Loanna Morrison is Director of the Conservative Co-operative Movement and contested Bermondsey and Old Southwark at the 2010 general election.
While in opposition, David Cameron proposed a policy that would encourage public sector workers to create employee owned companies or co-operatives, along John Lewis lines, to take over their own services in the public sector. He shared his aspiration that over a million employees could take advantage of this new right and said that it would be the biggest transfer of responsibilities since the Right to Buy.
Francis Maude has already set up pathfinder groups and provided a budget of £10m; now the access created by Localism legislation will see employee ownership in this sector becoming a reality over the next few years. As the Localism Act has received Royal Assent and since it appears that DPM Nick Clegg has been entrusted with taking policy forward, it maybe opportune to reflect on David Cameron’s landmark legislation and the other interpretation being suggested by Mr Clegg.
The Conservative Co-operative movement welcomes the initiative to give tax incentives to companies that are employee owned or which seek to be. This is an area that has been extensively researched and promoted by Jesse Norman MP who chairs the APPG on employee ownership. I myself have sat in on a discussion with John Lewis and it is important to point out that their ‘partnership’ is not as simple a structure as Mr Clegg would like to imagine. Shares held by employees, are only of benefit as long as they remain employees and only if the business makes a profit. However the advantage of his announcement is that it will lead to increased awareness of this model for financial institutions, which are approached to fund this type of business. At the moment they seem to lack knowledge of how employee ownership works or the advantages.
A report just published by the Employee Ownership Association concludes by calling on the government to intervene to drive future growth in the sector. Its author, Davies notes that Employee Benefit Trusts lost their tax advantage in 2003 and calls for this to be restored. He also supports the extension of the Enterprise Investment Scheme (EIS) to employees. Currently, the EIS benefits external shareholders, and excludes employee shareholders.
This tax advantage will certainly create a more level playing field, which will help to avoid the difficulties of getting capital. This model however does not work well in high-risk businesses, which is why it is ideal for public sector services. Long-term financial commitment is crucial to development and can work well for large organisations. The CCM also supports employee owned and co-operative entities having business rate relief.
Nick Clegg’s ‘Right to request’ proposition which would give staff an automatic opportunity to ask their employer for shares means he is hoping to extend the government’s ‘right to service ‘ into the private sector. For employees, this could bring as much risk as it could reward and could possibly be seen to be enriching the City at the expense of the man in the street. It could also lead to an increase in predatory behaviour towards smaller businesses. A “right to meddle” perhaps?
We agree there is a need for more people to have a stake in the companies they work for and this is already happening on a very large scale with co-operatives. The co-operative economy is worth £33.2 billion with 12.8 million members in the UK alone. Employee ownership companies generate more profit (currently around £25b) with less people, and they are not ‘membership’ models. The social principles are pretty much the same for both and it’s crucial that co-operatives are included in any such government changes and growth strategies.
The Localism Act gives employees the ‘Right to Challenge’ local authorities to take over services and there have been a range of papers outlining the fine detail. However, one insuperable obstacle remains, namely an obligation on the local authority to undertake some form of public procurement in respect of any such service. There is absolutely no doubt that an employee owned entity could provide a more cost effective and efficient approach to public services but, however keen the employees, the idea of taking part in a procurement exercise will discourage all but the most enthusiastic. Local authorities should have the ability to negotiate appropriate terms between themselves and the employee owned entity.
Then there are Mr Clegg’s friends in the EU, who make procurement costs expensive and unnecessarily complex, discourage SMEs and keep thousands of lawyers and consultants occupied. Therefore, Mr Clegg should also be given the task to seek to repatriate aspects of EU procurement and create a UK-centric procurement regime which still recognises the key aspects of the Common Market but is more flexible, easy to operate and stresses the importance of local employment and encouraging local entrepreneurs. Perhaps he could be even bolder and provide a special dispensation for employee co-operatives to mark the International Year of Co-operatives 2012?