Mr. Connarty: I am very buoyed up by my hon. Friend's comments about the position of the UK, but is he sure that that analysis of the share ownership spread is not similar to the analysis of wealth increases, in that because many people at the top have become richer it looks as though people have done much better across the spectrum?
Since the last Government's privatisation programme, large tranches of share options have been handed out to Members. One Member who is present was formerly a director of a companyin fact, she was the head of itand probably benefited from the large tranches that went to the board. Could not such factors distort the proportion of shares going to the work force on the shop floor?
Mr. Lazarowicz: My hon. Friend is right to be sceptical about any over-simplistic statistical comparison, but I do not think his fears are justified. If he wants to pursue the matter I shall be happy to give him a copy of the comprehensive report, which will doubtless allay those fears.
Nevertheless, my hon. Friend may be right to express concern. The survey showed that, both in the UK and in other EU countries, it was often the larger companiesparticularly those in the financial and service sectors with a large proportion of white-collar workersthat had implemented employee share ownership schemes. I hope that the Bill will go some way towards extending the benefits of the share incentive plan to smaller businesses.
Mr. Watson: Could not some of the older industriesI am thinking of small and medium-sized engineering firms in my Black country constituency, for instancebenefit as much as, dare I say, some of the greenfield newer technological companies in the information technology and communications sector? How can we promote the Bill to the more traditionally run companies?
Mr. Lazarowicz: My hon. Friend makes a good point. I know that he has contacts with business in his constituency. It is possible that, as others have suggested today, Members themselves could play a part in encouraging awareness of the Bill among businesses in their constituencies.
There is strong evidence that employee share ownership has a positive effect on business productivity. There are examples of that in both the EU and the United States. As the hon. Member for Arundel and South Downs pointed out, the productivity of companies with such schemes is about double that of companies without them. For instance, a £100 investment on the FTSE index in 1992 would be worth only £186 today, while the same investment in a company in the employee ownership index, with more than 10 per cent. of capital held by employees other than directors, would be worth £370.
Another recent study, by Conyon and Freeman, shows that while UK companies giving shares only to directors or senior managers experienced an increase in productivity, companies that went further and spread share ownership to all their employees achieved a productivity boost of nearly 50 per cent. more. Similar studies conducted in the US show that the increase in sales, employment and total sales per employee in companies with employee share ownership schemes is between 2.3 and 2.4 per cent. per year above what would have been expected in the absence of such schemes. The US studies also confirm that the companies experiencing the highest productivity gains combine elements of both ownership and participative management. That bears out something said earlier by my hon. Friend the Member for Edmonton (Mr. Love).
Let me now give an example that may answer a question put by my hon. Friend the Member for West Bromwich, East (Mr. Watson). Earlier this week I was contacted by David Erdal, executive director of the Baxi Partnership Limited, which is wholly owned by the Baxi Trust. The Baxi Trust has a substantial sum that it intends to use to encourage the growth of employee share ownership. Mr. Erdal told me that his organisation had recently invested £1.3 million in helping Woollard and Henry, a specialist engineering company in Aberdeen employing 26 people, to transfer shares from retiring owners to employees. He said that if the Bill had been in force, Baxi would have used the share incentive plan to buy a significant proportion of the shares, which would have greatly facilitated the financing of the buy-out.
If the buy-out had not gone ahead, the consequences for the company and indeed the area would have been dire. The only alternative to the proposal to finance an employee ownership scheme was a trade sale to a competitor who would have had no interest in maintaining the Aberdeen operation. That would probably have led to a rundown of the operation, and unemployment for the workers. The employee buy-out anchored the company in the local community, allowing it to generate extra wealth through the productivity improvements accompanying employee share ownership and to spread that wealth in the community. Over time, each employee will amass a significant amount of capital. Because of the financial strength of Woollard and Henry and the Baxi Trust, employees' savings are not put at risk.
There is a lesson to be learned from the success of the buy-out. The Baxi Trust has now been contacted by a number of companies interested in achieving a similar buy-out. In each case the aim is to use the share incentive plan as part of the financial structure. Mr. Erdal believes that the Bill will make partial transfers to employees, or complete buy-outs, much more likely. That will protect businesses and employees but also, crucially, will often help to support small and medium-sized enterprises that would otherwise be closed or run down. In so doing, the Bill may help smaller businesses, to which my hon. Friend the Member for West Bromwich, East referred, and the community as well.
It is useful to refer to the example of Wilkin and Sons, which hon. Members might recognise as the makers of Tiptree jams. The company is privately owned, has an annual turnover of about £10 million and employs about 170 people. It set up an employee benefit trust in 1989 to build up a substantial shareholding to be held on behalf of the employees. Indeed, that trust now holds 25 per cent. of the company's shares and it can benefit from the Bill's new, upfront tax reduction measures, which will make it
Those are examples of businesses that may benefit from the Bill and thereby help to spread the employee ownership model from larger companies to many smaller and medium-sized companies in the UK. However, the context of the Bill is more than just encouraging the growth of employee ownership and share ownership, important though they are. It reflects a year of work in which the co-operative movement, of which I am proud to be a member, has made a genuine impact on this legislative process.
The support of the co-operative movement has been vital, not only for the Bill, but for the success of the Bill introduced by my hon. Friend the Member for Harrow, West (Mr. Thomas), which makes important changes to the regulation of industrial and provident societies and which I understand has passed through the House of Lords.
The success of my hon. Friend's Bill and of mine is a tribute to the support and hard work of the wider co-operative movement. I pay particular tribute to Peter Hunt, national secretary of the Co-operative party, and Matt Ball, the party's parliamentary officer, who gave advice and assistance on each stage of the Bill's passage through the House.
Support for the Bill is extensive and it has been shown in sectors far beyond the co-operative movement. Important backing has come from those involved in the employee ownership movement, and I thank in particular Ann Tyler of Job Ownership Ltd. and Graeme Nuttall of Equity Incentives Ltd., a subsidiary of Field Fisher Waterhouse, for their tireless support during lobbying for and drafting of the Bill. That work went far beyond any obligations that might arise from their posts or duties, and they have helped me to understand the minutiae of the tax legislation provisions to which the Bill refers.
I thank also Peter Townsend of Cobbett's solicitors and, above all, I pay tribute to the broad coalition of people and organisations that have backed the Bill and its aims. Many hon. Members across the House received hundreds of letters from members of the John Lewis Partnership in support of the Bill, which it has continued to back, even though the measures that might have been of direct benefit to it were removed in Committee. The partnership has continued its support because it recognises that the Bill is important not just for what it does, but for what it says about Government and public backing for employee ownership and involvement.
The Baxi Trust has been very supportive, as has the Scott Bader Company Ltd. and many mutuals in the financial sector. Standard Life, which is a major company in my constituency, supports the Bill, as do the Industrial Society, the Trades Union Congress and many consumer and co-operative societies the length and breadth of the country. The Arup group, Tullis Russell and many others were also part of the wide coalition of support.
The Bill is particularly significant because it reflects a revival and, indeed, a realignment of the co-operative ideal and philosophy, which have inspired Labour and Co-operative Members in particular, although I accept that they can be shared, to a greater or a lesser degree, by many Members across the House. We have heard about the co-operative movement's history, which I thought