INCREASING EMPLOYEE SHARE OWNERSHIP

A new drive to increase the number of companies offering share schemes to their workers was launched today by the Economic Secretary Patricia Hewitt.

The Minister launched a consultation document at the third Productivity Challenge Roadshow in Loughborough. The consultation seeks views on:

how the Government can encourage more companies, particularly smaller and unquoted, to offer all-employee share schemes ;
what are the existing barriers to participation in such schemes; and
how the Government can encourage longer term holding of shares by employees.

Ms Hewitt said:

"Britain's productivity lags behind that of our main competitors, as does the participation in employee share ownership schemes. These schemes have an important role to play in increasing that productivity by harnessing the ambition of employees to see the company where they work succeed.

"Currently, less than half of UK listed companies have at least one all-employee tax-advantaged scheme. We have to find out why the take-up for these schemes amongst the listed companies is as low as this. We also want to promote long term holding by the employees.

"This Government wants to see an increase in the number of companies, particularly smaller companies, that offer share schemes for all employees, and we would like to see employees building up their shareholdings in their companies over the longer term."

There are currently three tax-advantaged schemes designed to promote employee share ownership. These are:

the Approved Profit Sharing Scheme (APS);
the Save As You Earn Sharesave Scheme (SAYE); and
the Company Share Option Plan (CSOP).

At present around one million employees are given shares and a similar number are granted share options each year though these schemes. About 7 per cent of the workforce currently participates.

NOTES TO EDITORS

1. The Approved Profit Sharing (APS) scheme allows companies to make tax deductible payments to a trust which buys shares in the company and appropriates them to scheme participants. All employees (including part timers) with 5 years' service must be eligible to participate on similar terms, but most companies accept those with much shorter service. The shares must be left in trust for at least 2 years, and are free of income tax if left in trust for a further year. Currently 859 companies offer this scheme and it has one million participants.

2. The Save As You Earn Sharesave (SAYE) scheme allows employees to enter into a 3 or 5 year savings contract to save fixed monthly income sum of between 5 and 250 Pounds, receiving a tax free bonus at the end (with additional bonus if 5 years savings held on deposit for a further two year). Bonuses, equivalent to fixed rate interest, are set by the Treasury. Proceeds of savings and interest may be (but do not have to be) used to exercise - free of income tax - share options granted at the start of the contract. Options can be granted at a discount of up to 20% of the market value. As with the APS scheme, all employees (including part timers) with at least 5 years service must be entitled to participate on similar terms. Most schemes accept those with much shorter service. Currently 1,201 schemes offer SAYE schemes with 1.25 million participants.

3. The Company Share Option Plan (CSOP) allows companies to grant employees options to purchase shares at a future date at the market price of the shares at the time of grant. Each participant may be granted options over shares worth up to 30,000 Pounds at any one time. No income tax is charged on the increase in value of the shares between grant and exercise provided the two main rules are observed: options must be held for at least three years; and there must be a gap of at least 3 years between each tax-relieved exercise. The scheme is discretionary: companies can select those employees or directors to whom they wish to grant options. There are currently 3,769 companies offering SAYE with 450,000 participants.

4. Media copies of the consultation document are available from the Treasury Press Office on 0207 270 5185. Non-media copies of the consultation document are available from the Treasury Public Enquiry Unit on 0207 270 4558.

5. The Productivity Roadshow was held at BG Technology, Loughborough. There will be similar regional events throughout the UK over the next few months, as part of the Government's consultation on the Pre-Budget Report. Ministers from a number of Government departments will be involved, and they will want to discuss directly with local business people and others possible solutions for closing the productivity gap.

6. The Pre-Budget Report was published on 3 November. As well as setting out the steps needed to secure high and stable levels of employment, it forms the basis for a wide ranging consultation on the steps that need to be taken to address the UK's long-standing productivity gap.

Press Notices 1998 July to December Index