14 May 1999
SPEECH BY FINANCIAL SECRETARY TO THE TREASURY, BARBARA ROCHE MP, AT THE EMPLOYEE SHARE OWNERSHIP CENTRE AND THE INSTITUTE OF DIRECTORS CONFERENCE
Introduction
Delighted to be here at this conference jointly held by Employee Share Ownership Centre and the Institute of Directors.
I want to talk to you about the Government's proposals for a new all-employee share ownership scheme.
The context of the Government's proposals on employee shares is the need to raise our productivity performance. Productivity in the UK is lower than in other major economies - a gap of around 40% with the US and around 20% with France and Germany. For an economy fit for the 21st century we must also strive for the higher levels of productivity and investment that are the foundation of a modern, knowledge based economy.
A key incentive in raising the performance of all companies is improving the links between company performance and individual rewards. Giving those who create wealth a greater stake in the wealth they create can also help foster a dynamic enterprise economy.
Employee shares
Research evidence suggests that employee share ownership has a positive effect on employee productivity, particularly when combined with other means of active employer participation. This is good for long-term company performance and so good for the economy.
Today, only a fraction of British employees and an even smaller minority of those outside senior management own shares in the companies that they work. In the past, share option schemes, subsidised by the taxpayer, have rewarded those already at the top whose risks are low and rewards already high - such as utility chief executives often operating in a monopoly environment.
What we want is a targeted tax reform, to reward long-term commitment of all employees. And so our aim is to double the number of companies in which all employees have the opportunity to own shares. To reach the target, we will need to see more ESO's in the SQC sector.
Following consultation after the Pre-Budget Report, the Chancellor announced a new all-employee share ownership scheme in the March Budget. Under the new programme, employees will be able, for the first time, to buy shares in their own companies from their pre-tax income. And every employer will be able to match, tax-free, what each employee buys.
This will be the most tax-advantaged all-employee share ownership scheme Britain has ever had. And the only condition will be that it is offered across the company's entire workforce.
We know that industry has the hands on experience that can make this scheme work at ground level. And that is why we have set up an Advisory Group. This unique route brings about direct practitioner involvement in the development of an important new scheme.
It is a ground breaking development. What we have here is a group that are working directly with the Revenue in the design of legislation that they themselves will then be asked to follow.
I am sure you know some of the respected tax practitioners who are on the Advisory Group. The make-up of the Group covers both small companies - for example a small recently quoted - and large companies - as well as a member of the TUC General Council Member and a Professor of Human Resource Management.
And if the process works well, I will certainly look to use this as a template for the development in other areas of policy.
It is classic Third Way. It is in all our interests that this scheme succeeds. And that is why working together, Government and industry, in tandem is the best way forward. I have every confidence that this new partnership will not only deliver real and significant results but will catch the eye of other areas of Government.
The advisory group will consider the detailed provisions of the all-employee scheme and the enterprise management incentives scheme. Draft clauses will be produced at the time of the 1999 Pre-Budget Report and final legislation will be included in Finance Bill 2000. The group will also consider the existing employee share ownership schemes and the particular needs and considerations of smaller companies.
Enterprise Management Incentive
We have also published details of a very different kind of targeted tax cut for those who are prepared to move from secure jobs and venture their time and effort to create wealth for our country. The new enterprise management incentive will allow the award of equity worth up to £100,000 for success in building up the new path-breaking companies our economy needs.
The proposed Enterprise Management Incentive would provide tax relief for certain forms of equity based remuneration in smaller higher-risk trading companies, broadly those meeting the criteria for VCTs and EIS. It will give tax advantages to allow the award of equity worth up to £100,000 given as part of a remuneration package for key managers.
The Inland Revenue published a technical note on 10 March, outlining the details of the scheme. Again I urge you to let us know what you think about these proposals.
Conclusion
This Government is committed to building a dynamic and enterprising economy. The new employee share scheme is an important element of the Government's policy of promoting enterprise and developing package to help promote an enterprise economy.
I look forward to hearing about the proceedings of todays conference. And I look forward to working with you to take forward our proposals on employee share ownership.