George Osborne revived controversial plans to dilute employees' rights by announcing that workers will be offered shares in their companies in return for giving up their legal rights at work.
From April next year, companies will be able to offer existing staff between £2,000 and £50,000 in tax-free shares if they surrender their rights to claim unfair dismissal, to redundancy pay, to request flexible working and time off for training. Women on maternity leave would have to give 16 weeks' notice of returning to work, rather than eight weeks as at present. In return, these workers would not pay capital gains tax on any rise in the value of the shares when they sold them.
New firms could make such contracts compulsory. People working for existing firms could not be forced to sign them – but new recruits could be made to, under legislation to be rushed through Parliament. Workers who gave up their employment rights would not be able to change their minds and exercise them in future unless their employer agreed.
The Chancellor hopes that hundreds of thousands of workers will become "employee-owners", mainly in fast-growing small- and medium-sized businesses which want a motivated and flexible workforce.
Mr Osborne's plan is a variation of a proposal recommended to Downing Street by Adrian Beecroft, the venture capitalist and Conservative Party donor, whose idea of allowing firms to "fire at will" without fear of an unfair dismissal claim was blocked by the Liberal Democrats. But Nick Clegg's party now supports the revised proposal because it is voluntary and advocates employee share ownership. Significantly, Mr Beecroft welcomed Mr Osborne's announcement, saying: "This is a creative and exciting version of proposals that I made in my report. This is a significant step towards rebuilding Britain's enterprise culture and is a real shot in the arm for Britain's entrepreneurs."
But unions accused the Government of implementing the shelved Beecroft report by the back door. Brendan Barber, General-Secretary of the Trades Union Congress, said: "We deplore any attack on maternity provision or protection against unfair dismissal."
Paul Kenny, of the GMB union, added: "George Osborne, the man who is giving a £40,000 windfall to each of the millionaire elite, has announced more attacks on the least well-off in our society and on workers' rights. Slashing people's employment rights under the guise of ownership schemes won't create jobs and it won't create growth."
Some business leaders warned that take-up of the scheme could be limited. Treasury sources admitted that big companies were unlikely to offer shares but estimated that the tax relief could cost £100m by 2017-18, based on between 50,000 and 75,000 "employee-owners" selling shares each year.
John Wright, an employment law expert, said: "You can't agree to forgo your discrimination rights. If employees volunteer for this scheme, they could still take a case for race, age or sex discrimination." He said he feared some people would feel coerced into volunteering for the conditions.
Mr Osborne unveiled his surprise move in his speech to Tory delegates in Birmingham. He also raised the prospect of further spending cuts on top of the £16bn he has pencilled in for 2015-16, saying "more hard choices" would have to be made this autumn.
There will be intense negotiations with the Liberal Democrats ahead of his autumn statement on 5 December, as the partners seek a trade-off between the £10bn of welfare cuts demanded by the Tories and the higher taxes on the rich sought by the Liberal Democrats. Mr Clegg is unlikely to back controversial cuts such as removing housing benefit from under-25s.
Mr Osborne ruled out the temporary wealth tax and the "mansion tax" on homes worth more than £2m proposed by Mr Clegg. Mr Osborne said that would amount to a "homes tax" and the Tories, as the party of home ownership, would "have no truck with it".
The rights stuff: how it would work
Under the terms of the voluntary agreement, companies would be able to give employees shares in their business if, in return, they gave up a raft of employment rights. To encourage the scheme, no capital gains tax would be charged on any profit from the shares.
Employees would be given between £2,000 and £50,000 of shares, but would have to give up their rights to claiming unfair dismissal, redundancy, flexible working and time off for training. Women would also be required to provide 16 weeks' notice of a date of return from maternity leave, instead of the current eight weeks.
Legislation to bring in the new-type contracts will come in later this year, with companies able to use them from April.