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Labour’s plan to force businesses to hand equity to their staff has divided opinion. What would the policy mean for UK businesses?

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The shadow chancellor John McDonnell has revealed details of Labour’s employee ownership policy which would see every company with more than 250 staff set up an “inclusive ownership fund” (IOF). Under the proposal, an IOF would own up to 10 per cent of the company’s equity on its workers’ behalf. This 10 per cent would be built up gradually, with companies providing one per cent of equity a year to the IOF over a 10-year period.

McDonnell’s reasoning behind the IOF is to broaden employees’ ownership of the shares of their  employer and help improve the recent years of stagnant wages for workers in the UK. He hopes it will increase company productivity and allow workers who are creating the wealth of a company to have a share in that wealth.

Swift criticism of the IOF has come from business lobby groups who have called the policy “draconian”. There is also a concern that it could cause UK companies to move stock exchange listings overseas.  Others see it as an indirect tax due to excess funds going to the state’s coffers. The policy could also discourage those companies with just under 250 employees from expanding over that threshold.

Conversely, there is a school of thought that employee ownership leads to benefits for both the employee and business, including an increase in productivity amongst workers where interests are aligned in this way.

What would this mean for businesses and workers alike?

There are currently around 7,000 companies in the UK with more than 250 staff who would be affected. Within these companies are around 11 million workers, who could each receive a maximum of £500 in dividends. The remaining dividend payments would be collected by the government, raising an estimated £2 billion for the Treasury.

Although many employers have voluntary schemes, imposing a mandatory scheme of this nature would be a radical change. Given the change is a proposal of the opposition government, companies do not have to be immediately concerned.  We will, however, continue to watch the political agenda for any signs that the idea takes wider hold.

If you would like to discuss whether an employee share scheme would benefit your business, please do not hesitate to contact one of our team.