11 Dec 2012 12:00pm

OBR warns employee ownership could cost £1bn

The government’s proposals for an employee-ownership scheme could end up costing Britain £1bn a year in lost revenues, according to the Office for Budget Responsibility

The scheme will allow employees to buy shares in their company in exchange for giving up some of their rights concerning unfair dismissal, redundancy pay and flexible working. The shares received in exchange will be exempt from capital gains tax.

The plans, which have been attacked by unions and only received a cautious welcome from businesses, was first considered in a report by venture capitalistAdrian Beecroft last year. However, in an annex to the Autumn Statement, the OBR warns that the cost is “expected to rise towards £1bn” beyond 2018, after costing around £80m in 2017-18.

“It is hard to predict how quickly the increased scope for tax planning will be exploited; again this could be quantitatively significant as a quarter of the costing already arises from tax planning,” the OBR said.

The results of a government consultation published last week showed that out of 209 responses only a “very small number” welcomed the scheme and said they were interested in taking it up.

Concerns included fears that individuals might be coerced into adopting employee-owner status, the cost and complexity of the scheme and the risk of abuse of the tax advantages.

Paul Johnson, director of think-tank the Institute for Fiscal Studies, the independent think-tank, wrote in today’s Financial Times  that the government was condemning tax avoidance while preparing to “put another billion pound lollipop on the table.”

“Just as government ministers are falling over themselves to condemn such [avoidance] behaviour, that same government is trumpeting a new tax policy which looks like it will foster a whole new avoidance industry,” he said.

Mr Osborne announced the “shares for rights” scheme, aimed at fast-growing companies, at the Conservative party conference in October.

Helen Roxburgh


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