UK: Employee Ownership — The Future Of The Economy?

Last Updated: 4 March 2013
Article by Graham Muir and Laura Allum

Summary and implications

2012 has seen the Government take steps to encourage employee ownership which, according to figures released by the Department for Business, Innovation and Skills (BIS), has become increasingly popular with the number of employee-owned companies growing by 25 per cent between 2009 and 2011.

In January 2012 the Deputy Prime Minister, Nick Clegg, gave a speech to business leaders in which he called for more individuals to have a stake in the companies they work for and stated that employee ownership is a "hugely underused tool in unlocking growth". Subsequently, in February 2012, the BIS announced that an independent adviser had been appointed to advise the Government on employee ownership.

In July 2012, that advice was published in the form of "The Nuttall Review of Employee Ownership" (the "Review") which made a number of recommendations to the Government to achieve the following objectives:

  • promote and raise awareness of employee ownership;
  • increase the resources available to support employee ownership;
  • reduce the complexity of employee ownership; and
  • ensure that action is taken by the Government to implement the recommendations set out in the Review.

What is employee ownership?

The Review defines employee ownership as a significant and meaningful stake in a business for all its employees. If a company has employee ownership, it has employee owners. The Review explains that what is "meaningful" goes beyond financial participation (i.e. sharing of company profits between employees) – the employees' stake must underpin organisational structures that promote employee engagement in the company.

Three forms of employee ownership are identified in the Review:

  • direct employee ownership, whereby employees become individual owners of shares in the company for which they work using one or more tax advantaged and other share plans;
  • indirect employee ownership, whereby shares are held collectively on behalf of employees, normally through an employee benefit trust; and
  • combined direct and indirect ownership, a combination of individual and collective share ownership.

Key findings of the Review

The Review reports that the "beneficial effects of employee ownership are diverse" and cites, as some of the potential benefits, greater profitability, greater staff commitment and reduced staff turnover. It also identifies three major barriers to employee ownership and makes a number of recommendations to address each of these:

Lack of awareness

First, awareness of employee ownership was discovered to be extremely low among the business community with the result that companies wishing to pursue the employee – ownership business model feel constrained from doing so. To address this issue, the Review recommends that the Government should continue to promote employee ownership by:

  • designing and leading an awareness-raising programme;
  • disseminating information to New Enterprise Allowance partnerships;
  • promoting the Business Finance Partnership to funds that support employee ownership and target employee-owned companies; and
  • working with ACAS to encourage employer and employee groups to develop a voluntary code of practice setting out best practice on requesting and agreeing employee ownership.

Lack of resources

Second, a lack of resources, in terms of access to information and professional legal, financial and tax advice, was identified as an obstacle to employee ownership. Some of the recommendations made by the Review in response to this finding include:

  • the establishment of an independent institute to provide guidance to businesses making the transition to employee ownership, provide a membership organisation for individuals interested in employee ownership and promote research in all aspects of employee ownership;
  • convening a time-limited taskforce of legal, tax, accountancy and other professional bodies and representatives of employee-owned companies to identify how employee ownership can be a more integral part of advice provided by intermediaries; and
  • the Government considering the degree to which there is a lack of funding for employee buy-outs and employee-owned companies and making recommendations to remedy the funding gap.


The third major barrier to employee ownership is the legal, tax and regulatory complexities associated with employee ownership. These complexities discourage employee ownership and lead to increased costs for those wishing to pursue that route. The Review recommends that the BIS takes the following steps to help remove this barrier:

  • develop employee ownership toolkits including an "off-the-shelf" model for creating an employee-owned company;
  • consult on improving the operation of internal share markets to support companies using direct ownership, including holding private company shares in treasury and facilitating share buy-backs; and
  • take into account regulatory impacts on employee-owned companies as part of its consultation on future changes to employment law.

Next steps

The Review recommends that the BIS should, within three months of the review, publish an action plan showing actions taken to implement its recommendations and others aimed at promoting employee ownership.

It will be interesting to see the content of the action plan. Whilst some of the recommendations can be acted upon immediately, others will take some considerable time to implement. Accordingly, if employee ownership is to become a more common and accepted form of business model, the Government will need to show commitment and support over the long term.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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