We welcome many of the measures announced in the Spring Budget to address these priorities - particularly measures which the eoa has proposed previously in our engagement with government.
At the same time, we suggest that this Budget presents missed opportunities in building a more prosperous economy; developing the role of EO, and further unlocking its impacts for businesses, employees, and our wider society.
Announcements
The cut in workers' National Insurance from 10% to 8% is a welcome measure which the Chancellor suggests will be worth £450 to the average worker per year, offsetting the freeze in income tax thresholds from April.
This coincides with other measures to support families in the UK including the continuation of the Household Support Fund for a further six months.
It is worth putting this in the context of the IFS's analysis of OBR figures, demonstrating that incomes will be no higher at the end of this Parliament than in 2019. With this in mind, we propose that employee ownership (EO) should play an important strategic role in aligning employee financial wellbeing with growing business profits and revenue.
To support SMEs, the Chancellor also announced that the VAT registration threshold will be increased from £85,000 to £90,000 from 1 April 2024. This will be welcomed by many smaller businesses who will be spared both the tax costs and the administrative burden of VAT which they disproportionately face.
The eoa also welcomes this as a sign of positive engagement with government as this is one of the measures that we have raised, alongside other partners such as the FSB, at our quarterly SME roundtables with No. 10.
Another key priority that the eoa has put forward when engaging with government has been to extend full expensing and other capital allowances. We therefore strongly welcome the announcement for draft legislation to apply full expensing to leased asset.
We will continue to develop our own proposals of how capital allowances can be used to support the EO sector in line with the tendency for EOBs to invest more than other businesses and to deliver strong economic impacts, and look forward to engaging with decision makers on this.
Finally, although the Chancellor did not announce this in his speech, the Budget coincided with government launching a consultation on its proposed Private Intermittent Securities and Capital Exchange System (PISCES).
While this is a developing proposal, this scheme could serve as a powerful mechanism for developing (and realising the benefits of) direct employee share ownership, by providing a platform where employees are able to buy shares of their companies and sell when they are already shareholders. At the same time, if targeted appropriately at EOBs, this might also serve to enable them to scale up and grow.
At the eoa, we will be considering how we will respond to this consultation, and advocate for how it can be a basis for the development of further measures to support employee share ownership (such as targeted investment reliefs aimed at employee owners, for example).
A missed opportunity
With the above measures and priorities in mind, we encourage the government to more firmly pursue growing UK's EO sector and support existing employee owned businesses (EOBs).
Drawing on evidence from recent research, EO can be an important building block for a prosperous and inclusive economy by:
- Driving productivity – EOBs 8%-12% more productive than non-EOBs.
- Unlocking growth - businesses become more profitable after transitioning to EO, and EOBs are more likely in the last five years to have seen profits grow.
- Increasing good quality employment - not only do EOBs contribute disproportionately to employment (being 50% more likely to expand their workforces than non-EOBs), but they increase employee engagement, motivation and satisfaction, making work more appealing.
- Improving personal and household finances - sharing profits with their employees is hard-wired into EOBs. In addition, they also pay higher basic salaries and do more to support their employees' financial wellbeing.
- Delivering investment - EOBs invest more in improving their products and services than other businesses, and 50% more likely to invest in R&D.
We suggest that the government has missed an opportunity by not addressing EO in the Budget. In particular, no mention was made in either the Chancellor's speech or the longer and more comprehensive budget document on the anticipated outcome of government's consultation on Taxation of Employee Trusts carried out last year.
This month marks the tenth anniversary of the publication of the 2014 Finance Act, which introduced Employee Ownership Trusts (EOTs) into legislation.
The introduction of EOTs skyrocketed the employee ownership sector, unlocking the above impacts for a much broader section of the economy, and the sector has hopes that the outcome of this consultation will present another step in future-proofing the model, ensuring it continues to enable a strong and vibrant EO sector.