 7766

The Labour conference this week is considering a proposal by John McDonnell, shadow Chancellor of the Exchequer, to introduce measures which will force large employers to put up to 10% of the company’s shares into employee ownership. Commentators are talking about a flight of capital in the wake of expropriation of value, damage to pension funds and, ultimately, a deterrent to entrepreneurs. 

Leaving aside the small hurdle of needing to win a general election in order to bring this measure into law, what it appears to lack is any recognition of the work that has been going on for the last 40 years (started in fact under a Labour government) to extend share ownership voluntarily.

One of the biggest barriers to the transfer of shares to employees is their tax and NIC position. If a quoted company simply hands out shares, not only is there a tax bill for the employee, but NICs are also due. Successive governments have recognised that employee motivation is key and have therefore put in place tools to help. 

Nearly 12,000 companies used the tax advantaged employee share schemes in 2016-17. There are currently four such schemes available- two (SIP and SAYE) are all-employee, two (EMI and CSOP) allow cherry picking of beneficiaries. There is therefore something to fit most situations and budgets even before starting to consider some of the more complex unapproved schemes like growth share plans. For our owner managed business clients, the EMI option scheme has been a highly effective means of getting an equity interest to employees.

Returning to Labour’s plans, whilst the details are hazy as yet, John McDonnell’s scheme is more concerned with creating a collective ownership pot than with motivating individual workers. Workers would get up to £500 as a dividend but no direct interests in their employer’s shares. The proposal also appears to be designed to divert corporate income to the Exchequer as a by-product of the scheme by passing the excess dividends from the employee pot into state coffers.

Our experience is that employee ownership works best and provides the greatest element of incentivisation where employers want to make it work and genuinely buy into the idea of employee participation. Many are using the tax advantaged schemes already in existence.  If you would like to discuss any aspect of this please call Clare Munro 020 7490 7766 or email claremunro@lubbockfine.co.uk.