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Employee Share Ownership
1 pm
Mr. Denis MacShane (Rotherham): I am grateful for the opportunity to have this Adjournment debate.
I strongly welcome the proposals in my right hon. Friend the Chancellor's Budget statement seeking to double the level of employee share ownership in the United Kingdom. I should declare an interest. I am an unpaid member of the board of Job Ownership, one of the organisations working in this sector. I have long been a supporter of employee share ownership plans, which I saw in practice in the United States--where about 9,000 firms with about 10 million employees are organised as ESOPs. Some are big, such as United Airlines, the world's fourth biggest airline, which has about 88,000 members in employment, but ESOPs have also saved small steel firms that otherwise might have gone out of business.
In addition, I saw how ESOPs, in the form of care assistant firms, gave employment to black women in the poorer parts of Boston. Those women would otherwise be without work and I was impressed with the way that they were able to make a living and feel that they owned their jobs. Also, as many hon. Members will be aware, the success of silicon valley is based on employee share ownership.
The structure works well: ESOPs have outperformed conventionally owned firms in productivity, share value and overall economic performance, both in the United States and the UK, where there are a small number of such firms. Savings put into employee-owned firms have grown faster than savings put into firms listed in the FTSE or Dow Jones indices.
We need more creativity and entrepreneurship, and more ownership of our economy, but we also need more than one model of ownership. The previous Conservative Government, in their long reign, believed in the public limited company, which is a monopoly form of ownership. I want the UK to adopt the competitive market in forms of ownership that is evident in the US. Giving employees a stake in their company seems to make the firm's success their success. It is a third way between state nationalisation and the plc, in which institutional shareholders own the stock, managers manage and workers who are not stakeholders in their own economic future do as they are told.
In 1969, almost half the UK's marketable wealth--broadly speaking, stocks and shares--was owned by individuals. Today, the figure has shrunk to just 16 per cent., according to the Office for National Statistics. As Prime Minister, Baroness Thatcher sold large chunks of the UK to Sid, but Sid's reaction was to sell on as quickly as possible to cash in the windfall.
Far from creating a share-owning society in the UK, the Conservatives presided over a remarkable concentration of ownership. Today, just three groups--insurance companies, pension funds and overseas investors--own two thirds of all the shares in UK companies. Although I have no problems with overseas investment and ownership, in the next century we should seek to return more of the ownership of Britain's marketable wealth into the hands of more of the British people, so that in the future they can be shareholders in their companies and in the country.
Some UK employee-owned companies offer interesting success stories, and I shall mention just one. I often wonder whether the Sloane rangers and Chelsea shopaholics, for whom the Peter Jones store a little way down the road from here is the sine qua non for shopping dreams, know that they support an employee-owned firm. The John Lewis Partnership is one of the world's most successful trading companies in the retail sector. If it were quoted publicly, it would be firmly in the FTSE 100 index. It owes its success to its ownership by its employees.
Ever since the first employee share ownership schemes were introduced by Lord Healey when he was Chancellor, successive Governments have sought to promote the concept. I have never fully understood why the matter has been exclusively for the Treasury. My hon. Friend the Financial Secretary, in her previous incarnation, was Minister for Small Business at the Department of Trade and Industry. I hope that she will agree, when she replies to my speech, that we need not only tax arrangements to encourage employee share ownership but the active promotion of the concept.
I was disappointed that the recent DTI document on small enterprises contained no reference to ESOPs. In the United States, ESOPs are an important part of the process of handing small and medium-sized firms on from founders or owners who want to get out of the business. Those owners look for buyers, and in this country the buyer too often will be a bigger firm happy to absorb productive capacity to limit competition. The possibility of selling to employees is commonplace in the United States, but it is not part of the culture of business succession here.
When plans are being finalised for next year's Budget, I hope that my hon. Friend the Financial Secretary will consult her colleagues at the DTI and those responsible for regional development agencies and ask them to do some hot gospelling on behalf of employee share ownership.
We have some excellent outfits in the UK. I have already mentioned Job Ownership, and wish also to mention the Employee Share Ownership centre and Pro-Share, which does extremely good work. Capital Strategies was launched a couple of years ago, and the Unity Trust bank has much expertise in the sector. Specialist accountants and lawyers have worked hard to promote different forms of ESOPs.
There is a growing European interest in the concept. The European Commission is now seriously considering promoting employee share ownership in Europe. The EU estimates that up to 700,000 small and medium-sized firms go out of business every year because there is no obvious ownership successor: they simply shut down or are absorbed because the transmission of company knowledge and marketing cannot be assured.
