Profit related pay is not a new idea but recent simplification of the rules and changes in tax relief should make it attractive enough to be used for its intended purpose - as a trade-off for part of basic pay. By Nigel Hawkins.
A remarkable idea is in the air in Britain again. It is that employees should give up part of their basic pay in return for the promise of a bonus related to the profits of the business in which they work. That's the idea behind tax relief on profit-related pay (PRP). But so remarkable is it that for a long time no one took it seriously; not the employers nor the unions - nor even, it seemed, the Government which gave birth to it. The regulations affecting PRP were far too complicated. Above all, the tax relief offered to employees was insufficient to compensate for the risks involved.
When PRP was introduced in the 1987 Finance Act, Norman Lamont, then Financial Secretary to the Treasury said that the target was to have one million employees covered by registered schemes by 1989. The then Paymaster General, Peter Brooke, predicted that two million employees would be affected by that time. However, more than two million would be needed to have the desired macroeconomic effect on inflation and unemployment. And according to the Revenue count at the end of June 1991 only 354,000 employees were covered by PRP schemes well into the current year. The squib has been very damp.