Budget 1999: Share Ownership - New chance for workers to buy into their firms

FOR THE first time, employees will be able to buy shares in their company from their pre-tax salary as well as receiving free shares, under an ambitious "Shares for All" scheme outlined by the Chancellor yesterday.

Employees will able to put up to pounds 1,500 a year into the Chancellor's proposed employee share scheme, and could receive up to another pounds 3,000 in shares free from the company.

The scheme, which Mr Brown hopes will double employee share ownership in the UK, will be both income tax and capital gains tax free, as long as the shares are held for a minimum of three years.

Employers will get income tax and national insurance contributions relief if they choose to "match" the share purchases of their employees.

Business and industry gave a general thumbs-up to the Chancellor's plans for "employee share ownership for all" but expressed fears that the tax treatment and general red tape associated with the planned scheme might put companies off.

In particular there were fears that smaller, private companies - the entrepreneurial ones that Gordon Brown wants to encourage - might find the proposed scheme too expensive to implement.

Mr Brown said that "employees will be able, for the first time, to buy shares in their own companies from their pre-tax income. Every employer will be able to match, tax-free, what each employee buys".

The Chancellor promised to consult with accountants, lawyers and industry to fine-tune the scheme before launching it in next year's Budget.

Gill Nott, chief executive of ProShare, the organisation which encourages wider share ownership, hailed the Chancellor's proposals as "the best Budget for employee share ownership for many years".

"We are absolutely delighted that employees will be able to invest in shares out of pre-tax income and that companies will be encouraged to match that investment," Ms Nott said.

She did, however, criticise a sting in the tail to the Chancellor's plan; an income tax claw-back which may be incurred on up to 100 per cent of the value of the shares when they are sold. This would be tapered to 80 per cent if the shares are held for a minimum of 7 years, 60 per cent for 10 years, and just 40 per cent for more than 10 years.

Ms Nott said this was the only bad point in the Chancellor's otherwise excellent plans: "ProShare would like to see [the claw-back] tapered to zero."

Other features of the scheme include tax benefits and payroll savings to encourage employers to set up the scheme.

Alex Henderson, senior tax manager in the accountancy firm Arthur Andersen, said: "I think the scheme will be welcomed in the big, quoted company sector but ... it's just not going to work for unquoted companies. It's going to be difficult for them to comply with the inevitably detailed rules and to offer it across all their workforce."

Large companies were loud in their praise of the move. Lord Marshall, chairman of British Airways, said it would help speed plans to achieve 10 per cent ownership of the company by its employees. He said: "The Chancellor has come up with a highly progressive way to give an important boost to the work of raising this country's level of business competitiveness."

In contrast, Michael Jacobs, chairman of the shares schemes committee at Cisco, the City group for smaller quoted companies, doubted whether the Chancellor would be able to double the number of such schemes through his proposals, as he declared he wanted to last year. But overall Cisco welcomed the proposals.

"If you hold the shares for the qualifying period, you will pay no capital gains tax or income tax on the gain that you make on the shares. This goes well beyond tax relief on any previous employee share schemes," he said.

Mr Jacobs, who is also a partner in Nicholson Graham & Jones, a firm of City lawyers, added: "These schemes should be very attractive to smaller quoted companies."

Hugh Jory, partner at the Millfield Partnership, independent financial advisers, generally welcomed the proposals, and said his firm would seek to build them into client portfolios. But Mr Jory added: "It is also important to weigh the risks in such schemes. After all, the employee will be putting his entire investment into just one company's shares."

Along with New Labour, trades unions showed yesterday how far they had come in embracing popular capitalism. The Trades Union Congress (TUC) chief economist, Bill Callaghan, said the share plans were "an important step forward. While share ownership can help to increase employee financial involvement, it is vital that this is accompanied by genuine involvement of employees in the company's decision making processes".

The Iron & Steel Trades Confederation (ISTC) also welcomed the Chancellor's plans. Michael Leahy, general secretary, said: "We have already asked British Steel to examine a scheme which will reward employees with shares when they perform well."

Mr Brown's ambitious plans to expand share ownership face two big obstacles: the reluctance by smaller companies to embrace such schemes, and the tendency of employees to sell their shares as soon as the existing three-year minimum period expires.

At the moment more than 800 companies offer a profit-sharing scheme, covering a total of more than 1 million employees. Another 1,200 offer a savings-based shares scheme covering 1.25 million employees. All-employee share schemes are common among the biggest employers, but much less common for smaller and private companies.

Although all 30 companies which floated on the London Stock Exchange last year came up with some kind of employee share scheme, just half of them offered this to all employees.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Sales Executive / Foreign Exchange Dealer - OTE £40,000+

£16000 - £40000 per annum: Recruitment Genius: A Foreign Exchange Dealer is re...

SThree: Experienced Recruitment Consultant

£20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...

Recruitment Genius: Collections Agent

£14000 - £16000 per annum: Recruitment Genius: This company was established in...

Day In a Page

Refugee crisis: David Cameron lowered the flag for the dead king of Saudi Arabia - will he do the same honour for little Aylan Kurdi?

Cameron lowered the flag for the dead king of Saudi Arabia...

But will he do the same honour for little Aylan Kurdi, asks Robert Fisk
Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Humanity must be at the heart of politics, says Jeremy Corbyn
Joe Biden's 'tease tour': Could the US Vice-President be testing the water for a presidential run?

Joe Biden's 'tease tour'

Could the US Vice-President be testing the water for a presidential run?
Britain's 24-hour culture: With the 'leisured society' a distant dream we're working longer and less regular hours than ever

Britain's 24-hour culture

With the 'leisured society' a distant dream we're working longer and less regular hours than ever
Diplomacy board game: Treachery is the way to win - which makes it just like the real thing

The addictive nature of Diplomacy

Bullying, betrayal, aggression – it may be just a board game, but the family that plays Diplomacy may never look at each other in the same way again
Lady Chatterley's Lover: Racy underwear for fans of DH Lawrence's equally racy tome

Fashion: Ooh, Lady Chatterley!

Take inspiration from DH Lawrence's racy tome with equally racy underwear
8 best children's clocks

Tick-tock: 8 best children's clocks

Whether you’re teaching them to tell the time or putting the finishing touches to a nursery, there’s a ticker for that
Charlie Austin: Queens Park Rangers striker says ‘If the move is not right, I’m not going’

Charlie Austin: ‘If the move is not right, I’m not going’

After hitting 18 goals in the Premier League last season, the QPR striker was the great non-deal of transfer deadline day. But he says he'd preferred another shot at promotion
Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

How Isis profits from destruction of antiquities

Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

'If we lose touch we’ll end up with two decades of the Tories'

In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea
Tunisia fears its Arab Spring could be reversed as the new regime becomes as intolerant of dissent as its predecessor

The Arab Spring reversed

Tunisian protesters fear that a new law will whitewash corrupt businessmen and officials, but they are finding that the new regime is becoming as intolerant of dissent as its predecessor
King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

Academic claims King Arthur was real - and reveals where he lived

Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
Who is Oliver Bonas and how has he captured middle-class hearts?

Who is Oliver Bonas?

It's the first high-street store to pay its staff the living wage, and it saw out the recession in style
Earth has 'lost more than half its trees' since humans first started cutting them down

Axe-wielding Man fells half the world’s trees – leaving us just 422 each

However, the number of trees may be eight times higher than previously thought
60 years of Scalextric: Model cars are now stuffed with as much tech as real ones

60 years of Scalextric

Model cars are now stuffed with as much tech as real ones