Stephen Timms – 1999 Speech at the Proshare Conference
The speech made by Stephen Timms, the then Financial Secretary to the Treasury, on 25 November 1999.
I’m delighted to able to speak at this conference of Proshare which as an organisation has done so much to advance employee share ownership in an imaginative, progressive and effective way.
Modern and decent
Let me first put our aims for the new all employee share plan this in the context of the Government’s wider aims.
What we have embarked on is a twenty year programme to build a new Britain which will be modern and decent. Both of those things at the same time.
Modern Britain will have an economy where the vital new stability has been locked in for good, beyond our past decades long record of boom and bust. We want thriving knowledge-based firms exploiting the know how, creativity and expertise of British people. We want to create the best environment in the world for electronic commerce. Higher levels of investment, in information technology, in infrastructure, in skills. Higher levels of productivity to catch up after decades with our competitors. We’ll have higher standards at school, have harnessed the potential of further and higher education, and provide high quality opportunities for our young people. As individuals and collectively we shall have confidence in the future.
Decent Britain will be an inclusive society where everyone has the chance to play their full part. Over the twenty year period, child poverty will be eradicated. There will be help for those trapped on benefits or in poor housing or without a job, and those unable to work through disability or through caring for somebody else. We’ll have a health service which people will have confidence in. There will be decent standards for those at work. We’ll confront crime, anti-social behaviour and drug taking which cast a shadow over too many young lives. We want to entrench decent values – society pulling together, and with rights matched by responsibilities.
So modern and decent – that’s where we want to be in the years ahead. And it is my view that the new all employee share plan is exactly the type of initiative we need to take forward both strands of that commitment.
Promoting an enterprise culture
Make no mistake, employee share ownership is about to take a big step forward in the UK and, when it does, we shall be taking a big step towards our goals. One of our key priorities, as I have said, is to raise the levels of productivity in British industry, stubbornly stuck significantly behind those of France, Germany, the US, Japan. Another of our priorities is to give everyone a stake in the success of the economy, so that everyone can benefit from Britain’s growing prosperity. And increasingly, people recognise how much boosting employee share ownership will contribute to those two aims.
When Gordon Brown, the Chancellor, stood up two weeks ago and presented the Pre-Budget Report, he laid out four new ambitions for the next decade: that over half of all our school-leavers go on to degrees; a higher percentage of people in work than ever before; child poverty reduced by half; and that we should be catching up on productivity with our competitors.
We know that if we are to meet the productivity challenge, Britain needs to promote innovative thinking and enterprise. We need to encourage our workforce to think like entrepreneurs and to recognise the challenges of a competitive market place. We want them to think more like owners and to see the benefit of making their company successful. We want people to recognise that they have a part to play in our economy and a contribution to make to Britain’s growth.
We believe that only by pursuing both enterprise and fairness together – enterprise and fairness for all – can we equip Britain for the future and secure rising living standards for all. So we want all employees to enjoy the rewards of success, not just the privileged few. Where people generate growth they should also benefit from it. Where they are working with their companies to become more efficient and to become more productive, they should also reap their reward.
This is why employee share ownership is so important to this Government. And this is why we want to encourage more companies to offer all their employees a stake in their business.
Employee shareholders have a direct interest in the performance of their company and a real stake in its success. Research in both the US and the UK shows there is a clear link between employee share ownership and improvements in productivity. Over time, employees have an incentive to contribute more actively to the development of the business. And if the majority of employees have an ownership stake, then individual efforts become mutually reinforcing.
Employee shareholders also feel a greater commitment to their company which helps the company recruit and retain employees and improves its return from investment in employee skills and training. Employee shareholders better understand the risks faced by the business, which in turn can lead to greater pay responsibility.
The role of the new plan
Our target is to double the number of companies offering all-employee share ownership schemes. We want widespread employee ownership and long term shareholding by employees, and to encourage the new enterprise culture of team work in which everyone contributes and benefits from success.
The plan will be an important step towards meeting that target.
But we recognise that we need to encourage both companies and employees to take up the new plan if we are going to change the culture in the workplace. So we have devised a plan that is the most generous all employee plan ever introduced into the UK. One that offers significant tax benefits to both employees and companies. And one that will appeal to small as well as to large companies by offering a range of different features.
