BUSINESS leaders last night raised doubts about the government’s plan to let employers opt out of large chunks of employment law in return for handing workers shares in their firm.
Chancellor George Osborne yesterday told the Conservative party conference in Birmingham that the government is targeting an April 2013 launch date for the “employee-ownership” scheme, which aims to boost the economic recovery by reducing the risks associated with hiring new staff.
But his hopes of a speedy economic recovery were dealt a blow last night, as the International Monetary Fund slashed its growth outlook to a 0.4 per cent contraction this year, down from 0.2 per cent growth predicted in July.
And Sir Martin Sorrell, chief executive of advertising giant WPP, told City A.M. he had some doubts about the chancellor’s decision to focus on this area of workplace rules: “Greater labour flexibility is to be welcomed, as is lower capital gains rates and employee participation. However, the question is whether it constitutes a complete long-term strategy.
“The emphasis still needs to be equally on the strategy for the long-term and work still needs to be done on areas such as education, technology, infrastructure, immigration and tax policy,” he added.
Under the proposal workers would sacrifice their rights on unfair dismissal, redundancy tribunals and flexible working hours but will be rewarded with a stake in the company they work for. When an employee cashes in their stake they will also be given an exemption from capital gains tax on shares worth up to £50,000.
“If the employer does badly, the shares that are being given to the employee could become worthless,” said Patrick Stevens, tax partner at Ernst & Young. “Even if the ‘gain’ on the share price is relatively small, they may not have been liable for capital gains tax anyway.”
Rebecca Briam of Gannons Solicitors also felt the plans would struggle to get off the ground, in part due to arguments over the fair value of shares. “Far from saving on payroll expenses the total costs for an employer may well increase,” she said.
John Cridland, director general of the CBI, said it may be attractive for start-up firms but was “a niche idea”.
“Get shares and become owners of the company you work for,” Osborne told the party yesterday. “Owners, workers, and the taxman, all in it together – workers of the world unite.”
The scheme is aimed at fast-growing small and medium sized business, though any limited company will be allowed to take part and employers will be able to force new hires to accept the contract. The Treasury has budgeted for 50,000–75,000 people a year to cash in shares related to the scheme.
Osborne also pledged to consult on “a generous new tax regime for shale gas” to ensure that “Britain is not left behind as gas prices tumble on the other side of the Atlantic”.
Osborne’s spokesman said it would be “absolutely absurd” if the UK did not capitalise on its potentially lucrative shale gas reserves.