As part of the government’s Growth and Infrastructure Bill, which is currently in Committee stage in the House of Lords, the Coalition is proposing an ‘employee shareholder scheme’. The scheme, aimed at small start-up companies, will enable employees to receive at least £2,000 of shares in the company, exempt from capital gains tax (CGT), in exchange for some of their workplace rights. The rights that employees who opted into the scheme would forgo include: the right to study or training requests and flexible hours requests, the right to appeals against unfair dismissal and the right to redundancy payments.
The alleged purpose of the scheme is to reduce expensive and time-consuming bureaucracy, thereby enabling small, fast-growing businesses to concentrate on the business of business, free from the disruption caused by accommodations to employees’ requests and appeals. The scheme is also supposed to be beneficial to employees, who gain a stake in the company, adding an inducement to see it succeed.
The problems with this scheme are twofold. Firstly, it’s ineffective and likely to worsen rather than improve businesses’ bureaucratic strain.
The appeal of the CGT incentive is not as clear as the government would have us believe. The reduction in employees’ tax liability would only apply in cases where the shares consigned were equal in value to the rights forgone. If, for example, £25,000 of shares were exchanged for £5,000 of rights, the employee would be liable to pay capital gains tax on the £20,000 surplus – taxes which that employee may not be able to pay without selling the shares that he or she acquired in the first place. Everyone is entitled to a £10,600 CGT exemption in any case, so employees would only benefit if the shares they were offered were in excess of this standard exemption.
The very idea of placing a value on rights is also problematic from a financial and legal perspective, as there is no algorithm for working out the value of rights. Companies would therefore be required to devise a system for doing this, which HMRC would then have to approve in order to calculate the extent of capital gains exemption. All this would add to rather than reduce the difficulties companies and employees face in growing their businesses, and add greater complexity to an already tortuous tax system.
Secondly, and more importantly, the scheme would be deeply unfair to employees and jobseekers.
The whole point of rights is that they are inviolable and universal (leaving aside the deeper philosophical discussion of the universality of human rights). To enact legislation that allows for curtailment of these rights is therefore nonsense, as rights by definition cannot be reduced or diluted, they can only be upheld. The real purpose of this proposal is to allow employers to hire and fire their workers with greater ease. Jobseekers, who are obliged to accept job offers, would be forced to accept shareholder-employee positions, allowing companies to exclusively employ people with second-class rights, only to then fire them without fear of appeal. Further, this proposal doesn’t cover dismissal on either health and safety or on grounds of discrimination, meaning that many claims against dismissal might still be valid. Even if neither of those grounds were appealed to, the ECHR might uphold unfair dismissal claims that British courts did not, seeing as, y’know, rights can’t be bargained off even if the government authorises it.
This scheme is characteristic of the Coalition. Its incompetence and confusion is only eclipsed by its duplicity. In appropriating the co-operative movement’s goal of employee owned and run businesses, they have corrupted and distorted a longstanding policy of the left, but have done so not for the common good, but for the good of the few who would benefit from this shambolic and injurious scheme.