Treasury keen to boost John Lewis-style ownership

Consultation on tax break for worker shares follows evidence businesses owned by staff are up to 19% more productive

The Treasury is hoping to encourage a wave of John Lewis-style businesses by launching a consultation on £50m worth of tax breaks for employee-owned companies.

The government wants to make it easier for entrepreneurs to hand ownership of their companies to employees amid evidence that businesses owned and influenced by workers, such as the department store group, have proved more resilient during the economic downturn.

Chief secretary to the Treasury Danny Alexander said: "The employee ownership sector has huge potential and the government wants to support it as much as possible. Employee ownership is of significant benefit to the wider economy, through increased growth and business success and this business model will also add greater diversity to our economy."

Employee-owned businesses outperformed the UK economy in 2012 as they benefited from a measured approach that led to more investment, greater productivity and lower staff turnover. The Cass Business School concluded in 2010 that employee-owned businesses are up to 19% more productive than traditionally structured companies.

The John Lewis Partnership (JLP) is owned via thousands of employees through a trust.Chancellor George Osborne announced in this year's budget that the government would provide £50m in 2014, and the same amount in 2015, to support employee ownership. Alexander will say on Thursday that the government will provide tax relief that is "supportive and effective".

The Treasury will consult on offering capital gains tax relief when a controlling stake in a business is sold to employees collectively, rather than to individual shareholders.

A second tax break would allow employee-owned companies to pay staff a tax- and national insurance-free bonus each year. At present, payments such as the annual John Lewis staff bonus are taxed at up to 40%, the same level as the rest of their pay, whereas dividend payments to shareholders in publicly listed companies are taxed at 20% and are not subject to National Insurance. Alongside the Treasury consultation, the department for business, innovation and skills is launching national employee ownership day.

The recent success of The John Lewis Partnership (JLP), which is owned via thousands of employees through a special trust, has helped drive new interest in employee ownership with a 10% increase in the amount of companies converting last year.

Sir Charlie Mayfield, chairman of JLP and president of the Employee Ownership Association (EOA) which represents over 150 businesses controlled by their staff, welcomed the government support. He said: "Employee ownership is not just a nice thing to do but a better way of doing business." Mayfield added that the business model could help solve "some of the biggest issues in society and some of the biggest economic problems."

An independent review of employee ownership carried out last year found that growth in the sector was hindered by poor awareness of the potential for employee ownership and the complexity involved in handing a business over to staff.

At the moment, employee-owned businesses make up just 3% of the UK's GDP but the EOA believes this could be built up to 10%.

The EOA says a tax incentive might help combat concerns about potentially lower valuations for sellers and the complexity of converting to employee ownership, which can take several years to complete.

"The government's fantastic and welcome support for employee ownership has yet to be reflected in incentives for companies to move from family ownership to employee ownership. It seems logical to make a mild bit of tax reform to achieve that," said Iain Hasdell, chief executive of the EOA.

Mike Warburton, tax director at accountancy firm Grant Thornton, warned that the government would have to set a minimum level of staff ownership in order to avoid abuse of employee benefit trusts, which are often used as vehicles for staff ownership. In the past, these trusts have been used as a means to avoid tax by unscrupulous business bosses.

However, he said: "This is a very interesting idea and shows the government is thinking about ways to stimulate the economy."

Mayfield said that employee ownership would allow the UK to develop more medium-sized businesses by adding an alternative option to being acquired by private equity firms or taking the stock market flotation route.

Article Source : http://www.guardian.co.uk

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UK economy 'buoyant' as services sector grows at fastest rate in two years

Surging service sector workloads prompt biggest increase in new staff hires since before the financial crisis hit in 2007

Hopes of an economic recovery are growing as the UK's dominant services sector expanded at its fastest rate in more than two years, according to monthly data.

Service sector firms, which account for three-quarters of the economy, reported surging workloads in June, prompting the biggest increase in new staff hires since before the financial crisis hit in August 2007.

The purchasing managers' index soared to 56.9 in June, up from 54.9, its highest level for 27 months. A figure above 50 means growth, according to Markit, which compiles the survey.

The services sector is leading the UK economy out of recession, says the British Chambers of CommerceThe strong demand for services comes as Mark Carney, the new Bank of England governor, starts his first monetary policy committee meeting buoyed by a slew of positive economic data. This week saw confirmation that British manufacturers enjoyed their strongest growth for two years in June, while the construction sector grew for the second consecutive month.

The figures confirm that the UK continues to outperform the eurozone, where combined manufacturing and services output continues to fall. "The buoyant picture for June means the economy is on course to expand by at least 0.5% in the second quarter, with more growth to come," said Chris Williamson, Markit's chief economist.

"New orders and job creation across all sectors are now rising at the fastest rates for almost six years, led by the vast services economy, boding well for robust growth momentum to be sustained as we move into the second half of the year."

David Kern, chief economist at the British Chambers of Commerce, said the figures confirmed that services were leading the UK out of recession.

"I don't believe that the economy is booming, but the figures confirm the recovery is under way," he said. The recovery is widely spread, he added, although the service sector is performing better than other parts of the economy.

"It would be wrong to say we can relax now," he said, warning of risks from renewed problems in the eurozone, the fallout from the US Federal Reserve's decision to wind down financial stimulus, and in the UK, rising inflation and tight access to credit. "Many small firms are still finding it difficult in getting finance on acceptable terms; there is a bottleneck."

The surging demand for services has dampened expectations that the Bank of England will opt for more financial stimulus when it concludes a two-day monetary policy meeting on Thursday.

The data reinforces the view that the Bank will sit tight on quantitative easing, said Howard Archer, chief economist at IHS Global Insight. But he predicted the bank would not give up on QE and forecast an injection of £25bn into the economy in August. "This reflects our belief that Mark Carney is likely to be keen to build up escape velocity from extended economic weakness."

Article Source : http://www.guardian.co.uk

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