Deputy PM says he wants to encourage more owners to sell business on to employees
Nick Clegg will propose tax breaks on bonuses handed out to staff in employee-owned firms as part of an attempt to boost what he calls the “John Lewis economy”.
In a speech to the Employee Ownership Association, the deputy prime minister will outline plans to consult in the summer on “a relief on tax on bonuses paid through benefit trusts, where a significant chunk of the business is owned by employees”.
To qualify it would be necessary for the rewards to go to the whole company and not just those at the top.
It is the first time that Clegg has gone so far as to promise a specific consultation on the issue. He will say: “Employee ownership works because it so neatly aligns incentives and puts the workers at the heart of the business.”
The ideas go beyond the budget commitment to provide £50m capital gains tax relief from next year for a majority shareholder to sell his company to his employees.
Justifying that plan, Clegg will say: “Many owners end up selling to the investor who has the largest chequebook but little regard for the traditions, employees and customers of the firm.
“Others hand the business down to their children even if that isn’t what they or their children really want. What we want to encourage is for more owners to sell the business on to those people who know the business inside out, who will go the extra mile, the wider family who have worked to build it up and contribute to its success – in other words, the employees.”
In the past year there has been a 10% growth in the number of employee-owned firms.
In common with the Tories Francis Maude and Oliver Letwin, Clegg is pushing for a diverse model of companies in the UK, including mutuals in the public sector. He will say: “A diversity of business models in an economy is important because it ensures that not all firms are structured to take short-sighted, gung-ho risks on behalf of others.
“Crucially, employee ownership can drive employee engagement by aligning the incentives of ordinary workers and the business. In practical terms, it means lower absenteeism and lower levels of staff turnover. Across public service mutuals we have seen organisations who have decreased their absenteeism by an average 20% since spin-out. Many companies spend thousands of pounds to come up with quirky ideas to motivate their staff, yet fundamentally it is the structure of their company which fails to align incentives.
“The Cass Business School concluded in 2010 that employee-owned businesses are between nine and 19% more productive than traditionally structured companies. So not only does employee ownership help build a more motivated, more committed workforce, but it improves the bottom line too.”