The process
We decided early on that we would not achieve the type of change we want to see just by tweaking the existing schemes. We want a plan which will meet our objectives and be attractive to all employees and companies.
To help us achieve this, an Advisory Group, made up of representatives from leading share scheme practitioners, companies, academics and trade union members, have worked with the Inland Revenue in the development of the new plan. Two members of that group (Graham Rowlands Hempel and David Tuch) are speaking here today and I would like to thank them – and all their colleagues as well – for the tremendous commitment and support that they have given to this work.
We are also listening to companies directly though the focus groups led by ProShare, who have organised today’s conference. Up to 60 companies have participated in these groups, which must be something of a record even for New Labour! Again, many thanks to all of you who have given your time to attend meetings and to write to us. Your input has been extremely valuable and is reflected in the features of the plan which will have been outlined today.
This initiative is an excellent example of how this Government is bringing private and public sectors together to create policies which work well in practice.
Buying shares
Let me outline some of the key features of the new plan.
First, employees for the first time will be able to buy shares in their company out of their pre tax salary. Employees will immediately have a stake in the company – they will become “owners” from day one.
Of course, holding shares is risky, unlike the one way bet of an option – employees will need to understand this when they decide to buy shares and employers will need to communicate this carefully to their employees. We are currently considering ways that the Revenue can help in this process.
There are also features of the new plan to help reduce this risk. Because they buy shares out of the pre-tax salary employees are in effect always buying shares at a discount. Employers who offer matching shares to their employees add to that cushion, as indeed do employers who provide shares over a 12 month period based on the most favourable price.
And we have set limits within the plan which should mean that no-one overreaches themselves and uses more of their salary to buy shares than is advisable.
The second revolutionary feature reflects the fact that many companies have told us that they want employees to demonstrate their commitment to the company by buying shares. They also want to reward this by matching these with additional shares. Before now this has not been easy to achieve for everyone. The new plan will change this significantly and as a result many companies will for the first time want to set up a plan.
Rewarding performance
Other companies have told us that they have been put off from having a plan in the past because they would have to give shares to all their employees, regardless of their performance or their commitment to staying with the company. So our third innovation in the new plan is that companies can now award shares on a performance basis, if they want to. They can also take back shares awarded to employees who decide not to stay with them.
Rewarding performance in this way will help companies to create a more competitive environment within their business. This in turn will lead to greater efficiencies and more innovation. But again, all this must be done on a basis that is fair to employees. It will be up to companies to choose any performance measure that suit their business, as long as these are objective and fair. Companies must be open with their workforce about how performance will be measured. Indeed this is how any modern, successful business should treat its employees if it is going to get the best from them.
Smaller companies
I want to say a few words about smaller companies. Our aim is to increase the number of companies who offer shares to all their employees. To achieve this, we need to encourage and help companies setting up their first plan. Many of these will be the smaller quoted and unquoted companies.
Our fourth innovation is for these companies – the new plan can now be a very simple plan if this is what you want. It has also been designed so that you can set up a plan which can develop as the company grows.
We recognise that smaller companies, particularly unquoted ones, face more obstacles in setting up plans and, like all businesses, have to look carefully at the costs. That is why the new plan contains a number of innovative features aimed at smaller and unquoted companies. In addition we are looking closely, again with the help of the Advisory Group and the industry generally, at ways in which Government can give more help.
The internet gives us a tremendous opportunity to revolutionise the way that we can help companies set up plans and reduce the burdens on business of providing information to us. Next year we will have available on the net, and therefore free of charge, a set of draft rules that any company can take away and use to set up a plan.
Conclusion
We want to hear your views on the new plan. Many of you have said that you find it difficult to comment, not knowing what is going to happen to the existing schemes. I appreciate this. But as we have said all along, we need to be sure that the new plan will deliver the changes that we want to see happen, before we make any decisions on the existing schemes. Your input into the process so far has helped enormously in shaping the new plan. Just as we want to get the new plan right, we want to make the right decision on the existing schemes.
From what we have heard already, we think the new plan will be very successful. These developments herald a dramatic change in the way many businesses operate, and point towards a new era of partnership between employees, shareholders and managers. They are a key building block for Britain’s future prosperity, for the modern and decent Britain we are working for. Join with us in promoting employee share ownership, so that we can make the most of the benefits which are on offer.
Thank you.
