Shares For Rights Flops

Jan 10 2014, 1:45pm CST | by

Shares For Rights Flops

It must have seemed like a good idea at the time. George Osborne, Britain’s Chancellor of the Exchequer, naturally wants to be seen as a supporter of entrepreneurs and employees alike. It was therefore logical enough to give pride of place in last March’s Budget to his Shares for Rights scheme, which is supposed to deliver valuable benefits to both these constituencies. The problem is that almost no-one seems to be interested – and now some of Osborne’s most prominent colleagues in the Government want the scheme scrapped.

Under Shares for Rights, owners of small businesses are able to dispense with some of the regulation built into Britain’s labour market legislation, which some entrepreneurs have criticised as too onerous. The idea is that they offer to grant employees shares in their businesses worth between £2,000 and £50,000 – staff who take up the offer have to waive protections such as the right to sue for unfair dismissal, to claim statutory redundancy pay and to request flexible working.

The Government also offered a sweetener to persuade employees to consider the free shares – any profits they make on such stocks are not subject to capital gains tax.

The scheme was formally declared open in September. Government data on take-up is almost non-existent, but it seems fair to say that Treasury officials haven’t exactly been rushed off their feet. In December, civil servants conceded they had received precisely 19 expressions of interest from businesses considering taking part, though they point out that entrepreneurs do not have to give notice of their intention.

Nick Clegg, the Deputy Prime Minister – and leader of the Conservatives’ Liberal Democrat coalition partner – is certainly unimpressed. This week he called for the scheme to be scrapped, with the savings put towards more generous tax breaks for lowly paid workers.

It’s not just low take-up that has dogged the scheme. The Office of Budget Responsibility, the independent body set up by the Government to scrutinise the UK’s public finances, warned it could be used as a tax dodge that might cost the Treasury as much as £1bn a year.

Criticism has also come from those concerned about employees’ labour rights. Lord O’Donnell, the former head of the civil service, has described the scheme as a form of modern slavery.

It’s worth pointing out that employers can’t require their staff to take the free shares on offer – the deal has to be acceptable to both sides. This may be one reason why adoption rates have been so miserable. From an employee’s point of view, shares in a start-up business, which may or may not succeed, may have less value than long-cherished employment rights (or no value at all if the business fails). The tax-free offer has an element of the pot of gold at the end of the rainbow – a tax saving on purely theoretical profits on some distant day in the future isn’t much of a draw.

As for employers, it may be that they’re far less concerned about rights such as statutory redundancy pay and flexible working than the Chancellor imagines. After all, few entrepreneurs who start businesses list these issues at the top of their lists of anxieties – they have simply got bigger fish to fry.

All in all, Shares for Rights has been a pretty dismal failure. The only good news for the Chancellor is that there’s no need for an embarrassingly public u-turn – take-up has been so pitiful that it will be possible to kill off the scheme without anyone noticing. On the downside, the savings Mr Clegg is looking forward to aren’t going to amount to very much.

Source: Forbes Business


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