» EOA Conference 18 November 2010
» EOA Summer Dinner. 1 July 2010
» New leadership programme for co-owned firms
» Symposium launches new Cass research
» EOA member hosts debate on public services
» Probing the employee ownership effect
» Employee ownership in the manifestos
» Training EO champions

» EOA joins mutuals’ election lobbying
» Treasury Minister meets EOA leaders

Employee ownership news :

» Scottish business audience gets EO message
» Lord Mandelson takes question on Cass research
» Beeb series profiles John Lewis
» ASLEF mounts employee bid for East Coast Mainline
» Employees buy Sutcliffe Play

Publications:

» Employee-owned firms more resilient in recession
» Review of worldwide evidence conclusive on EO effect

EOA:

» Welcome to new members

Whitehall update:

» Budget 2010
Future Action
Abuse of approved share schemes
SIPS
CSOPS
Tax clearances
Release of loans
Bank payroll tax
PAYE
Entrepreneurs’ relief
Other changes

EOA tops 100 members

EOA membership has hit the 100 mark for the first time. The latest new members mean that total membership is up 39% on the same point last year. The rise has coincided with growing public awareness of employee ownership, with all three main Parties making it a hot political issue ahead of the Election.

An important date for the diary - EOA's annual Conference - takes place on Thursday 18 November. After three years at Birmingham's NEC the event, which last year attracted a record number of delegates, moves to Manchester. The city's prestigious Hilton Deansgate Hotel (pictured) has been selected as the venue.

Diary date – EOA Summer Dinner 1 July

Remember to reserve Thursday 1 July for this year’s EOA Summer Dinner at the House of Commons with guest speaker Will Hutton, chair of the new independent commission on ownership.

New leadership programme for co-owned firms

For the first time EOA is to offer member companies a leadership programme specially designed for companies with significant employee ownership. The 3-day residential programme at Oxford University, from 2-4 June, is the product of collaboration between Baxendale [the Baxi Partnership’s consulting wing], EOA and the Oxford Centre for Mutual & Employee Owned Business, in which the Association is a partner. Interactive and experiential learning, along with contributions from major figures from the employee owned sector, will feature in the programme at the University’s Kellogg College.

Symposium launches new Cass research

A joint EOA/John Lewis policy event in February saw a formidable array of speakers discuss new research findings on the performance of employee owned firms. Hosted by Institute for Government chief Sir Michael Bichard, the symposium´s keynote speakers were FT columnist John Kay and John Lewis Partnership chairman Charlie Mayfield. Professor Joseph Lampel introduced Cass´s new research data while Said Business School fellow Will Davies summarised the findings of his recent Demos paper, ’Reinventing the Firm´. Author of acclaimed ’The Spirit Level´, Richard Wilkinson was a panellist along with think tank boss Phillip Blond, Daily Telegraph writer Tracy Corrigan, and Arup trustees chair Terry Hill [pictured].

EOA member, OPM, which provides leadership and consulting advice for public services, chose the topic of employee ownership in public services for one of its evening debates for senior decision-makers and policy-makers in government. Margaret Elliott OBE, co-founder of EOA member Sunderland Home Care Associates, and Patrick Lewis, Partners´ Counsellor of the John Lewis Partnership were joined by Ed Mayo of Co-operatives UK and Phillip Blond, the self-styled Red Tory from think-tank ResPublica. A thoughtful discussion on the unique challenges of running public services as businesses and tensions with user ownership added timely fuel to this increasingly hot political debate.

OPM Briefing paper

Shadow Health Secretary Andrew Lansley MP [pictured] was keynote speaker at the Parliamentary launch of a new EOA report, ‘The employee ownership effect’, in March. Written by analysts Matrix Evidence the report was sponsored by EOA members Circle and John Lewis Partnership. Hosted by the All Party Parliamentary Group on employee ownership the reception heard from Circle chief Ali Parsa and JLP spokesman Patrick Lewis. Matrix’s study of international research confirms that employee ownership offers significant benefits to the UK, with stronger employee engagement and innovation among its by-products, EOA policy director Nigel Mason told guests.

All three main political parties have made pledges to support employee ownership in their election manifestos. Labour promises a "step change" in the role of employee-owned companies in the economy, recognising that many business owners would like to see their companies in the hands of their employees when they retire. Both the Conservatives and Liberal Democrats focus on giving workers in public services the chance to form employee-owned businesses, arguing this would increase employee engagement and therefore the quality of the service for users.

EOA statement

Workshops for employee representatives – such as elected directors or trustees – are on offer from the Baxi Partnership at cities around the UK during 2010. Covering topics such as governance, company strategy, trusts and share plans, the courses run in London [23 Sept]; Inverness [21-22 October] and Sheffield [18-19 November].

