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Government commits to more support for employee ownership of companies


A new professional body for employee owned companies and access to 'off the shelf' legal and regulatory material are among initiatives proposed by the Government to "knock down the barriers" to employee ownership.

The Government will also seek views on how a "right to request" employee ownership could work, including when requests should be allowed and what would be fair grounds for turning down a request. It will also consider whether this should take the form of a new statutory right, or if another mechanism would be more appropriate.

The London Stock Exchange has also set out plans to create a new FTSE Employee Share Ownership Index. Its chief executive, Xavier Rolet, said that the index would "raise awareness" of the advantages to both companies and employees of employee equity ownership.

Deputy Prime Minister Nick Clegg made the announcements in response to a recently-published report (83-page / 1.1MB PDF) into employee ownership, which he commissioned from Government adviser Graeme Nuttall in January. A formal Government response will follow in the autumn, he said.

"Employee-owned firms have lower levels of absenteeism, higher productivity and growth rates and smaller gaps between the pay at the top and ordinary workers," he said. "These are important steps to help get employee ownership into the bloodstream of the British economy. We won't stop there and it won't happen overnight but, at last, we are on our way."

Employee-owned companies are those where the employees have a "significant and meaningful" stake in the company they work for, particularly by owning shares that amount to a substantial or controlling stake. Companies can be owned directly by employees through the use of employee share plans or indirectly, where shares are held collectively on behalf of the employees usually through a benefit trust.

The growth rate for employee-owned firms currently exceeds that of the rest of the economy, according to figures from trade body Co-operatives UK. The employee-owned sector grew at a rate of 1.1% over the past year, compared to 0.7% for the economy as a whole.

In a speech to the Institute of Chartered Accountants Clegg announced that a new professional body, the Institute for Employee Ownership, would be established to provide information and advice to its members. New off-the-shelf 'DIY packs' with information on legal, tax and other regulatory considerations would be made available to help companies adopt employee-owned business models quickly and easily.

The call for evidence, which he said would be published later this week, will consider the mechanics of Nuttall's proposal for a new "right to request" a share in the company's ownership. Nuttall suggested that a statutory right be created where at least 10% of a company's employees were in favour of the proposal, and that the right initially apply to companies with 250 employees or more.

In his report Nuttall listed lack of awareness and resources, including finance, as well as the existence of perceived or real legal, tax and regulatory complexities as the main barriers to the creation of more employee-owned businesses.

The John Lewis Partnership, which is owned by and distributes products between its workers, is the most prominent employee-owned company in the UK, but Nuttall said that other companies - including Arup and Swann-Morton, which manufacturers and distributes surgical scalpels - had "benefitted from decades of" the employee ownership model. The UK currently has 120 companies with significant levels of employee ownership, according to Government figures.

He added that new public sector 'mutuals', including former Department for Work and Pensions (DWP) unit My Civil Service Pension (MyCSP), were also beginning to benefit.

"These companies are in diverse business sectors, spread geographically and of varying sizes," Nuttall said. "The benefits of employee ownership are clearly demonstrated by these many UK success stories and it is now time the wider business community appreciated what employee ownership can do for business and the growth of the UK economy."

Earlier this year MyCSP became the first central government mutual when its 475 staff were 'spun off' from the DWP into the new structure. MyCSP staff share ownership of the organisation, which administers pensions for 1.5 million civil servants, along with private sector partner Xafinity Paymaster and the Government, which retained a stake in the new company.

This week Postal Affairs Minister Norman Lamb set out the Government's next steps towards converting the Post Office into a mutual, following a consultation exercise last year. 

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