A new landscape for employee ownership?
On the 17th January 2012, Nick Clegg pledged to “drive employee ownership into the bloodstream of the UK economy”. Such a step change hasn’t quite happened yet, but he did make several strong moves which helped raise the profile of a business model that’s gaining interest across the globe.
The most noteworthy policy change was the move to bestow Capital Gains Tax relief when an owner sells their business to the employees. As Policy Director of EOA at the time, I was involved in the discussions with various HMRC,BIS and Treasury officials. Danny Alexander, Chief Secretary to the Treasury, has taken an active interest in employee ownership, having visited the very successful Woollard & Henry engineering company in Aberdeen, innovative manufacturing company Gripple in Sheffield, and opened the new offices of Highland Home Carers in Inverness. He was always very supportive in discussions, but did challenge why there was a need to incentivise a sector that appeared to do very well without any help. A good question. There are some spectacular success stories demonstrating how employee owned firms can be more productive and profitable, with happier staff and customers than similar conventionally structured companies.
Tax breaks were not a factor for these owners, and I believe tax breaks will not be an incentive for future business owners. Yet, I’d judge these tax incentives to be a huge success- and they’re not even in force yet! What the tax breaks have done – already – is create tremendous interest within the adviser community. Lawyers and accountants were largely oblivious to employee ownership prior to these changes. This meant that the option was not even going on the table when the client had the business succession conversation. Trade sales, MBOs, Listing – no mention of selling to employees. Employee ownership is now on the agenda.
The Institute for Chartered Accountants in England & Wales hosted the launch of the Nuttall report in July 2012. Co-operative Development Scotland, responsible for promoting collaborative business models in Scotland, has been running a series of very well attended seminars for professional advisers interested in raising their knowledge levels on employee ownership.
This is all good. The biggest hurdle obstructing the progress of employee ownership isn’t fiscal, it’s awareness. Not enough business owners and entrepreneurs know the model exists, and if they do, there are insufficient expert advisers with the knowledge to advise and support companies through the process. By giving tax relief to business sales to employees, the government has ensured that the professions now have a duty to know about, and explore the model with their clients.
Perhaps not a new landscape yet, but it might just be a new dawn.