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SPEECH BY BARBARA ROCHE MP, FINANCIAL SECRETARY TO THE TREASURY,
AT THE EMPLOYEE SHARE OWNERSHIP CENTRE AND THE INSTITUTE OF DIRECTORS
CONFERENCE ON 14 MAY 1999
Introduction
- Delighted to be here at this conference jointly held by Employee
Share Ownership Centre and the Institute of Directors.
- I want to talk to you about the Government's proposals for a new
all-employee share ownership scheme.
- The context of the Government's proposals on employee shares is
the need to raise our productivity performance. Productivity in
the UK is lower than in other major economies - a gap of around
40% with the US and around 20% with France and Germany. For an economy
fit for the 21st century we must also strive for the
higher levels of productivity and investment that are the foundation
of a modern, knowledge based economy.
- A key incentive in raising the performance of all companies is
improving the links between company performance and individual rewards.
Giving those who create wealth a greater stake in the wealth they
create can also help foster a dynamic enterprise economy.
Employee shares
- Research evidence suggests that employee share ownership has a
positive effect on employee productivity, particularly when combined
with other means of active employer participation. This is good
for long-term company performance and so good for the economy.
- Today, only a fraction of British employees and an even smaller
minority of those outside senior management own shares in the companies
that they work. In the past, share option schemes, subsidised by
the taxpayer, have rewarded those already at the top whose risks
are low and rewards already high - such as utility chief executives
often operating in a monopoly environment.
- What we want is a targeted tax reform, to reward long-term commitment
of all employees. And so our aim is to double the number of companies
in which all employees have the opportunity to
own shares. To reach the target, we will need to see more ESO's
in the SQC sector.
- Following consultation after the Pre-Budget Report, the Chancellor
announced a new all-employee share ownership scheme in the March
Budget. Under the new programme, employees will be able, for the
first time, to buy shares in their own companies from their pre-tax
income. And every employer will be able to match, tax-free, what
each employee buys.
- This will be the most tax-advantaged all-employee share ownership
scheme Britain has ever had. And the only condition will be that
it is offered across the company's entire workforce.
- We know that industry has the hands on experience that can make
this scheme work at ground level. And that is why we have set up
an Advisory Group. This unique route brings about direct practitioner
involvement in the development of an important new scheme.
- It is a ground breaking development. What we have here is a group
that are working directly with the Revenue in the design of legislation
that they themselves will then be asked to follow.
- I am sure you know some of the respected tax practitioners who
are on the Advisory Group. The make-up of the Group covers both
small companies - for example a small recently quoted - and large
companies - as well as a member of the TUC General Council Member
and a Professor of Human Resource Management.
- And if the process works well, I will certainly look to use this
as a template for the development in other areas of policy.
- It is classic Third Way. It is in all our interests that this
scheme succeeds. And that is why working together, Government and
industry, in tandem is the best way forward. I have every confidence
that this new partnership will not only deliver real and significant
results but will catch the eye of other areas of Government.
- The advisory group will consider the detailed provisions of the
all-employee scheme and the enterprise management incentives scheme.
Draft clauses will be produced at the time of the 1999 Pre-Budget
Report and final legislation will be included in Finance Bill 2000.
The group will also consider the existing employee share ownership
schemes and the particular needs and considerations of smaller companies.
Enterprise Management Incentive
- We have also published details of a very different kind of targeted
tax cut for those who are prepared to move from secure jobs and
venture their time and effort to create wealth for our country.
The new enterprise management incentive will allow the award of
equity worth up to £100,000 for success in building up the
new path-breaking companies our economy needs.
- The proposed Enterprise Management Incentive would provide tax
relief for certain forms of equity based remuneration in smaller
higher-risk trading companies, broadly those meeting the criteria
for VCTs and EIS. It will give tax advantages to allow the award
of equity worth up to £100,000 given as part of a remuneration
package for key managers.
- The Inland Revenue published a technical note on 10 March, outlining
the details of the scheme. Again I urge you to let us know what
you think about these proposals.
Conclusion
- This Government is committed to building a dynamic and enterprising
economy. The new employee share scheme is an important element of
the Government's policy of promoting enterprise and developing package
to help promote an enterprise economy.
- I look forward to hearing about the proceedings of todays conference.
And I look forward to working with you to take forward our proposals
on employee share ownership.
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