UK Mulls Tax Breaks For Employee Ownership

by Robert Lee, Tax-News.com, London

Thursday, January 19, 2012

Continuing his attack on 'irresponsible capitalism' the UK's Deputy Prime Minister Nick Clegg has said that he wants to cut red tape and reform the tax system to encourage employee ownership.

Clegg was speaking at an event hosted by Centre Forum and the City of London. He argued that employee ownership is "a hugely underused tool in unlocking growth" and said that he is "kickstarting a drive in government to get employee ownership into the bloodstream of the British economy".

Clegg believes that employees owning a stake in their company are more engaged, with the firm in turn delivering better performance, showing lower levels of abseteeism, less staff turnover and lower prodcution costs. He pointed out that, in general, these firms see higher productivity and higher wages, and faired better in the economic downturn than other companies. Consequently, Clegg would like to make this "the decade of employee ownership."

Admitting that this is no easy task, and that it is unlikely to occur overnight, Clegg said the government will work with professional bodies and businesses to discover where the barriers lie to employee ownership. This, he said, will enable the coalition to "knock them down".

The government will appoint an independent adviser to aid the government in answering a series of questions he says the government needs answering. These are: "Do staff and business owners know enough about employee ownership? Are the accountants and lawyers who advise them taught enough about it? Is there red tape we can cut? Does the tax system treat these firms fairly? Do we need an off-the-peg model so that more ordinary people take this up?". Clegg will chair a Summit in the summer to evaluate the answers brought forward.

Clegg stressed that the details of any future government policy must be properly thought through. Nonetheless, he urged listeners to imagine "an automatic opportunity for every employee to seek to enter into a share scheme, enjoying the tax benefits that come with it, taking what for many people might seem out of their reach, and turning it into a routine decision".

Reacting to Clegg's speech, Justin Rix, Employer Solutions Partner at Grant Thornton, said: "In our experience, companies that operate employee share plans report greater employee engagement and an improvement in the interest in the performance of the business. This in turn can lead to better business performance and increased company value. We look forward to hearing more details of these proposals and would encourage the government to consult widely to ensure that new arrangements will meet the commercial requirements of business of all sizes."