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Employee Ownership

Volume 552: debated on Tuesday 6 November 2012

4. What assessment he has made of the fiscal implications of the Government’s proposed employee-owner scheme. (126521)

6. What recent representations he has received from businesses on the fiscal implications of employee ownership. (126523)

The Government expect that the scheme will cost up to £100 million in 2017-18. The initial estimate will be refined following the Department for Business, Innovation and Skills consultation on the implementation of the new employee-owner status, which involves engagement with business and others and will close on 8 November. The annual breakdown of the estimated Exchequer cost of the policy will then be published at the autumn statement once it has been certified by the Office for Budget Responsibility.

Will the Minister update the House on the response he has had from businesses and business organisations about the new employee organisation ownership scheme?

I am pleased to tell the House that the likes of the Federation of Small Businesses, the British Chambers of Commerce and the Institute of Directors have warmly welcomed the proposal, which will help entrepreneurs and start-up businesses.

Studies have shown that employee-owned companies grow as fast as limited companies, are more resilient and better at creating and keeping jobs, and have higher levels of staff well-being and fairer pay, which means that they are proven to create social value. As well as removing current tax incentives, will the Government consider a new capital gains tax relief for businesses sold into employee ownership?

My hon. Friend will be aware of the Nuttall review, which reported last week. The Treasury is also considering its role in helping employee ownership to support growth as well as options to remove barriers, including tax barriers. That work is being considered in the run-up to the autumn statement.

Does the Minister agree with the chief executive of Sainsbury’s, who said that “trading employment rights” for company shares is

“not what we should be doing”?

What Sainsbury’s does is a matter for Sainsbury’s, but I also point out the comments made by the likes of the leaders of the Federation of Small Businesses, the British Chambers of Commerce and the Institute of Directors, who have said that this measure will help entrepreneurs, start-up businesses and the fast-growing companies that we need. Surely the whole House should welcome that.

Given that the Government have been keeping extremely mum about the tax avoidance implications of the scheme and that it looks like a wide-open tax loophole for the better off, what capital gains tax avoidance does he estimate it will create?

In the design of the scheme we will take steps to deal with tax avoidance opportunities to ensure that we do not create any loopholes, but this is a scheme that will encourage entrepreneurs and start-ups to provide businesses with an opportunity to expand rapidly, and it is exactly the sort of flexible approach that this country needs in the current economic climate.

Will the Minister clarify the status of the idea of trading employee rights for share ownership? It has been described as a voluntary scheme, but does the Minister accept that it will swiftly become a de facto compulsory scheme? What level of employee shareholding is anticipated? The media have speculated that it could range from 2,000 from 50,000. It might be acceptable at 50,000, but it would be very different at 2,000.

There will be a range of options—the minimum is 2,000, and the maximum is 50,000—but this is not going to be a matter that is compulsory. It will not be the right answer for every business, but there are some businesses that need flexibility to find employee status somewhere between a full employee and someone who is self-employed such as a partner, as many hundreds of thousands of people are. I think that it is a sensible, pragmatic response.