General Election 2024 – What are the major parties plans for Employee Ownership?

The UK enjoys what may be the broadest set of tax incentives in the world to encourage more ownership by employees of the companies they work for.   This, combined with high knowledge levels among companies and their advisers, a business culture where employee ownership will often thrive and a supportive infrastructure (for example the Employee Ownership Association), makes the UK a great place for employee ownership to grow.

With the UK general election coming up, Robert Postlethwaite, Founder and MD of Postlethwaite, looks at whether any of the major political parties have manifesto plans to encourage more employee ownership and whether there is any possibility of changes to the tax incentives.

Current UK tax breaks for employee ownership

Let’s start with a quick look at how the UK tax regime encourages personal share ownership.

We have four separate tax approved employee share plans:

Plans that involve all employees

• Share Incentive Plan (SIP)
• Save as you Earn (SAYE)

Plans that involve select employees and options

• Enterprise Management Incentive (EMI)
• Company Share Option Plan (CSOP)

With each of these, any gains an employee makes from share ownership are taxed as capital gains rather than income.  As the current capital gains tax (CGT) rate is 20% (sometimes as low as 10%) this will be, for most employees, more favourable than paying income tax and National Insurance.

In addition, the SIP provides another tax incentive where  employees can be given shares tax free and receive income tax relief to buy shares.

Separate to these share schemes there is also the employee ownership trust (EOT) which provides tax breaks when a company becomes majority or wholly owned for the benefit of its employees.

The EOT has its own tax breaks.  First, a company owner who sells to an EOT will pay no capital gains tax at all.  Second, the company can pay its employees an annual bonus free of income tax.  Hugely powerful incentives for both owners wishing to divest and for their employees.

What does the evidence say on employee ownership?

The most recent UK research into employee ownership was The People Powered Growth Report the which found significant evidence of the positive impact it can have on employees, the company and the wider economy.

What might happen?

Of course we don’t know – and it is only the work of fools to try and predict.  But it may be instructive to look at what the main contending UK-wide parties are saying (and not saying).

Let’s start with Labour.   

Their manifesto includes plans to double the size of the mutual and co-operative economy.  A little different from employee ownership but in my view there is space for more services to be delivered in this way.

As to their tax plans, there is no mention of changes to employee ownership tax incentives, but equally nor are there any promises not to change CGT, so we can’t entirely rule out a change in rates or even equalisation with income tax rates.

In my view, doing either of these  would be inadvisable. It would remove the purpose of all the current tax advantaged share schemes and undermine the UK’s credentials as an attractive place for a growing business.  It would also require a more wholesale review of the entire CGT relief regime.

Given the evidence of how well employee-owned companies perform, I believe it is essential to preserve tax incentives for employee ownership.

What of the Conservatives? 

They ruled out CGT increases but have no manifesto pledges relating to employee ownership.  So their employee ownership message seems to be “it’s business as usual”.

And the Liberal Democrats?

The driving force behind the creation of the EOT in the Coalition Years say they intend to:

“…[give] staff in listed companies with more than 250 employees a right to request shares, to be held in trust for the benefit of employees.”

As far as I can see, this is the only specific manifesto commitment to employee ownership and would be welcome.

And the others?

There is nothing specific from the Greens or Reform.

In summary

Whilst wider employee ownership is no magic pill, there is compelling evidence of its various benefits.  Whether you are seeking enhanced productivity, greater business resilience, a wider share in prosperity or more engaged employees, employee ownership can have a positive impact.

If a new government sees an opportunity to remove or tighten the incentives for employee ownership with the goal of raising additional revenues, it would be wise to take a long hard look at all the benefits they are helping bring about first.

“World leaders” is an overused term, but in the area of employee ownership the UK is achieving great things, with still much more to do, and it’s vital that we both retain and develop how we nurture and support more companies to choose employee ownership.