Shares for rights scheme ‘a big flop’

Osborne has found it difficult to get employers' organisations to back the scheme.

“I have every expectation that when we look back at 2013 we will recognise it as having laid the foundations for a thriving and growing employee ownership sector in the UK.”

These were the words of Jo Swinson, minister for employment relations and consumer affairs, who was responsible for piloting the ‘shares for rights’ scheme.

The scheme is now proving to be an embarrassment for the coalition, and in particular George Osborne, whose ‘flagship’ policy it was when he announced it in his 2013 budget.

Osborne was convinced that basic rights to redundancy protection, the ability to go to an employment tribunal to sue for unfair dismissal, and rights to request flexible working, were holding back companies hiring new staff.

Now he and Swinson (and to a lesser extent Vince Cable, who kept his distance) are faced with the news that employers are not really interested in the scheme – as predicted by unions, employment lawyers and tax experts.

Warnings went unheeded and now the failure of the scheme has attracted the glare of attention of deputy PM Nick Clegg, who has called for the scheme to be ditched.

The ‘shares for rights’ scheme was aimed at small companies and their employees who would agree to give up some employment rights in exchange for shares in the company worth between £2,000 and £5,000.

The government offered a sweetener to persuade employees to consider taking up the ‘free shares’, such as ensuring any profits they make on shares are not subject to capital gains tax.

When the scheme was announced in the spring of 2013 it was hit with a barrage of criticism, including warnings about ‘tax avoidance’ issues and legal issues relating to shareholders rights.

Osborne found it difficult to get employers’ organisations to back the scheme. The Institute of Directors loyally backed it, but Osborne had to work the phones to get others to make even half-hearted statements. Many employers wouldn’t touch it with a barge pole.

Jo Swinson MP was given the task of getting the scheme through parliament.

In December last year civil servants responding to freedom of information requests from journalists eventually conceded they had received nineteen ‘expressions of interest from businesses’ – which could of course include such onerous tasks as a phone call asking for a leaflet!

Nick Clegg has now called it a ‘pet project’ and for it to be scrapped, saying that the money spent on it could be used to give workers tax breaks.

The Office of Budget Responsibility warned it could be used as a tax dodge that might cost the treasury as much as £1bn a year.

Lord O’Donnell, the former head of the civil service, has described the scheme ‘as a form of modern slavery’.

Employment lawyers and unions pointed out that shares in a start-up companies may be worth much less value than employment rights, any profits would be a long, long way off and worthless if a company goes belly up.

Given the low level of interest, Osborne could of course kill the scheme off. But even now the treasury are spinning that:

“The employer shareholder status is a radical policy aimed at smaller and newer companies that want to create a flexible workforce. These figures do not in any way represent take up, as it is not necessary for any company intending to use the scheme to notify the government in advance.”

The treasury would say that of course: they were expecting 20,000 to 40,000 people a year to use the scheme and it has penciled in lost revenues running to £90m in the two years to 2017/18.

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