The problem in the former communist countries of central and eastern Europe and the former Soviet Union and its successor states is to create capitalism when there are no capitalists and a market economy when people have no experience of ownership. Employee ownership can help to bridge that gap, as it has already done in some instances in those countries.
I hope that the UK will become Europe's centre of excellence for employee share ownership and that we can export successful models to other countries in Europe.
I appeal to my hon. Friend the Minister, as she goes through the legislative process in the next 12 months, to go in for a little joined-up government on ESOPs.
My right hon. Friend the Chancellor set himself an ambitious target when he said that he wanted to double the number of ESOPs in the UK as a result of the measures to be introduced in the next Finance Bill. I welcome his decision to announce a general strategic policy objective, but then allow a year for discussion and consultation. In opposition, I sat on Finance Bill Committees and I saw how Treasury weevils hollowed out proposals to promote employee share ownership and allowed only miserable little measures to reach the statute book. The new process is more sensible and allows proper discussion and consultation.
It will be difficult to balance all the interests involved, but I hope that the proposals that my hon. Friend will take to the Chancellor for approval will be bold, simple and easy to grasp. The Government should raise the issue of employee ownership to the status of a new theory and practice for ownership and partnership, so that more British firms can be wealth creators, world beaters and job makers.
What needs to be achieved? We need to move the idea of employee share ownership and involvement to firms that are below the level of the big, FTSE-listed companies. Although many such large firms already run good share-save schemes, they are the big fish in our company pond. We must ensure that all employees have access to company shares. In any future privatisation, I should like at least 10 or 20 per cent. of the stock to go to employees. In Ireland, 20 per cent. of Telecom Eireann stock went to employees, and in France, Air France is privatising and 3 per cent. of stock is reserved for employees.
There may be a case for promoting employee buy-outs to form ESOPs in public sector operations, including some in local government. If more public services were delivered by men and women who owned the relevant organisation, there might be fewer scars on our backs and less frustration among Ministers and councillors who pull levers in Whitehall or in town halls without any result.
Partnership and trust are key concepts of British commercial history. I am talking not about industrial relations, but about fiscal relief given for decades, if not centuries, to professional partnerships to help them to promote themselves. The legal concept of a trust exists to protect wealth against too easy or frivolous dispersal. The Treasury should consider providing serious fiscal relief for employees who put part of their existing or future earnings into an ESOP. All successful market economies work on credit--paying back what one borrows from future earnings. That exciting theoretical concept underlies ESOPs as everyone involved in the economic process could take a stake in what would be earned in future rather than finding the money from the limited savings that most ordinary employees can call upon.
We need changes in company law to make it easier to establish and administer a trust as a form of ownership. Will my hon. Friend concentrate on tax relief that could be offered to an employee-owned trust and used to borrow against the company's assets? The Treasury should seek to expand ESOPs into the small and medium-sized enterprise sector. Jointly with the DTI, the Treasury should also organise regional conferences to get the ESOP message across.
Will my hon. Friend be careful not simply to expand schemes in big companies? When in opposition, I helped to expose the scam that profit-related pay became. A perfectly good idea--linking pay to a firm's performance and profits--was turned by clever financial directors of big companies into a tax-reducing dodge that cost £4 million in lost revenue without fulfilling the purpose for which the scheme was intended. The right hon. and learned Member for Rushcliffe (Mr. Clarke) was forced quickly to shut down the scheme, so we must ensure that ESOPs serve the real purpose of involving employees in their firms rather than becoming a tax-avoiding fiddle.
I should like to see made concrete the ambitions of my right hon. Friend the Chancellor of the Exchequer to double the number of participants in ESOPs and firms operating as full ESOP companies. Options are a simple way to provide incentives, especially in start-up firms, but a measured form of options would command wider support if it met three simple criteria: all employees must be able to participate; there must be a balance between options linked to a trust or a permanent form of shareholding and those that can be cashed in immediately; and fiscal relief must be limited to prevent the kind of abuse that would arise if options acted not as a true incentive but as a top-up to the handsome salary and perks of fat cats.
Like you, Mr. Deputy Speaker, and like my hon. Friend, I am a Labour Member of Parliament. By definition, we are poor. However, I have no objection to people becoming wealthy if, en route, they create wealth and spread it among others. The problem is not how many millionaires there are in South Yorkshire or in Hornsey and Wood Green--it is how few there are. If my hon. Friend's new employee share ownership package helps to create and spread more wealth, she will earn a modest place in history.
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