Thursday, 21 March 2013

Why were there not more revolting Lib Dem Peers on Beecroft style employee ownership

If there is one economic/industrial policy that defines our party surely it is employee ownership. From JS Mill to the Yellow Book, Ownership for All, Jo Grimond and on to Paddy Ashdown the central belief that those who work in an enterprise should share in its ownership and control is a constant. Nothing undermines that idea more that the barking idea promoted by Osborne that employees should swap their rights for shares and  thus introduce Beecroft style management via the backdoor. It tarnishes the image of employee ownership. The good news the daft idea was defeated in the Lords last night.

A petition has now been launched to try and persuade Osborne to drop the idea. Please sign up here

The bad news was that far too few Lib Dem Peers joined the rebellion. One exception was Sal Brinton who made an excellent contribution. Her speech can be found here half way down Col 605

I remain bemused with the basic philosophy behind the clause. We are told that the scheme is aimed at small businesses that want to grow fast and motivate their workforces. We have heard that employees will take a significant reduction in their employment rights and face tax and NI demands on the free shares that they have been given over £2,000 as they receive them.

I assume that the minimum of £2,000 is for ordinary shares, but given the interchange on the previous amendment I am not convinced that they would necessarily be ordinary shares. In a number of years, possibly with a following wind, they might increase in value, although the House should note that the majority of micro- and small companies do not make large returns for their shareholders in the early years. That rarely takes less than eight years or a decade. Worse than that, while the employee currently in a firm can choose not to take part, the applicant on jobseeker's allowance would have no such luxury-a point clarified in the letter from the Minister on 13 March. Either a scheme is voluntary or it is not. It is clearly not for those on jobseeker's allowance. This provision is supposed to encourage growth. We need to go back a step to the coalition agreement's commitment to growth. With such a key strategy in mind to help SMEs, we should do all that is within our power to assist them. Clause 27 would do the opposite. If an employee has the choice between a company that offers the usual employee benefits and another that exchanges these rights for shares in the company, the evidence suggests that employees would rather maintain their benefits, especially in the current recessionary climate. That was corroborated by my own experience speaking with employees working for high-tech SMEs who are bemused that they would want to demotivate their staff during the very difficult early days of a company when it is developing products and just beginning to enter the marketplace and unlikely to be making a profit, let alone anything that they could distribute to shareholders.

Directors have told me that this does not set the relationship off on the right footing. Morale is important because while the shares in an SME are unlikely to yield high returns in the first few years, if any at all-most do not become the superstars implied by the capital gains tax mentioned in the Bill-after a company is founded, especially during this period of low consumption and investment, it has to find ways of motivating employees to help get the business off the ground. It might offer flexible working hours and shares without links to a cut in employment rights. The founders of such firms have been offering shares without any removal of rights for years, and it works. Why would they take up a proposal that destabilises the employee and the company?

Additionally, should the question of unfair dismissal arise, the cost to a company could overwhelm it. Both the Law Society and the Solicitors' Journal have expressed concerns about this. Clause 27 eliminates the use of unfair dismissal tribunals which help SMEs by placing a cap on the costs of discrimination claims. Without the benefit of these tribunals, the courts could become clogged with costly discrimination suits that may drain the funds of the very businesses we are trying to support. The clause is then doubly debilitating. It removes employment rights that protect the employee from discrimination and at the same time it leaves SMEs vulnerable to very expensive discrimination claims, should an employee feel the sting of the loss of basic rights like statutory redundancy pay and rights to training and flexible working. The example given by the noble Lord, Lord Forsyth, in the previous amendment of an employee being sent up the blind alley of having to accept terms that mean that they would be forced into redundancy, but the contract saying that the shares would be lost if the employee was made redundant, absolutely exemplifies the point. I believe that a court would want to hear this argument and I do not believe that it is what the Bill intends.

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