Employee Share Ownership Schemes

Debate between George Howarth and Alex Sobel

Tuesday 6th September 2022 Westminster Hall

[Sir George Howarth (Knowsley) (Lab)]

I beg to move,

That this House has considered reform of employee share ownership schemes.

It is, as always, a pleasure to serve under your chairmanship, Sir Edward. I thank the Chartered Governance Institute UK & Ireland for the invaluable briefing it provided to help me prepare for this debate. Despite the participation of close to 2 million people, employee share ownership plans remain remarkably low profile and poorly understood. If we are to reform employee share ownership plans, which I believe is long overdue, we need to ensure that Members of this House understand what those plans are, and the problems that they face.

Let me begin by explaining why employee share ownership schemes are unique. They bring together employees, employers and the Government into a contract, with each party making a commitment. First, employers offer their staff the opportunity to acquire shares in the company, often at a discount to the traded share price. Secondly, the Government offer tax advantages to the participant and the company, which make them more appealing. Thirdly, the employee makes a regular monthly contribution to the scheme over several years.

The arrangement is a sound one, and that is why, historically, the plans have been reasonably popular and effective. Each of the parties involved benefits. Employers gain more productive and engaged employees, the Government support businesses to perform well and encourage share ownership—a proven source of financial resilience—and employees are more aligned to the success of their employer.

The two plans I will focus on today are the share incentive plan, known as SIP, and the save-as-you-earn system, known as SAYE or Sharesave. Those are just two of the existing share ownership plans, but they are the only two that are known as all-employee share plans; that is to say, when a company offers one to its staff, it must offer one to every single employee within its company on the same terms. It is those plans that lead to participation from across the income range, and from all parts of the country. They are truly inclusive, requiring relatively modest monthly investments from participants.

However, there is a problem that has been raised with the Treasury over recent years: participation rates in the employee plans are plateauing, and in some cases falling. Rates are simply not increasing at the rate that we would hope for.

I could spend the time I have available citing the data, but I will instead point out just a few of the headline facts from the Treasury’s own data, which I am sure the Minister is familiar with. First, the number of firms in which employees were granted SAYE in 2021 was 260—a fall from 340 in 2007-08. Secondly, the number of employees granted a new SAYE option in 2020-21 was 380,000, which was a bump up from the previous two-year period of 310,000. Despite that bump, it is necessary to go back to 2011-12 to find the last time that new SAYE grant take-up was that low.

[Alex Sobel (Leeds North West) (Lab/Co-op)]

My right hon. Friend is making an excellent speech. Perhaps one reason why there has been such a long period without an increase in take-up is the way that people are employed. The nature of work is changing: more and more people are in the so-called gig economy—platform workers—where they are not on pay-as-you-earn. They therefore cannot take part in such schemes. Should the Government update the schemes so that those workers, and not just workers on PAYE, can take part in them?

[Sir George Howarth]

My hon. Friend must have read my mind. I will come on to that very point shortly.

As I was saying, the number of employees granted a new SAYE option in 2021 was 380,000, which was a bump up, but the last time take-up was that low was in 2011-12. In 2020-21, employees in 480 companies were either awarded or purchased shares, a figure that has fallen steadily over the past decade. For example, in 2011-12, there were 570 such firms. There are several reasons for that, but the problem is that SIP and SAYE, which were developed 22 and 42 years ago respectively, have barely changed in all that time and no longer reflect the modern workplace. The period that employees typically spend at a company has markedly reduced. Indeed, young people are often encouraged to move jobs more frequently to secure career advancement.