Stop Brexit capital flight: invest in worker ownership

On Budget day, Ed Mayo has a proposal for the Chancellor: cut controversial tax breaks for high earners and invest in co-operative ownership that will help create the inclusive economy the government says it wants.

The welfare state has not gone away, but it has been redirected. Some commentators say that tax cuts on capital gains, coupled with generous allowances, have acted as a line of welfare support for senior executives. They have also helped to fuel pay inequalities.

In Co-operatives UK’s submission to the Treasury for today’s Budget we have turned a spotlight on some of the allowances that have been running, and how the money could be better used – to widen business ownership and share profits more inclusively.

One is the Employee Shareholder Status, which has been primarily used for tax planning by high earners, rather than a scheme to spread employee ownership in a co-operative way to all of the workforce. In the Autumn Statement, late last year, the Chancellor, Philip Hammond agreed to suspend new entrants to the scheme and to bring forward plans to close the loophole completely. Over the next five years, this will save £115 million in welfare payments to the wealthy.

A second is Company Share Option Plans and a third is the Enterprise Management Incentive, which together award £220 million a year in tax breaks to just 40,000 high earners. These are expensive and exclusive schemes that benefit less than 1% of the workforce.

If they were all abolished, together that would release over £1.2 billion over five years. This is money that could be invested in a far more democratic way, with the same underlying goal of encouraging business ownership.

Here is the billion pound proposal that we are making: these funds should be reallocated to create a UK Employee Buyout Fund and a Co-operative Entrepreneurs Programme.

The Employee Buyout Fund is designed to address the growing challenge of business succession, in the context of Brexit. The option of foreign investment when home grown firms get to a certain size has long carried the risk that capital and employment will end up being offshored. But if foreign investment dries up, the need for a solution to the succession and growth challenges of thousands of firms each year becomes an urgent one.

The second proposal is a Co-operative Entrepreneurs Programme and is designed for a different group, which may get left behind in the economic shifts around Brexit. This progamme would be designed to help entrepreneurial people on low and middle incomes, coming together to own and control their own livelihoods through co-operatives and social enterprises.

There is already a working version of this – The Hive, a business support programme for co-operatives, which we run in partnership with the Co-operative Bank. It operates at a far smaller scale, but has already supported 100 co-ops to start or grow over the last year, with 150 more in the pipeline.

These are co-ops like Leeds Bread Co-op. They formed in 2012 as a worker owned business to create decent work and to provide people across the city with high quality bread. With just two members of staff five years ago, the co-op now employs 16 people, bakes over 5,000 loaves a week and delivers to more than 60 businesses around the Leeds area.

Or co-ops like Choices4Doncaster, a group of micro-providers of social care which have come together and formed a co-op of small organisations that can offer a personal and responsive service able to compete with larger players. In a chronically under-funded sector, it is creative and co-operative approaches to care such as this that can make all the difference.

Or co-ops like Harcourt Pre-School, a well-loved nursery in Bristol. When its owners decided to sell-up the staff feared their jobs and a valuable community resource was at risk and so, rather than waiting on the side-lines, set up a co-op in order to buy and run the nursery themselves together.

The co-operative sector is strong, dynamic and resilient – twice as many co-operatives survive the difficult first five years than other businesses. With more support available we could see far more people benefiting from co-operative ownership.

There is a benefits cap for those in need, which is expected this year to affect around 88,000 households across the UK. Is it a good time now to cap allowances for those who are well off, and redirect the resources towards a more inclusive economy? It is a billion pound question.