As the leader of the Liberal Democrats, one of my aims is to address the falling social mobility and high levels of inequality that are fuelling public discontent and frustration in twenty-first century Britain.
But this doesn’t simply mean taxing the incomes of high earners, as Jeremy Corbyn’s Labour party would have it. High-earners are relatively mobile and inventive. and the yields from penal marginal tax rates are doomed to disappoint.
More fundamentally, any sensible progressive agenda for modern Britain must take into account the distribution of capital as well as that of income.
As globalisation and automation have accelerated over the past few decades, in most advanced economies – including the UK – the share of annual national income earned by employees has fallen, while that of capital has risen.
This has made the question of who owns what all the more important. As it happens, capital is even less equally distributed in the UK than income, with the wealthiest 10 per cent of households owning 45 per cent of the nation’s wealth, and the poorest half owning just nine per cent.
The gap is widening, and in practice this means fewer people with the wherewithal to get on the property ladder, start a business, or save for retirement.
According to the fashionable economist Thomas Piketty, a combination of elevated returns to capital and stagnant earnings will eventually lead to the re-emergence of stratified rentier societies, in which what you inherit and who you know are the dominant factors in your life chances. This perfect recipe for increased class resentment, and social instability is already becoming apparent.
But I want to see solutions rather than pessimistic analysis. I am fortunate to be able to draw on a liberal tradition of ideas to improve the workings of capitalism.
One of the most compelling is employee ownership. Increasing returns to capital do not exacerbate inequality if that capital itself is widely distributed. Not only that; employee-owned companies have been shown to be more productive, more motivated, and more resilient in economic downturns than other firms
The idea is not new. I grew up in York and my parents were production workers in Rowntrees and Terry’s, two Quaker-owned companies which practised an enlightened form of capitalism – including an element of worker share ownership.
However, as a report published tomorrow by the IPPR shows, employee ownership remains a niche affair in the UK. Apart from John Lewis and Arup, few of us could name a worker-owned company. And financial wealth – including company shares – is even more unequally distributed than wealth in general, with the top 10 per cent of the population owning 70 per cent of it.
In fact, despite Margaret Thatcher’s dream of creating a share-owning democracy, both individual share ownership and British pension fund ownership of UK quoted shares are at record lows, and have declined since the 1980s.
Among publicly listed companies, despite £62.4bn worth of their shares being owned by employees, roughly £60bn of this wealth belongs to the top tenth of households.
Most of this is from management buy-outs or generous executive rewards, including shares. Meanwhile, only one in 20 private companies offer employee share ownership schemes at all.
As business secretary in the coalition government, I helped to deliver useful reforms to increase the rate of employee ownership. One was the introduction of employee ownership trusts (EOTs).
By enabling a significant proportion of a company’s shares to be placed in a trust on behalf of its workforce, EOTs give employees a stake in the success of their company. Moreover, EOTs include substantial tax benefits if the stake granted to employees represents at least half of the business; in such cases the seller pays no capital gains tax at the point of transfer.
Since their introduction in 2014, there are now over 150 EOTs in the UK, covering 12,000 people in firms ranging from five to 2,500 employees.
But while the number of EOTs continues to grow, I accept that this growth should be faster, and the IPPR has useful recommendations on how to achieve this. Additional tax incentives, for example, could plausibly lead to over 20,000 EOT companies by 2030, creating three million new employee owners.
Empowering an ever-greater number of people to own the firms they work for would put Britain on a fairer footing and dispel some of the anger currently directed at capitalism and the market economy.
On its own it is not enough – separate reforms are needed to rebalance ownership of land and property, for example. And there are other models of ownership to be encouraged, such as social enterprises and mutuality.
But as part of a broader programme to transform the UK into a true capital-owning democracy, employee ownership has a key role to play.