The Government has recently published its One Year On Report "The Nuttall Review of Employee Ownership". Graeme Nuttall, of course, wrote the Nuttall Review as the Government's Independent adviser on Employee Ownership and is also a Partner here at Field Fisher Waterhouse. Graeme's work in this area should not to be confused with the Government's separate and controversial measures to allow employees to swap their employment law rights in exchange for shares.
There are various forms that employee ownership can take but the key ingredients are (as Nick Clegg succinctly puts it) “a big chunk of a company belonging to a significant number of staff".
The independent Nuttall Review of Employee Ownership in 2012 highlighted that companies with employee ownership produce a number of economic benefits for the business, and happier staff. These benefits include resilience during the economic downturn, faster job creation, and higher levels of commitment amongst staff. Perhaps the most famous of employee owned businesses is John Lewis, which has just posted record Christmas sales of £100 million in a week. Whilst the "Bear and the Hare" advert is taking all the plaudits, the employee owned business model behind it should not be forgotten.
The One Year On Report comments on the implementation of the recommendations within the Nuttall review, which included the need to raise awareness of employee ownership. There has been much progress. For example, Nick Clegg used the Robert Oakeshott memorial lecture as an opportunity to promote employee ownership and on 4 July 2013, the UK experienced its very first Employee Ownership Day. The FFW Employment Team also gets a mention in the report for its work to promote employee ownership.
The Government has also announced two new tax exemptions to support employee ownership, following the findings in the Nuttall Review. In July 2013 the Government opened a consultation on:
- an exemption from income tax and National Insurance Contributions on a certain amount of a bonus paid within an indirect employee ownership structure; and
- a Capital Gains Tax exemption on the disposal of a controlling interest in a company into an indirect employee ownership structure (with the aim of encouraging employee ownership as a succession solution for business owners).
The response to this consultation is expected next week.
Last week the Government launched another consultation on removing the rule against perpetuities for employee benefit trusts. A recommendation of the Nuttall Review was that employee benefit trusts should not be subject to the rule against perpetuities. This is a rule which limits the use of property beyond a certain period. The idea behind it is that one generation should not be able to dictate the future use and ownership of property and thereby restrict the freedom of later generations to deal with property as they please. Currently, for trusts created on or after 6 April 2010 there is a single perpetuity period of 125 years. There is an exception already for pension schemes. The Nuttall Review asked that if pension schemes can exist forever then why not employee benefit trusts? Anyone interested in promoting employee ownership is encouraged to reply to the consultation, to support this change. The consultation closes on 19 February 2014.
Finally, on Monday 25 November, the independent Think Tank, Tomorrow's Company, launched its report on the diversity of business models. As Dame Fiona Reynold (Master, EmmanuelCollege, Cambridge) puts it: “The form and structure of a business is increasingly influential in the way the business connects with and understands consumers, markets and longer term trends. No longer need we be confined to the conventional plc structures that have dominated for so long. This report explains the new business forms that are emerging, and why; and how they can help tomorrow’s company face the challenges of a fast-changing world. It makes fascinating reading; and compels action.” Employee ownership features prominently in the report as an example of what can be done to promote different business models.
Employee ownership may not yet be in the mainstream but promoting it maintains a head of steam!