What a change of Government means for employee share plans and employee ownership

There is generally cross-party support in the UK for encouraging employers to offer shares to employees and there are a number of statutory tax-advantaged and non-statutory arrangements for achieving this. A table at the end of this article sets out an overview of typical UK employee ownership solutions.

We expect the post-election regime to remain favourable in this regard to support the productivity agenda and attract and retain skills talent. We would anticipate, however, that there will be some tinkering and some further changes made, there are, after all, a number of pending consultations that still require a Government response.

What's in the manifestos?

Liberal Democrats

The Lib Dems are first out of the blocks on this front. Their manifesto published on 10 June states, in the Business and Jobs section that they would:

"Encourage employers to promote employee ownership by giving staff in listed companies with more than 250 employees a right to request shares, to be held in trust for the benefit of employees".

What does that mean exactly? It seems to be aligned with the use of the statutory tax-advantaged Share Incentive Plan (SIP) and envisages that, instead of employers being able to choose whether or not to offer an award of shares to employees under a SIP, employees will be given a new statutory right to request shares.

The SIP is a modular plan offering employers a choice of award methods and awarded shares held in a statutory UK trust. The share types include:

• Partnership shares, which employees purchase from pre-tax salary, providing an NIC saving and enabling opportunity for Matching Shares
• Matching shares, which can be offered at a ratio of up to 2:1 when Partnership Shares are bought (a typical offer might be buy one Partnership Share and get a Matching Share free)
• Free shares, which can be awarded to employees as a gift and without any purchase payment requirement from the employees
• Dividend shares, dividends received in respect of other SIP shares held can be reinvested in more shares

It isn’t yet clear what type of share award employees would be able to request, i.e. whether it would be a right to participate in a SIP Partnership Share offer or a right to be issued with SIP Free Shares or something new.

The Lib Dems' proposals for changes to Capital Gains Tax (CGT) are also interesting and will be welcomed by employees making modest gains when share plan awards are realised. The Conservative's reduction of the CGT annual allowance (from £12,300 to £3,000 per annum) has brought increased tax reporting administration and most penalised those making only small, modest gains that historically would not have triggered a charge or a need for reporting. When considering the proposed new rate band charges for CGT, it is worth remembering that even when the top rates of income tax and CGT were aligned, there were still reliefs and tax-advantaged treatment for certain employee shareholdings and Enterprise Management Incentives (EMI) currently provides opportunity for a low CGT rate of 10% on gains up to £1 million (lifetime limit).

Labour

We have not spotted any manifesto commitments from Labour on employee share plans and employee ownership yet but it might be worth a mention that, prior to the dissolution of Parliament, the Labour MP Sir George Howarth was sponsor for a Private Members' Bill, 'Employee Share Ownership (Reform) Bill'. The bill proposed to make provision for a new employee share ownership scheme allowing preferential access for lower income workers; to reduce the Share Incentive Plan holding period from five to three years and to require companies to include declarations in annual reports about the type of employee share ownership plans operated and the level of employee take up.

We might also mention Labour's Gordon Brown, who, whilst Chancellor of the Exchequer in 2000, introduced the Enterprise Management Incentive (EMI). EMI remains a world-leading equity incentive plan for entrepreneurial business to reward employees.   

In 2019, Labour's manifesto set out a proposal for an "Inclusive Ownership Fund", under which 10% of the shares in all large UK companies would have to be transferred to an "inclusive ownership fund" for the benefit of employees.  

We've not seen any revival of this policy from Labour yet but the 2024 manifesto commitment from the Lib Dems seems to have captured some of the essence of this, without going as far as to mandate quantums. It will therefore be interesting to see how Labour responds or what happens if there is a Labour and Lib Dem coalition Government.

Conservative

There isn't a public statement yet about the Conservative party's future intentions when it comes to employee share ownership.

However, under the recent Conservative Government there have been some recent enhancements and improvements, most notably in relation to the Company Share Option Plan (CSOP).

There have also been a number of consultations launched including:

• Non-Discretionary Tax-Advantaged Share Schemes: Call for Evidence;
• Taxation of Employee Ownership Trusts and Employee Benefit Trusts; and
• PISCES – The proposed new Private Intermittent Securities and capital Exchange System providing a new share liquidity platform for private companies. You can read our thoughts on that here. Reading between the lines, one might suspect that one aim of this PICES initiative is to liquidate the converted Future Fund Loan equity stakes now held by the Government on behalf of the taxpayer. There might therefore be a desire to see this come to fruition no matter what party wins on 4 July 2024.

The Government response to these consultations remains outstanding so we'll need to wait and see what materialises in due course.  

What should employers do in the meantime?

For now, there remains plenty to choose from when it comes to how best to provide an equity incentive to an organisation's workforce. Whether you're looking to explore employee share plans for the first time, seeking to refresh and optimise an existing arrangement or in need of a new solution due to growth and/or changed circumstances, now is the time to take action. Delaying action will most likely only increase the risk of key talent loss.

Typical UK employee share ownership arrangements include:

For further information contact Liz Hunter, Partner, Incentives.