The Equity Project’s criticism of John Mcdonnell’s Employee Share Ownership Proposal

Employee ownership is welcomed by all parties and from individuals across the political spectrum. However specific proposals are not consistent with the model developed by the Equity Project. 

The Equity Project is proposing a simple lesgilative change of no tax on receipt of shares whether gifted or paid part value. We also suggest that firms should aim for 25% of the workforce to own employee equity, where shares our held voluntarily and on an individual basis. 

At the Labour Party Conference in September 2018, John Mcdonnell proposed for compulsory employee share ownership schemes for companies with over 250 employees in the UK. Mr McDonnell’s proposal would have all businesses meeting this criterion to distribute 10% of their shares into an “inclusive ownership fund”. At first glance, this radical proposal seems to be highly beneficial for employees in medium to large businesses, however dividends received by individual employees would be capped at £500 per year under these plans. Any additional income over this level would enter a national fund to pay for national services and welfare. 

Mcdonnell’s proposal is not consistent with the Equity Project’s key beliefs of employee/ workforce ownership namely:

1.    Compulsory not consensual- Mcdonnell’s proposals are compulsory for all companies with over 250 employees in the UK, whilst the Equity Project believes strongly in the freedom of choice for both businesses and their workforce. 

2.    Involves the expropriation of shares from the company– Labour’s shadow chancellor’s proposal would take 10% of the shares of the businesses who met the criteria and give it to the employees without any transaction involved in the sale of shares. This has often been referred to as ‘daylight robbery’. The Equity Project believes that any transfer of shares should be consensual in any approach, whether it be gifting, the sale of shares, or as a reward. 

3.    Shares would not truly belong to the employees as individuals would not hold the shares.10% of the shares would be held in an “inclusive ownership fund”, acting similar to a trust where employees would not be able to own the shares and enjoy the transactional rights that go with ownership. The Equity Project believes that individual workers should own employee equity directly, in turn becoming members of the company and enjoy the rights that go with it and those of direct ownership.

4.    Mcdonnell’s proposals would operate as a covert tax or stealth tax by another name which might potentially harm employee share ownership. Any additional income over the cap of £500 would go towards funding national services and welfare directly harming the largest businesses in the United Kingdom. The Equity Project is campaigning for the tax breaks for companies that introduce workforce equity ownership as it understands the beneficial impact of employee equity ownership when the full dividend gain is maintained within the company. 

It is for these reasons that the Equity Project stands strongly against Mr Mcdonnell’s employee share ownership proposals.