01.10.2018

Compulsory employee share ownership schemes promised by Labour

Additional Resources: Compulsory employee share ownership schemes promised by Labour

Perhaps the best-known example of employee ownership is at the John Lewis Group (including high-end supermarket, Waitrose). The culture of employee ownership is not well-established in the UK as opposed to the United States and Spain where significant parts of the working population have a direct shareholding and voice in the companies they’re employed by.

At last week’s Labour Party Conference in Liverpool, Shadow Chancellor, John McDonnell, indicated that, if in power, they would introduce “inclusive ownership funds” that would be, in his words, “an irreversible shift in wealth power in favour of working people”.


What is an inclusive ownership fund?

All companies with more than 250 employees would have to give shares to their members of staff. They would be expected to transfer a minimum of 1% of the company’s shares to their workforces every year until that stake represent 10% of the issued shares of those businesses.

When firms make profits, they can issue dividends to their shareholders – it’s a form of profit distribution. Employees would receive the first £500 worth of dividends in a tax year with any value above that amount being transferred to the Exchequer to be used as a “social dividend” to spend on public services. Some of the cash would be distributed to public sector workers who, because of the nature of the organisation they work for, could not participate in such a scheme directly.

The Shadow Chancellor said that he expected that 11 million people a year would be paid these dividends and that the shareholding employees would “have a say over the direction of their company”.

Shares issued by larger companies to their members of staff could not be sold or traded as with shares in public limited companies listed on the Stock Exchange.

 

Reaction to the proposal

The scheme has met with different reactions depending on political stance. Right-leaning newspaper The Express ran with the headline “Labour’s WAR on business: New policies see firms paying £7BILLION a year to employee fund”.

Quoting Carolyn Fairbairn, the director of the CBI, she said that “this Labour diktat on employee share ownership will only encourage investors to pack their bags and will harm those who can least afford it”. Stephen Martin, director-general of the Institute of Directors, told the paper that the plans were “draconian” and that it could badly affect “business investment and business formation…(undermining) the functioning of UK capital markets”.

Left-leaning newspaper The Guardian’s commentator Nils Pratley believes that “the cause is excellent but the…model is just too complicated”. The paper’s main editorial applauded the approach but worried that global companies may find ways to “redistribute profits away from Britain to avoid them being used for workers.”

 

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