Impact of General Election on Employee Share Schemes

Unsurprisingly, employee share schemes and employee ownership have not figured prominently during the course of the General Election campaign. However, there have been some references in the manifestos of the main UK political parties, and related pronouncements, and it is, therefore, possible to discern trends which might be followed up depending on the political complexion of the Government which takes power after 7 May.

The Conservative-led Coalition Government has already taken significant steps in encouraging employee ownership, so no further measures are expected in this area. However, the Liberal Democrats propose that employees who together own at least 5% of a company should have the right to be represented on the board. Along with the Labour party, they believe that employees should be represented on remuneration committees, where they exist. They also propose the introduction of a two-tier board structure (similar to that widely operated in Germany) which would allow greater flexibility in accommodating employee representatives.

Both the Labour party and the Liberal Democrats have criticised Employee Shareholder status and the indications are that this legislation would be repealed if they were part of an incoming Government. It is unclear, however, how soon a Finance Bill would be enacted, and whether any change would be imposed retrospectively.

Broadly, both the Conservatives and the Liberal Democrats propose to increase income tax allowances and thresholds (although the Liberal Democrats would increase the dividend tax rate for those paying income tax at more than basic rate). The Labour party has made no commitment on income tax allowances and thresholds, but would increase the additional tax rate from 45% to 50%.

Less has been said about capital gains tax, except by the Liberal Democrats who would reduce the annual exemption very significantly from its current level of £11,100 to £2,500. Any unused part of a taxpayer’s income tax allowance could, however, be applied against chargeable gains. The Liberal Democrats would also impose restrictions on the availability of entrepreneurs’ relief.

As of today, the outcome of the General Election remains uncertain. If no party has an overall majority, and deals have to be done between political parties, the above proposals may well be adjusted or dropped, depending on the circumstances. We shall update readers once the position becomes clearer.