Jonathan Djanogly is a former Justice and Business Minister, and is MP for Huntingdon.
I’ve long been a supporter of the UK’s employee share ownership schemes. For Conservatives the benefits are obvious: including widening the share owning economy, giving employees a stake in the company they work for and helping to drive up company productivity. Indeed, it was Margaret Thatcher’s Government which introduced the first all-employee share plan in 1980. However, with participation rates now falling it’s vital we introduce some much-needed reforms.
This summer the Government published a call for evidence to explore ideas for improving and simplifying the schemes. As ministers weigh up which specific reforms to introduce, there is one proposal which has the potential to be transformative – reducing the time that employees must hold in a Share Incentive Plan (SIP) from five to two years to receive the tax benefit.
The SIP was introduced 23 years ago and – unlike the British workforce – has hardly changed in all that time. Since its launch, the SIP has proved a huge success, benefiting many millions of employees. But participants are expected to hold their shares for five years: the reward for doing so is a significant tax break, and for many employee investors, a good return on investment.
However, these days many employees are put off making what they consider to be a long-term financial commitment. Many younger members of the workforce in particular don’t see themselves remaining at the same company for the subsequent five years and – as the share scheme rules stand – they are penalised if they choose to take a job elsewhere. Penalising those with the ambition to pursue new career opportunities by withdrawing tax benefits hardly sends out the sort of positive messages we should be making to those with the mind-set to seek promotion or to build up their savings.
So, it’s hardly surprising that more than 40 companies – including 20 FTSE 100s – recently wrote to the Chancellor urging him to reduce the SIP holding period to two years. They can see for themselves just how off-putting the five-year commitment is. These major UK employers include the likes of Diageo, easyJet, Legal & General, Vodafone, BAE Systems, Aviva, National Grid, Pearson and Trainline. The Chancellor has spoken recently about his intention to back British business to ‘unlock growth’. Reform of employee share ownership schemes can help to achieve this. We know that share plans are proven to improve company productivity – something that everyone agrees is vital.
What’s more, this reform would target tax relief at those employees who struggle more with the cost of living, including younger staff, the lower paid and those on part-time contracts. Making this change would help unleash a new wave of employee share ownership for the next twenty years.
Employee share plan participants are spread across the UK. Increasing the use of the SIP by all groups of employees – including removing barriers for lower paid employees – can form part of the approach towards Levelling Up, helping to tackle disparities in relative prosperity and productivity across regions in the UK.
If a Conservative Government doesn’t take the bull by the horns now – introducing some meaningful and significant reforms to all employee share ownership plans – there is a real risk they wither on the vine through neglect. The employee share plan sector, big FTSE-100s and many of my own colleagues can see the value of share plan reform. I hope Treasury ministers can also see the benefits and take action.
Jonathan Djanogly is a former Justice and Business Minister, and is MP for Huntingdon.
I’ve long been a supporter of the UK’s employee share ownership schemes. For Conservatives the benefits are obvious: including widening the share owning economy, giving employees a stake in the company they work for and helping to drive up company productivity. Indeed, it was Margaret Thatcher’s Government which introduced the first all-employee share plan in 1980. However, with participation rates now falling it’s vital we introduce some much-needed reforms.
This summer the Government published a call for evidence to explore ideas for improving and simplifying the schemes. As ministers weigh up which specific reforms to introduce, there is one proposal which has the potential to be transformative – reducing the time that employees must hold in a Share Incentive Plan (SIP) from five to two years to receive the tax benefit.
The SIP was introduced 23 years ago and – unlike the British workforce – has hardly changed in all that time. Since its launch, the SIP has proved a huge success, benefiting many millions of employees. But participants are expected to hold their shares for five years: the reward for doing so is a significant tax break, and for many employee investors, a good return on investment.
However, these days many employees are put off making what they consider to be a long-term financial commitment. Many younger members of the workforce in particular don’t see themselves remaining at the same company for the subsequent five years and – as the share scheme rules stand – they are penalised if they choose to take a job elsewhere. Penalising those with the ambition to pursue new career opportunities by withdrawing tax benefits hardly sends out the sort of positive messages we should be making to those with the mind-set to seek promotion or to build up their savings.
So, it’s hardly surprising that more than 40 companies – including 20 FTSE 100s – recently wrote to the Chancellor urging him to reduce the SIP holding period to two years. They can see for themselves just how off-putting the five-year commitment is. These major UK employers include the likes of Diageo, easyJet, Legal & General, Vodafone, BAE Systems, Aviva, National Grid, Pearson and Trainline. The Chancellor has spoken recently about his intention to back British business to ‘unlock growth’. Reform of employee share ownership schemes can help to achieve this. We know that share plans are proven to improve company productivity – something that everyone agrees is vital.
What’s more, this reform would target tax relief at those employees who struggle more with the cost of living, including younger staff, the lower paid and those on part-time contracts. Making this change would help unleash a new wave of employee share ownership for the next twenty years.
Employee share plan participants are spread across the UK. Increasing the use of the SIP by all groups of employees – including removing barriers for lower paid employees – can form part of the approach towards Levelling Up, helping to tackle disparities in relative prosperity and productivity across regions in the UK.
If a Conservative Government doesn’t take the bull by the horns now – introducing some meaningful and significant reforms to all employee share ownership plans – there is a real risk they wither on the vine through neglect. The employee share plan sector, big FTSE-100s and many of my own colleagues can see the value of share plan reform. I hope Treasury ministers can also see the benefits and take action.