Labour pledge to hand shares to workers ‘would cost investors £300bn’
A Labour government would effectively raise UK corporation tax to the highest in the developed world through radical share proposals that could cost investors hundreds of billions of pounds, according to a new report.
Investors could face a £300bn hit from Labour’s “inclusive ownership fund” (IOF) plan to give employees a stake in their company by transferring a tenth of shares to workers over the course of a decade.
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The policy to hand out shares to workers is set to cost pension funds roughly £31bn, while the benefit of IOFs for employees is estimated to be around £1bn, leading legal experts to warn of a potential mismatch between the cost of the policy to pension funds and the potential benefit to employees.
IOFs would also “effectively raise the UK corporation tax rate to over 31 per cent,” the report claimed, marking the highest rate in the developed world.
“The aim of this policy – giving employees an ownership stake in their companies – is laudable. However the method is entirely misconceived,” said Dan Neidle, a partner at Clifford Chance.
He added: “The cost to investors will be over £300bn, including a £31bn cost to pension funds. However employees will receive only around £1bn per year. This is an astonishing mismatch between the cost and the benefit. There are many better ways to achieve Labour’s aim, such as broadening existing employee share scheme rules and creating better incentives for businesses to adopt them.”
The figures, which were extrapolated from the Office for National Statistics and compiled by law firm Clifford Change alongside the FT, suggested that under the proposal proceeds at many UK-headquartered groups are likely to relocate from the UK, particularly groups that have a limited UK presence.
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At least £125bn of losses would be borne by UK investors, while US investors would face a £100bn hit.
The IOF proposals were announced by shadow chancellor John McDonnell at last year’s party conference.
A spokesperson for John McDonnell said: “Labour is proud of our 2017 manifesto and the enormous increase in the Labour vote which it helped secure. Ahead of the next election we will lay out our programme to really end austerity, eliminate in-work poverty and drive up living standards across the UK economy.”