UK Think Tank Advocates Changes in Employee Ownership Law

In a new paper, Capital Gains: Broadening Company Ownership in the UK Economy, Matthew Lawrence and Nigel Mason of the IPPR Commission on Economic Justice propose broad policy proposals to share the benefits of capital ownership more widely. The IPPR is a progressive research policy organization representing a number of leading thinkers in the UK. The paper was vigorously endorsed in an editorial a recent edition of the Guardian. The report noted that the top 10% of the population owns 70% of the financial wealth, only 7% of UK households have one or more people owning employee shares or employee options, and that executives and board members get 31 times the ownership shares in companies with any kind of ownership plan than they would get if shares were allocated based on relative pay.

The report urges the establishment of a common wealth fund and the encouragement of more cooperatives, but also urges reform of the existing employee ownership trust (EOT) model in the UK. EOTs have many rules similar to ESOPs, including allowing sellers to the trusts in private companies to defer tax on the gain and a requirement that benefits be equitably allocated. Only EOTs owning 51% or more of the company qualify. About 150 EOTs covering 12,000 employees have been set up in the UK since the law was passed in 2014. Unlike the U.S., employees do not receive shares. Instead they get cash bonuses that are tax-free up to £3,600 per annum, provided they do not substitute for other wages or benefits. The model is the same as used in the iconic John Lewis Partnership, one of the UK's largest retailers.

The report urges that EOTs be changed to make share ownership possible, to make it possible for companies not to pay a tax of 36.5% on money used to repay loans to fund the trust (because UK tax law treats such payments as taxable dividends), and to allow additional incentives for equity investors and sellers.