Click for more information on workshops

EOA has contributed to a Mutuals’ Manifesto as part of a coalition organised by Mutuo – the trade body for the mutuals´ sector. Together with the Building Societies Association, Co-operatives UK and the Association of Financial Mutuals, we have urged all three main Parties not to overlook mutual ownership when framing legislation and regulating markets. Too often, the needs of conventional businesses dominate government thinking, leaving mutuals and employee-owned businesses to suffer from the unintended consequences of one-size-fits-all legislation. The manifesto calls for a Minister for Mutuals in the same way that social enterprise now has a government-wide advocate in the Cabinet Office. This message got a positive response in separate meetings - attended by EOA - with Vince Cable MP and his entire Lib-Dem Treasury team, and Sarah McCarthy-Fry MP and her Labour Treasury team. The Conservative Party declined a meeting.

Mutuals Manifesto

Employee owned firms´ tax concerns were put to Treasury Minister Sarah McCarthy-Fry at a Parliamentary breakfast meeting organised by EOA in March. Leaders from five member companies, along with other Association representatives, put questions to the Minister and officials about share valuations by HMRC, share plans and the treatment of employee benefit trusts. The Minister also heard criticisms of tax inspectors’ lack of awareness of the employee ownership option and a ‘guilty till proven innocent’ official attitude to trusts. After the meeting, EOA was invited to discuss policy issues in more depth with Treasury officials. At that follow-on meeting, HM Treasury urged EOA to put forward ideas for a distinctive type of employee trust that might operate in independent private companies in a simpler and more permanent way than the current Share Incentive Plan. Treasury officials also promised to set up more regular consultation meetings with EOA

EMPLOYEE OWNERSHIP NEWS
Scottish business audience gets EO message

The founder of EOA members Childbase told an audience of Scottish business owners and public sector employers how employee ownership helped transform the company he formed with his father, former NFC boss Sir Peter Thompson, into one of the UK´s largest private providers of childcare. Chief executive Mike Thompson [pictured with 'customer'] was speaking to a Scottish Council for Development & Industry dinner in Glasgow.

Lord Mandelson takes employee ownership question

New Cass Business School research backed by John Lewis and EOA was the basis of a question in the House of Lords to Business Secretary Lord Mandelson from fellow Labour peer Lord Brooke of Alverthorpe (pictured). Briefed by EOA, Lord Brooke asked whether the research would persuade the Minister to do more to encourage employee ownership in private companies.

Read the question and Lord Mandelson’s response

Beeb series profiles John Lewis

Picking new fashion lines, opening a new store in Cardiff and selecting the new Christmas adverts were just some of the behind the scenes stories at John Lewis in a three-part series about the nation´s favourite retailer screened by BBC 2 in March. Beginning in March 2009 with the announcement of the annual bonus for the firm´s ‘partners’, the fly-on-the-wall series was filmed while recession was hitting the economy. Audiences appeared to love the programme as much as the firm – three million watched in the first week alone.

ASLEF mounts employee bid for East Coast Mainline

As part of its campaign to highlight deficiencies in the rail franchising system, train drivers´ union ASLEF is mounting an employee bid for the East Coast Mainline franchise, which was recently taken back into public ownership after the failure of the previous operator, National Express, to meet its franchise obligations. EOA policy director Nigel Mason was invited to contribute an article on employee ownership to the venerable ASLEF Locomotive Journal, the longest continuously published union paper.

ASLEF journal

EOA member Sutcliffe Play has become the UK’s first and only employee owned playground equipment manufacturer. The company, renowned for pushing the boundaries of play, is looking forward to new challenges as company chairman Robin Sutcliffe hands over ownership of the company to its employees.

Robin’s aim to maintain the company values he developed over many years have been realised with a majority of employees investing directly in shares. The buyout has been achieved with the support of specialist funders Baxi Partnership, Co-operative & Community Finance, Barclays and The Joseph Rowntree Charitable Trust.

sutcliffeplay.co.uk

PUBLICATIONS
Employee-owned firms more resilient in recession

New research by Cass Business School, sponsored by The John Lewis Partnership, looks at how employee-owned businesses performed before and during the recession. Based on an in-depth survey of senior executives and an analysis of the financial data of over 250 companies, the study finds that employee-owned firms:

• create new jobs more quickly than conventionally structured businesses - they recruit more employees at a faster rate and reward employees with higher wages;
• are nevertheless as profitable as conventional businesses;
• are more resilient: their performance is more stable over business cycles, and they have outperformed the market during the downturn;
• are also more robust: employee-owned businesses have a lower risk of business failure.

According to new research commissioned by EOA, compared to conventionally owned businesses, employee-owned firms are more productive, just as profitable, more sustainable in their growth patterns, more resilient in recessions, stay independent for longer, have lower rates of absenteeism and labour turnover and higher levels of employee engagement. To underpin the EOA´s policy work with the next government, EOA commissioned an independent review of all the existing research about employee ownership. Matrix-Evidence analysed 55 studies from around the world. The study also points to gaps in the evidence base, especially around consumer satisfaction with employee-owned businesses. Any member firm interested in sponsoring a follow-up study to plug these gaps, please contact EOA.

