EOA welcomes new paper on ‘next gen EOT’ from new think tank

The EOA welcomes the first paper of new think tank Ownership at Work – Equity for All.

The paper outlines a radical plan to encourage more companies to give employees a stake in the business in which they work could create 1.5 million employee owners by 2030 and the biggest share out of wealth in a generation.

From helping to close the pension gap to allowing employees to build their own capital stake, the ideas for a next generation EOT could create a shift in wealth and ownership in the UK.

In Equity for All, author Nigel Mason claims new tax incentives are encouraging more business founders, such as Richer Sounds’ Julian Richer, Aardman Animation’s David Sproxton and Peter Lord, and Riverford Organics’ Guy Singh-Watson, to transfer a majority ownership stake in their firms to staff in preference to a trade sale or management buy-out.

The report states that, since backing the creation of tax-advantaged employee ownership trusts (EOTs) in 2014, Government has seen a doubling in the rate of employee ownership growth in five years, with EOTs now increasing at a rate of 30% annually and accounting for half of the UK’s £30 billion-plus employee owned sector.

Citing recent estimates of a notional equity value of £175,000 per employee stake in an EOT – typically pooled in a collective holding at present – the paper shows how reform could distribute some of that wealth directly to employees without undermining the model.

Published by new think-tank Ownership at Work, the report says Government should build on the success of EOTs through four reforms which have the potential to ‘transform the economy and society’.

Changes advocated in the report would:

• Make transferring the business to staff more attractive to company owners and founders
• Make EOT companies more attractive to external investors
• Allow employees to build their own capital stakes
• Permit companies to combine employee ownership with pension savings, as in the USA

In a foreword to the report, Richer Sounds founder Julian Richer, who transferred ownership of his company to staff earlier this year, claims the move was ‘the obvious and sensible thing to do’, adding ‘no one knows my business better than the people already in it, so why hand its future to someone who doesn’t know it and whose main concern may be to just run it for cash or resale?’

Julian Richer added: “To sell my business to the highest bidder would have created wealth for one or two people, instead using the EOT model we will sustain the value we create for the individual, the business and the economy for the longer term.

“The EOT paper is exciting as it takes forward an already successful idea to drive forward the spreading of wealth to potentially millions of people, which has to be a good thing.”

Author Nigel Mason, of advisors RM2, says: “As well as spreading wealth, combining employee ownership with pension savings could help close the UK’s pension gap, with current auto-enrolment rates unlikely to generate enough savings for those reaching retirement age.”

Ann Tyler, Chair of Ownership at Work, said: “I am very pleased indeed that Ownership at Work’s first published report, ‘Equity for All’, makes a number of bold and far reaching proposals to build on the Employee Ownership Trust, introduced by the Coalition Government in 2014. The report directly addresses Ownership at Work’s stated mission to promote employee ownership as an economic and social enabler.”

Deb Oxley OBE, Chief Executive of the EOA, said: “The UK employee-owned sector is now a key player in the UK economy, and it’s growing every day, so we are delighted to see Ownership at Work launch this new thinking that will stimulate more national conversations on employee ownership.

“Research continues to show that the employee ownership sector is perfectly placed to address many of the challenges currently facing the UK economy. We are calling for cross party support to look at this compelling bank of evidence. Now is the time for government to work with the EO sector and create a new national strategy for employee ownership that fosters and promotes the growth of EOBs.”

Changes proposed by the report include:

• 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)

Ownership at Work is a new independent think tank that will generate new ideas and evidence about employee ownership and contribute to the policy debate on how the economy’s fastest growing business. Forthcoming papers will look at the sector’s growing appetite for finance; the way employee ownership is changing the art of leadership; and how the model lifts company performance by transforming employee attitudes to work.