Liberal Reform has responded to the BIS Consultation on ‘Employee owner’ status. Like most Lib Dems we do not see that there is any need for this and it is noticeable that no evidence has been presented that this reduction in employee rights would make any difference to growth. We are also concerned that an association in people’s mind between owning shares and losing rights will put people off owning shares in their employers, through well established plans like Save As You Earn .
We believe that there are two additional questions which need to be asked:
- How will the legislation ensure that this really is ‘voluntary’ for employees particularly for those who are joining a firm?
- How will the change be used in practice? We suspect that in many cases it will be a tax avoidance device. There may be a case for reducing the rate of capital gains tax for shares in newly formed businesses but that case should be made on its own merits. We suspect what will happen is that this will be used mainly for senior management to enable them to reduce taxes, while at the same time their employment contracts will have greater right anyway.
We have a number of suggestions, which, if the Government decides to introduce this new employee status anyway, would mitigate some of the adverse effects:
- There should be a clear right not to participate, including for new employees.
- There should be the right to ‘opt back’ into full employment rights by surrendering the shares, subject to an appropriate notice period.
- We believe that there is a high likelihood that this will be used as a tax avoidance device for senior management. In order to avoid this no Capital Gains Tax relief should be allowed for employees with a taxable income greater than £100,000 unless at least 10% of UK employees have been offered the opportunity to exchange their employment rights for shares. There should be a cap on the Capital Gains Tax relief any individual can receive of £200k.
- The ‘employee owner’ status should be restricted to new firms, only those in the first 5 years of their life should be able to offer this.
- Giving up employment rights is a serious step which should not be undertaken without understanding what it involves. Just as employees cannot give up their employment rights on termination by signing a Compromise Agreement without legal advice, they should not be able to do so when taking up Employee Owner status without legal advice on what is involved (paid for by the employer).
The most important of these is the first – that there should be a clear legal right not to participate. In his piece on Lib Dem Voice, Vince Cable said that it would be ‘entirely voluntary’. The only way to make that come true is to give an enforceable legal right not to participate.
Copies of the Liberal Reform response can be obtained by e-mailing us: [email protected]
* Simon McGrath is Chair of Merton Lib Dems, writing in a personal capacity