Opinion: Liberal Reform response to ‘Shares for Rights’

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: mail@liberalreform.org.uk




* Simon McGrath is Membership Officer of Merton Lib Dems, writing in a personal capacity

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  • Kirsten de Keyser 13th Nov '12 - 11:23am

    Excellent document, but I agree with Steven about the first 5 years.
    What happens to employees joining after the first 5 years? Are they excluded from participating? This would create a two-tier workforce, which I’m sure is not your intention.
    One other point:
    Whether or not opting in is backed by a legal right, in reality employers will still be able to put pressure on job applicants. In my view that’s what makes this whole scheme a non starter. Why not just apply the John Lewis model and leave rights well alone? Once the workforce has a real interest in the health of their company, labour relations will take care of themselves.

  • Max Wilkinson 13th Nov '12 - 2:15pm

    In reality, employers will want to restrict the rights of workers regardless of any ‘clear’ right to opt out. Consequently, those who opt out won’t be looked upon favourably. Nobody wants to be the black sheep, so they will ultimately have to give in to their employer and sign away their rights for a few quid.

    We should be putting a stop to this, not looking to make changes around the edges of what is a fundamentally sinister piece of legislation.

  • Simon McGrath 13th Nov '12 - 7:52pm

    @Steven and @ Kirsten
    Thanks for your comments. The reason for the 5 year restriction is that the Government has specifically said that this measure is aimed at new firms.It sems logical therefore to restrict this chage to the first few years of a firms life.
    i think the will be a two tier workforce anyway so I dont see this as a strong reason for not restricting it.

    The John Lewis model is great and the Govt are rightly encouraging it but the vast majority of firms will stay in private ownership.

    @ Max i think this is probably unstopable which is why we have made some suggestions to improve it. i don ‘t actually think it will be that widely used in any event as i dont think the right being bought out will be worth £2000 to many employers, particualry as you cant sign away disciinations rights, so employers will rightly be conncere that would have been undair dismissal claims will become discrimination claims.

  • The proposed “rights for shares” scheme is just a dreadful idea. There’s not point in trying t tinker with it or make things better. It’s best just to oppose the whole dreadful idea.

  • Tracy Connell 14th Nov '12 - 8:56am

    @Simon – It will be stopped if I have anything to do with it! Trust me – I’m on the case! We have already had one of our MPs speak against it and I’m building support in the Lords. This silly proposal does not stand a chance!

  • Matthew Huntbach 14th Nov '12 - 11:39am

    Whatever the small print on this scheme, the headlines will be “Liberal Democrats support the right to sack without justification”. Like a lot of other stuff coming from this dreadful government (tuition fees, NHS “reform”, etc), our Parliamentarians may be toiling night and day to come up with amendments the Tories will agree to let it get through and which soften the most awful aspects of it. But so far as the general public – and particularly the ex-LibDem voting sector of it – are concerned, they might as well not have bothered. It won’t get reported, the Labour Party won’t put in their election literature “the government is not quite so bad thanks to those nice LibDems”, and any attempt we make to justify ourselves will just look like excuses.

    To a great extent, this is what being a junior coalition partner is about. That is why it was such a HUGE mistake for our party’s public image makers to have pushed the idea – and STILL to be pushing the idea – that we should put across the idea we are very pleased with where we are, that it represents the fulfillment of our dreams (or at least, 75% of them …) and so on.

  • Richard Macmillan 14th Nov '12 - 12:05pm

    A good piece! Vince Cable had said that Beecroft was dead. My concern is that this is Beecroft by the backdoor.
    I have written a blog piece on it with my concerns: reflectionsanddissections.blogspot.com

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