Even by modern standards, the run-up to Wednesday’s Budget has been a frenzy of media speculation. Will the 50p rate be cut? Will there be faster cuts to Corporation Tax? What about a mansion tax? Or a tycoon tax? Or an oligarch tax?
Me, I’m pushing for a General Anti-Avoidance Rule on misinformation.
We’re not quite at the mid-point of this parliament. The Coalition government is still in clean-up-the-mess mode. So don’t hold your breath for big new spending programmes or major tax cuts. Next year or 2014 will be the pivot.
But even so, this Budget can play a vital role in defining the new post-crash Britain. Not just economically, but culturally. As I’ve found in making the case against crony capitalism, there is a huge public appetite to rebalance the economy and restore forgotten norms of long-term investment and just reward.
This rebalancing should include a move away from the limited liability company, to create more institutional diversity in the economy. After all, one deep reason for the crash was the loss over thirty years of mutuals, partnerships and other diverse risk- and information-sharing institutions in the City of London. They were replaced by a corporate PLC monoculture which separated employee self-interest from client well-being. Last week’s revelations about Goldman Sachs (partnership 1869, flotation 1999) made the point perfectly.
The Government now has a real opportunity to redress the balance, by promoting employee ownership. This does not mean share option schemes as such; or fancier approaches to executive remuneration, of which we have too much already. It means measures that extend the core values and the culture of employee ownership. It is striking that the level of non-PLC ownership in Germany is three times that in the UK.
This “deep” employee ownership is often indirect and collective. John Lewis is an over-used example, but it makes the point perfectly: how many of its shares are directly owned by its employees? The answer is none. The shares are owned by a trust, whose beneficiaries are the staff. The firm succeeds not because individuals own shares directly, but because of its employee-led values and culture.
Deep employee ownership is not a panacea. In particular, it is ill-suited to capital intensive businesses. But the evidence for the relative value of employee ownership and mutuals is now unignorably strong. Independent evidence shows that employee-owned firms grow as fast as PLCs, are more resilient, and do better at creating and keeping jobs. They have higher levels of staff engagement and well-being, and fairer pay. Deep employee ownership works especially well in smaller knowledge-based companies, on which the UK increasingly relies.
So what should we do? First, we need a new focus on collective employee share ownership within the tax system. The taxman’s focus has long been on individual share schemes. After Thatcher’s “Tell Sid” privatisations and the dot-com boom, the third great wave of share ownership needs fiscal incentives that support genuine deep employee trusts.
This means removing current tax disincentives. But it also means positive reinforcement, via a new capital gains tax relief on businesses sold into employee ownership. Such sales are almost always below market price, because the purchasing employees rarely have much access to capital. But they create proven social value. So there is a clear case for a modest relief to act as nudge and inducement to the sellers.
Finally, we need to raise public awareness. A series of graduated reforms will do much, by forcing professional advisers to improve their knowledge of employee ownership, and keep clients briefed. But a full-scale campaign might involve the creation of co-op-style “Rochdale principles” for employee-owned firms; more work on creating a social investment asset class; and above all a new Institute of Employee Ownership, which can work through existing organisations to train employees, business owners and advisers, conduct research and promote the sector.
These are modest measures, which could be funded by rejigging existing reliefs. But their social and cultural, as well as economic, impact would be profound. The Coalition government has made a great start on public sector mutuals. This Budget could send a huge signal of long-term intent.
[A version of this article first appeared in the Financial Times]