Homepage Education Events Research Resources Executive Pay
Show News
  1. Home
  2. News
  3. Lukewarm response to Osborne plan to swap shares for rights

Lukewarm response to Osborne plan to swap shares for rights

EMPLOYEE OWNERSHIP

Lukewarm response to Osborne plan to swap shares for rights

The government has announced that it intends to proceed with its “share for rights” scheme, despite George Osborne’s plan receiving little support from employers in a consultation exercise.

A report issued today by the Department for Business, Innovation and Skills (BIS) on the consultation exercise says “a very small number of responses welcomed the scheme and suggested they would be interested in taking it up”. Those who thought there would be some take-up for the scheme, which is to be renamed the employee shareholder contract, suggested that it would be limited to micro-businesses and some growing companies.

%ADVERT%

Background

Under the proposals announced by the Chancellor on 8 October 2012 at the Conservative Party conference:

  • Employee owners will receive shares worth between £2,000 and £50,000 which will be exempt from capital gains tax.
  • Employee owners will lose their rights to unfair dismissal (except where this is automatically unfair or relates to anti-discrimination law), certain rights to request flexible working and training, and statutory redundancy pay.
  • Individuals will also need to give longer notice to return from maternity leave or adoption leave.

The consultation exercise took place between 18 October and 9 November 2012 and 209 responses were received.

Concerns

According to the BIS document Implementing employee owner status: Government response to consultation, a number of specific issues were raised through the consultation:

  • There was a strong concern that individuals were losing important employment protections and that they might be coerced to take on employee owner status. There was also a concern that employee owner status could be misused by businesses, and that the tax advantages could be abused.
  • There was a particular concern that the new status would be complex and costly to operate, with uncertainty around valuation and income tax implications for individuals. These were viewed as likely to deter take-up. The government is considering options to reduce income tax and national insurance contribution liabilities that arise when employee owners receive their shares.

Government amendments

In response to issues highlighted in the consultation, the government “intends to provide further clarity, consistency, and flexibility” – both through guidance for individuals and businesses and through the legislation which underpins the new status. On Clause 23 of the Growth and Infrastructure Bill, the government has introduced amendments to clarify the nature of the shares awarded, remove specific risks of liability on the employee owner, and ensure that shares are issued free of charge to them.

Other changes include:

  • Enabling the Secretary of State to increase the minimum share value of £2,000.
  • Removing the upper threshold of £50,000 – to allow businesses to offer more shares under the scheme, but not raising the £50,000 exemption from CGT.
  • Changing the notice period for return from additional paternity leave to 16 weeks so it is consistent with change in the notice period for return from maternity and adoption leave.
  • Allowing non UK-registered companies to benefit from the status.
  • Allowing shares to be issued by both the employing company and its parent company to ensure the scheme is sufficiently flexible to encourage widespread appeal.

Finally, following something of a backlash, the government has “reflected on the employee owner name, and consider it should be changed to better describe the status, and intend to re-name it employee shareholder.”

Reaction

Employee Ownership Association CEO Iain Hasdell said:

“We welcome news that government plans to remove the term ‘employee owner’ from the Growth and Infrastructure Bill after listening to the concerns employee owners and employee owned businesses have expressed over recent weeks. However, ministers still need to clearly differentiate between existing employee owners and shareholders and the proposed new voluntary category of worker.

“Our view remains that the label given to this new employment status needs to reflect the fact that in order to qualify, workers must give up fundamental workplace rights. The new wording now proposed by government still does not sufficiently distinguish between this initiative and genuine employee ownership or employee shareholding.

“The decision to remove the term ‘Employee Owner’ follows vocal opposition from our member businesses and the employee owners within them. Members have been alarmed at government proposals that seek to redefine the term employee owner and promotes a model in which worker rights on such matters as redundancy and unfair dismissal are removed, in return for tax breaks on shares they might own in a business in which they work.

“There is no need to dilute the rights of workers in order to grow employee ownership and no data to suggest that doing so would significantly boost the number of employee owners. Indeed all of the evidence is that employee ownership in the UK is growing and the businesses concerned thriving, because they enhance not dilute the working conditions and entitlements of employee owners.”

Want to know more?

Title: Implementing employee owner status: Government response to consultation, Department for Business, Innovation and Skills, December 2012,

Availability: You can download the report in PDF format at www.bis.gov.uk/Consultations/consultation-on-implementing-employee-owner-status?cat=closedwithresponse.