Brown urged to bring back tax breaks to encourage employee-owned firms

Gordon Brown will be urged tonight to reintroduce tax breaks designed to foster more employee-owned companies such as the John Lewis Partnership.

The Chancellor scrapped tax relief on company contributions to employee benefit trusts to enable them to buy shares in the 2003 Finance Act.

But in a report being launched this evening by David Miliband, the Environment Secretary, the Employee Ownership Association calls for the legislation to be repealed. It also urges the Treasury to consider new fiscal incentives to encourage more co-owned start-up companies in deprived areas and to pilot an early-stage "investment angel" fund for employee-owned businesses.

The "co-owned" sector of the economy now has a turnover of £20bn-£25bn a year and surveys have show that employee-owned businesses have higher levels of productivity and staff well-being and lower levels of absenteeism.

The report's author, Richard Reeves, criticised regional development agencies and the Government's Business Link advisory service for their ignorance of how co-owned companies worked and said that they should have at least a basic knowledge of co-ownership structures.

Publication of the report comes as John Lewis looks at an expansion strategy which could double its sales to £12bn a year and create tens of thousands of new jobs. A ten-year business plan recently approved by the company is understood to back a big expansion of the group's department stores and Waitrose supermarket chain, lifting the workforce from 65,000 to 100,000. At present, John Lewis has 26 department stores and 184 Waitrose supermarkets. John Lewis sales rose 10 per cent in the run-up to Christmas, making it one of the country's best- performing retailers.

An aggressive expansion drive by John Lewis would pose a threat to private-sector rivals such as Debenhams, House of Fraser and even the resurgent Marks & Spencer whose chief executive Stuart Rose is mulling whether to make a takeover bid for J Sainsbury.