Jonathan Djanogly is a former Minister, and is MP for Huntingdon.
With inflation still running at over 10 per cent, the majority of employers want to be able to support their staff. But offering pay rises of this magnitude is clearly a challenge. However, there are clever ways that we can use the tax system to support people in work more efficiently and target those more likely to be facing financial difficulties.
Many progressive companies already offer their staff the chance to invest in employee share ownership plans, and around a quarter of those companies already offer employees free shares in their company.
However, these schemes tend to be for the long term and aren’t designed to support employees to get through the financial hardships many are currently facing, with money typically locked up for years before the full tax advantages can be realised.
That’s why I and a group of Conservative colleagues are calling on the Chancellor to introduce what we’ve termed the Cost of Living Share Plan in the Spring Budget.
It’s a simple idea that would allow companies to offer employees on lower incomes free shares in the company they work for – up to an agreed amount – and on which the employee would not pay any Income Tax or National Insurance if they hold the shares for an agreed (and, crucially, short) period of time – we suggest 12 months.
Tax-advantaged share schemes already exist and operate quite successfully, but as currently designed, they lack the flexibility to target the least well off. Two million employees currently invest, or save, in the UK’s two most popular plans, the Share Incentive Plan (SIP) and the Save As You Earn (SAYE).
Under the SIP, employees can buy shares in their employer and they enjoy significant tax breaks if they hold shares for 5 years or longer, or employers can offer their staff free shares, but again staff are locked in to the plans for up to 5 years incurring financial penalties for early withdrawal. What’s more, employers are obliged to make any free share offer to the entire workforce.
The Cost of Living Share Plan would be modelled on the existing Share Incentive Plan (SIP), but with some crucial differences which take into account the financial challenges many families are facing. Firstly, staff eligibility would be based on a predetermined income threshold. It would allow employers to focus free share issues exclusively on their lower-income workers who would benefit the most.
Secondly, the free shares would become fully tax efficient within a year from the award of shares, rather than the current 5 years. This way, participants would be able to access the value of their share capital by selling and converting it into cash, with no tax penalties much sooner than they are currently able to.
Thirdly, this scheme could be a short-term measure only, designed to support staff through a difficult period over the next 2 or 3 years.
Aside from benefiting the people who need it the most, employers would take on the majority of the financial burden – not the taxpayer. The tax reliefs offered by the Government are already relatively small compared with the cost borne by the employer.
Furthermore, the new plan would likely be revenue-neutral for the Treasury – it’s unlikely that companies would issue more share capital in total than they do already, rather they would use it to target those on lower incomes.
Any employees who required instant access to the shares would be able to do so, albeit forfeiting the tax benefits gained from holding the shares for 12 months. Modelling the new plan on the SIP would allow the 840 firms who already offer a SIP to also offer this new plan more quickly and easily than were they to have to sign up for a new scheme.
The Cost of Living Share Plan is a practical solution to help people in work as the value of the pound in their pocket falls. I hope the Chancellor gives this idea serious consideration as he prepares his spending plans.
Jonathan Djanogly is a former Minister, and is MP for Huntingdon.
With inflation still running at over 10 per cent, the majority of employers want to be able to support their staff. But offering pay rises of this magnitude is clearly a challenge. However, there are clever ways that we can use the tax system to support people in work more efficiently and target those more likely to be facing financial difficulties.
Many progressive companies already offer their staff the chance to invest in employee share ownership plans, and around a quarter of those companies already offer employees free shares in their company.
However, these schemes tend to be for the long term and aren’t designed to support employees to get through the financial hardships many are currently facing, with money typically locked up for years before the full tax advantages can be realised.
That’s why I and a group of Conservative colleagues are calling on the Chancellor to introduce what we’ve termed the Cost of Living Share Plan in the Spring Budget.
It’s a simple idea that would allow companies to offer employees on lower incomes free shares in the company they work for – up to an agreed amount – and on which the employee would not pay any Income Tax or National Insurance if they hold the shares for an agreed (and, crucially, short) period of time – we suggest 12 months.
Tax-advantaged share schemes already exist and operate quite successfully, but as currently designed, they lack the flexibility to target the least well off. Two million employees currently invest, or save, in the UK’s two most popular plans, the Share Incentive Plan (SIP) and the Save As You Earn (SAYE).
Under the SIP, employees can buy shares in their employer and they enjoy significant tax breaks if they hold shares for 5 years or longer, or employers can offer their staff free shares, but again staff are locked in to the plans for up to 5 years incurring financial penalties for early withdrawal. What’s more, employers are obliged to make any free share offer to the entire workforce.
The Cost of Living Share Plan would be modelled on the existing Share Incentive Plan (SIP), but with some crucial differences which take into account the financial challenges many families are facing. Firstly, staff eligibility would be based on a predetermined income threshold. It would allow employers to focus free share issues exclusively on their lower-income workers who would benefit the most.
Secondly, the free shares would become fully tax efficient within a year from the award of shares, rather than the current 5 years. This way, participants would be able to access the value of their share capital by selling and converting it into cash, with no tax penalties much sooner than they are currently able to.
Thirdly, this scheme could be a short-term measure only, designed to support staff through a difficult period over the next 2 or 3 years.
Aside from benefiting the people who need it the most, employers would take on the majority of the financial burden – not the taxpayer. The tax reliefs offered by the Government are already relatively small compared with the cost borne by the employer.
Furthermore, the new plan would likely be revenue-neutral for the Treasury – it’s unlikely that companies would issue more share capital in total than they do already, rather they would use it to target those on lower incomes.
Any employees who required instant access to the shares would be able to do so, albeit forfeiting the tax benefits gained from holding the shares for 12 months. Modelling the new plan on the SIP would allow the 840 firms who already offer a SIP to also offer this new plan more quickly and easily than were they to have to sign up for a new scheme.
The Cost of Living Share Plan is a practical solution to help people in work as the value of the pound in their pocket falls. I hope the Chancellor gives this idea serious consideration as he prepares his spending plans.