HMT11

9 March 1999

PROMOTING ENTERPRISE FOR ALL : A NEW EMPLOYEE SHARE SCHEME

A new all-employee share ownership scheme is to be introduced next
year, announced Chancellor Gordon Brown today.

The scheme forms part of the Government's drive to tackle the
productivity gap and promote enterprise for all.

The Chancellor said:

    "Shareholding by employees builds a stronger sense of partnership
    with industry, as employees feel they have more of a stake in how
    their companies perform. There is evidence that companies who
    offer share ownership schemes  benefit from increased
    productivity.

    "For the first time employees will be able to buy shares in their
    company out of their pre-tax salary.  Overall, this will be the
    most tax advantaged all-employee share scheme introduced in the
    UK.

    "This new and innovative scheme is an important step forward
    towards my long- term target of doubling the number of companies
    which offer an all-employee share scheme. Its flexible and tax
    efficient features should prove attractive to both employers and
    employees alike.  The new scheme meets the objectives set out in
    the Pre-Budget Report, by promoting long-term shareholding by
    employees and widespread employee share ownership."

The main features of the scheme include:

-   for the first time employees will be able to  buy shares in their
    company from their pre-tax salary as well as receiving free
    shares;

-   greater flexibility for employers in the ways shares can be given
    to employees, including matching the shares bought by employees;

-   tax benefits and payroll savings to encourage employers to set up
    the scheme;

-   shares given to employees will be income tax free if held in the
    scheme for three years;

-   any gains arising on the shares whilst they are in the scheme
    will be tax free, if held for three years

-   shares bought by employees and held in the scheme for three years
    will normally be subject to income tax on the amount of salary
    used to buy them.

-   the longer the shares are held in the scheme, the lower the
    proportion of salary used to buy the shares will be charged to
    income tax.

An advisory group is to be set up to assist in the development of the
new scheme. The group will be made up of tax practitioners, business
people and other experts, and will work with the Inland Revenue.  The
group will also be considering the consultation responses concerning
the existing schemes and in particular, the specific needs of smaller
and unlisted companies and how these might be met.

The Government intends that draft Clauses will be published as part
of the next Pre-Budget Report, and the new scheme will be introduced
in the 2000 Finance Bill.

NOTES FOR EDITORS

1. This new scheme forms part of the Government's  commitment to the
enterprise economy by encouraging widespread employee share ownership
and long term holding of shares by employees.  A consultation
document entitled "Consultation on Employee Share Ownership" was
issued by the Treasury in  December and the new scheme takes into
account responses received.

2. The technical note issued today by the Inland Revenue is entitled,
" A new all-employee share scheme". The technical paper sets out the
scheme in more detail, but the key features of the scheme are as
follows:

-     employers can still give shares to employees;

-     employees can buy shares in their company from their pre-tax
      salary;

-     employers can match these purchases by providing free shares of
      up to twice the amount bought by the employee;

-     there will be greater flexibility in the way shares can be
      given to employees and in matching the shares bought by
      employees;

-     shares given to employees or matching shares will be income tax
      free if held in the scheme for three years;

-     tax benefits and payroll savings to encourage employers to set
      up the scheme

-     shares bought by employees and held in the scheme for three
      years will normally be subject to income tax on the amount of
      salary used to buy them. Any gains arising on the shares whilst
      they are in the scheme will be tax free, if held for three
      years;

-     retention will result in further tax advantages; dividends paid
      on the shares whilst they are in the scheme will be tax free,
      provided they are used to acquire additional shares;

3. The Treasury's consultation on employee share ownership has
resulted in over 200 replies. The new employee share scheme responds
directly to a number of the points made by consultees. The main
themes coming from the consultation were requests for flexibility and
simplification. The new scheme should be both more flexible and
simpler than the existing ones.

4. A wide variety of points were made in the consultation, many of
which concerned the existing schemes and the problems of small and
unquoted companies. These will be considered by the Inland Revenue
and the advisory group over the coming months, as part of the
continuing work on employee share schemes.

5. More details on the design of the new scheme can be found in the
press notice IR 18.


HM TREASURY PRESS OFFICE
Press Enquiries to: 0171 270 5238
Non-media enquiries to: 0171 270 4558

If you have access to the Internet you can find this news release at
http://www.hm-treasury.gov.uk. Other Treasury material can also be
found at this address.

# = pounds sterling