Matrix-Evidence report

These co-owned companies have recently become EOA members. Click the company name to go to their website.

Abacus Design Associates – consulting structural engineers
Barclay Simpson Associates – corporate governance recruitment consultants
Boydell and Brewer Group – publishers
Ecclesiastical Insurance – insurance and financial products
Entrust – business support, fund management
Kirkpatrick & Hopes – accountants
Many Happy Returns Travel – travel agency
Nixon McInnes– social media services
Perkins Slade – insurance
Turley Associates – planning and urban design consultancy services
West Highland Publishing Company – newspaper and magazine publishers

Whitehall Update is written by Graeme Nuttall [pictured], legal adviser to the EOA and tax partner with Field Fisher Waterhouse LLP.

Contact Graeme at graeme.nuttall@ffw.com

BUDGET 2010

There was a period when every Budget promoted employee share schemes. Not this year. The overall theme for employee trusts and share schemes is the need to counteract their abuse.

View 2010 Budget

There is a general warning that the Government intends to take further action to tackle tax and national insurance contributions (“NICs”) avoidance through the use of employee trusts and other vehicles to disguise payments of remuneration. Previous Whitehall Updates have given examples of what is unacceptable. "Geared growth" arrangements will, in particular, be reviewed in 2010 to ensure that income from employment is taxed "correctly". A consultation document was published on changes to the Disclosure of Tax Avoidance Schemes regime.

Anti-avoidance measures take effect from 24 March 2010 to prevent abuse of share incentives plans ("SIPs") and company share option plans ("CSOPs"). Employee owned companies are unlikely to be adversely affected.

The Employee Ownership Association worked with Mark Lazarowicz MP on his successful Private Member's bill which introduced an up-front corporation tax ("CT") deduction for SIPs. This can apply when a 10% or more shareholding is acquired from individuals by a SIP. Unfortunately schemes have developed to get the benefit of this CT deduction without any meaningful delivery of shares to employees. The anti-avoidance provision will disallow a CT deduction where a payment is made as part of a tax avoidance scheme and the main purpose is to obtain a CT deduction. This measure only affects companies claiming the Employee Share Schemes Act 2002 tax relief and should not apply to payments made for the purpose of genuinely enabling employees to obtain shares.
HM Revenue & Customs (HMRC) have confirmed that the measure on SIPs will apply in those cases where there is evidence that the company was involved in deliberate tax avoidance. It will not affect companies (the great majority) that make payments to SIP trustees with the intention of genuinely providing shares to their employees under the SIP.

CSOP share options may no longer be granted over shares in a company which is under the control of a listed company. This is to counteract "geared growth" arrangements that HMRC consider deliver additional reward to employees beyond what is intended under CSOPs. This change will obviously not affect privately owned employee owned companies.

New law applies from 24 March 2010 to counteract artificial transactions in securities. This anti-avoidance provision can tax what would otherwise be capital gains as dividends. This provision needs to be considered, in particular, by existing owners contemplating a sale of shares in a company to an employee benefit trust funded by that company.

From 24 March 2010 closely controlled companies may be denied a CT deduction on the write off or release of certain loans or advances, in particular, loans to a shareholder. The income tax treatment of such write offs is unaffected. Broadly the shareholder, even if an employee, pays income tax as if he or she had a received a dividend instead of remuneration. This favourable tax treatment had encouraged companies to write off loans to employee shareholders. The withdrawal of corporation tax relief is the Government’s response to this.

Further changes to how bank payroll tax operates were announced.

It is proposed HMRC will get the power, from 6 April 2011, to require financial security from employers where amounts due under PAYE and as NICs are "seriously at risk".

Enterprise Management Incentives ("EMI")

There has always been scope for non-UK companies to grant EMI options. A change in law to comply with EU state aid guidelines should make one of the qualifying conditions easier to satisfy. A permanent establishment in the UK is now needed rather than carrying on the qualifying trade wholly or mainly in the UK.

The effective rate of capital gains tax on gains qualifying for entrepreneurs’ relief is 10%. From 6 April 2010 the lifetime limit on qualifying gains increases from £1 million to £2 million. The qualifying conditions have not changed.

From 1 April 2010 HMRC’s Employee Shares and Securities Unit ("ESSU") has suspended the facility to file annual returns online. This is the result of an IT overhaul. Also, from 6 April 2010, ESSU's clerical team relocated from London to Nottingham. Correspondence and (paper) returns relating to approved share plans should now be sent to:

HM Revenue and Customs
Charity Assets and Residence
Employee Shares & Securities Unit
Nottingham Team
First Floor, Ferrers House
Castle Meadow Road
Nottingham
NG2 1BB

The general telephone number is 0115 974 1250. Even if a return has a London address on it, it should be sent to Nottingham. The administration of EMI options is unaffected.

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