Britain is facing the worst recession in living memory, the biggest financial crisis in history and the threat of an epochal currency collapse a few miles over the Channel. Against that backdrop it might seem odd that what the Conservatives are most at pains to talk about today is an obscure change to employment regulations.
And yet their new scheme to provide employees with share ownership tax breaks if they voluntarily sacrifice some of their employment rights is the main new economic policy to have emerged so far from this Conservative Party Conference. Some might see that as an indictment of the government’s ambition and imagination in tackling the crisis; others (primarily the Conservatives) would argue that it supplements what is already a brilliant and innovative economic plan.
All I would add to this is a note of caution. This time last year there was another micro-economic policy measure unveiled with some fanfare during George Osborne’s Conference speech. We were promised it would help solve the fundamental problem facing businesses: getting hold of loans from banks. It was called Credit Easing. Within a few months of its launch, the scheme was wound up.
This year’s scheme – the creation of “employee owners” – does at least resonate rather more with the Government’s stated aims, of reducing the burdens on businesses and encouraging them to grow.
Essentially it is a part-implementation of some of the suggestions from the Beecroft Review earlier this year – that some smaller, younger businesses shouldn’t have to abide by various regulations that protect employees: unfair dismissal, redundancy, the right to take time off for training and so on. Except that the Government has clearly realised that ridding employees of these rights without a quid pro quo would have been politically disastrous, so in exchange employees will be given between £2,000 and £50,000 of shares exempt from capital gains tax. And existing employees need not sign up if they don’t want (although they won’t get the shares). The expectation is that “hundreds of thousands” of employees will sign up and that by 2017/18 it “could” cost around £100m, according to Conservative sources.
Which, by fiscal standards, isn’t an enormous amount – less, for instance, than the rather obscure “carbon price floor” measure from this year’s Budget. And for good reason: this isn’t an enormously generous policy – at least for employees. While £50,000 of capital-gains tax-free shares might sound attractive, it’s worth remembering that capital gains tax is charged only on the amount by which shares increase – not their base amount. Plus, all British taxpayers already get £10,000 worth of gains tax-free – so even if you were given the maximum number of shares you’d have to be talking about some pretty big increases in prices to benefit from that tax break.
On that basis it’s difficult to see why employees would jump at the chance of giving up some of their fundamental employment rights. I’d be surprised if many people do. But then again, this measure isn’t really expected to be used that widely: it’s aimed specifically at smaller companies and start-ups (in particular technology and media ones) which are aiming for growth. For them, it might well become an essential condition for new employees.
But while this is interesting micro-economic policy, it’s hardly an ambitious masterstroke. Nor does it really fit in with the Chancellor’s mantra, repeated again today, that “we’re all in this together”. On the contrary, it is employers who will benefit most from this new scheme.
But then again, if it gets the economy going, perhaps we’ll all be grateful.
This article is also available on the Sky News website.