It’s time to ‘go big’ with plans for more employee ownership

Thinking about the future of employee ownership inevitably causes reflection on our journey so far.

Whilst the EOA 40th anniversary year has given us a chance to celebrate the origins of the EOA and our current direction of travel, it was the release last week of a new paper Equity for All, authored by Nigel Mason and published by new think tank Ownership at Work, that has led me to reflect more closely on the past five years.

Just 5 years ago there were fewer than 130 employee owned businesses in the UK.

And it was back then, following the recommendations of the Nutall Review in 2012, the then coalition government Business Minister Jo Swinson oversaw the introduction of the Employee Ownership Trust (EOT) as part of the Finance Act 2014.

Since then the sector has grown to more than 370+ UK businesses that have at least 25% of their equity in the hands of their employees: 2018 saw growth of 18.5% in the sector.

More than 240 of those businesses have transitioned to employee ownership using the EOT and of these over half are 100% employee owned. 95% have more than half of the shares in an EOT, which qualifies the founder selling the business to benefit from capital gains tax exemption and allows any dividend to its employee owners to be paid tax free up to the amount of £3,600 a year.

These new EOTs employ more than 23,000 people.  With an average size of 96 employees they represent a new group of SME businesses when compared to the Top 50 Employee Owned Businesses (by size), which collectively employ more than 166,000 employee owners.

The growth in uptake of the EOT is now at 30% a year, which if continued, would see an estimated 2,000 employee owned businesses by 2030, employing an estimated 192,000 people.

This opportunity is directly supported by the EOA’s call for regional-based investment to drive awareness and capacity building of employee and worker ownership via the #1MillionOwners campaign, in partnership with Cooperatives UK.

In Equity for All, Nigel Mason suggests the Government should build on the success of EOTs through four reforms which have the potential to ‘transform the economy and society’:

  • Making contributions from a company to its EOT tax deductible, in order to pay back debt more quickly and make the transaction more attractive to exiting owners
  • Making so-called vendor loans to EOTs – where departing owners accept delayed payment for their stake – exempt from inheritance tax
  • Allowing EOTs to allocate their shares to individual employees on an equitable basis, as with the current Share Incentive Plan, instead of – as now – all stakes being pooled in a single trust
  • Allowing firms to make extra pension contributions by crediting company shares to employees’ pension accounts (as in the US)

If followed, the radical plans could spread ownership and wealth in the UK to 1.5 million employees – a 8-fold improvement on the current predictions.

When thinking about all of this, alongside delivering the action plan of the Ownership Dividend – from tackling the barriers of awareness and knowledge in the advisor and finance markets with our Finance Symposium in November, to our push for regional pilots to grow employee ownership – supported by the worked examples from the US with the Main Street Employee Ownership Act and the government-backed successful growth of employee ownership in Scotland, it feels like now really is the time for more employee ownership in the UK economy.

So looking forward at the opportunities ahead, I am reminded of the popular phrase, ‘Go big or go home’.

It’s clear that the EOA and its supporters, armed with momentum, evidence of both social and economic benefit of more employee ownership, strategic partnerships and the insight and new thinking via Ownership at Work, there is no way we are going home!