Nick Clegg calls on firms to embrace employee ownership

In his address to the City on Monday morning, the deputy PM announced that more employee-owned firms could help the UK economy to thrive.

by Rebecca Burn-Callander
Last Updated: 19 Aug 2013
Amid bitter disputes over executive pay, union strikes, daily retail gloom and flat-lining growth, Nick Clegg announced that he had the poultice for the UK’s economic wounds. ‘End the standing feud between capital and labour,’ he gushed. ‘We need more of a John Lewis economy’.

That’s quite the name-check, there.

By ‘John Lewis economy’, Clegg isn’t insisting that UK entrepreneurs jack in their existing businesses in favour of white goods, fascinators and Hush Puppies. He is referring to the partnership model behind the business. All 76,500 permanent staff own a stake in the John Lewis Partnership, sharing in profits and helping to govern the way the business grows. This results in ‘lower absenteeism, lower staff turnover, and lower production costs,’ said Clegg.

In order to facilitate this new dawn of employee ownership, Clegg pledged to cut red tape and reform the tax system. The small print on this statement will be released next week, alongside the government's full package of boardroom reforms (highly-paid directors across the land are all a-quiver).

But not everyone agress with the deputy PM’s rhetoric. Sharon Bedford, business tax partner in James Cowper’s Oxford office, believes that reforms will have to be extensive indeed to truly appeal to UK businesses. ‘For the vast majority of privately owned businesses it is a tax nightmare and offers no real incentive for employees,’ she said.

‘Because of mind-bogglingly complex changes made to the tax rules by Gordon Brown in 2003, employees may find themselves facing an upfront tax charge on receipt of any shares and then find that there is no way for them to benefit from ownership. Share ownership is also unlikely to result in any greater say in the running of their company.’

HR adviser David Barr is equally unimpressed: ‘Many people have had their fingers burned through share ownership in the last few years so engaging employees will have to be a far broader and more compelling offering.’ Of course, John Lewis isn't just about sharing out equity, it has a highly complex and interactive governance system. This kind of set-up is pretty hard to emulate wholesale.

Even Charlie Mayfield, chairman of the John Lewis Partnership, advised caution. ‘Employee ownership is not a silver bullet to the economy's ills,’ he said. ‘But it could be one solution to the problem of building a more sustainable economy built on long-term foundations.’

It is clear that if the Coalition wants to use employee ownership as the poster concept for its battle against crony capitalism, it’s got its work cut out.

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