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Deputy prime minister launches body to promote employee ownership and call for evidence on 'right to request' it

Action to knock down the barriers stopping British businesses from becoming employee-owned was launched by deputy prime minister Nick Clegg (pictured) and minister for employment relations, Norman Lamb yesterday.

Speaking at a summit at the Institute of Chartered Accountants, the Clegg confirmed the Government will act on recommendations put forward in the final report from the Nuttall Review of Employee Ownership. Graeme Nuttall was commissioned by the deputy PM in January 2012 to examine how to promote employee ownership in the private sector and spread the benefits into the wider economy

Clegg announced an independent and expert Institute for Employee Ownership, which will be established to provide information and advice to: managers and employees; lawyers and accountants; business schools, researchers and Ministers.

This will be a professional body, offering accreditation to its members. Founding members will include the Employee Ownership Association, Baxi Partnership, Prospects and Co-operatives UK.

He called for evidence on how a right to request employee ownership could work. This will be launched this week and will examine what the minimum number of employees needed to make a request should be; what fair grounds for turning a request down could be; whether requests should be allowed at any time and, crucially, whether the best way to achieve this is through a new statutory right or another mechanism. Government will report back in the autumn.

He also introduced off-the-shelf 'DIY packs' for companies covering legal, tax and other regulatory considerations, to help companies adopt employee owned business models quickly and easily. This will help combat the perception that employee ownership is too difficult, time-consuming and expensive compared to more traditional routes.

Clegg said: "Employee-owned firms have lower levels of absenteeism, higher productivity and growth rates and smaller gaps between the pay at the top and ordinary workers. "But if we want to make employee ownership a larger slice of our economy we have to make it simpler. "That's why today I have announced that an Institute for Employee Ownership will be established, that there will be new off-the-shelf 'DIY packs' for companies to adopt the Employee Ownership business model and that we will issue a call for evidence from business and employees on how a right to request could work "These are important steps to help get employee ownership into the bloodstream of the British economy. We won't stop there and it won't happen overnight but, at last, we are on our way."

Lamb added: "Today is a key milestone in the development of what I consider a very important and growing part of the economy. Graeme's report sets the immediate agenda and we must now respond - both in Government and the stakeholder community - to deliver the work needed to create a successful, flourishing and growing employee owned sector. "We have already had a remarkable response from the professional bodies and representative organisations, pledging their commitment to this programme and to developing a new Institute for employee ownership. And I attach particular importance to the 'Right to Request' and look forward to working out the detail of this, whilst keeping it light touch and workable for employers."

The Nuttall review found that there are three main barriers holding back the creation of more employee owned businesses:

  • lack of awareness of employee ownership;
  • a lack of resources, including finance; and
  • perceived or real legal, tax and regulatory complexities.

The final report sets out a range of far-reaching and challenging proposals for Government, sector representatives, employer and employee groups and professional advisers to dismantle these barriers.

Nuttall said: "Employee ownership has proven to be a great idea. The Nuttall Report provides a framework to move this successful model into the mainstream of the economy. I am calling upon the Government to ensure implementation of all my recommendations, maintain its focus upon employee ownership and translate its support into concrete changes that make a real difference to employee owned companies and those considering employee ownership. "Companies such as Arup and Swann-Morton have benefitted from decades of successful employee ownership, and others such as Wilkin & Sons and public sector mutuals have more recently introduced the model and are reaping the rewards. These companies are in diverse business sectors, spread geographically and of varying sizes. The benefits of employee ownership are clearly demonstrated by these many UK success stories and it is now time the wider business community appreciated what employee ownership can do for business and the growth of the UK economy."

Clegg also announced new UK figures from Co-operatives UK, which show that the UK employee-owned sector has grown at a rate of 1.1%, compared to 0.7% for the economy as a whole. As such, the growth rate for employee-owned firms is over 50% higher than the rest of the economy. Alongside the announcements, the London Stock Exchange has set out plans for a new FTSE Employee Share Ownership Index. Xavier Rolet, CEO, London Stock Exchange Group plc said: "A new FTSE Employee Share Ownership Index will highlight some of the key benefits of encouraging employees to take an active interest in the future success of the companies in which they work. This new FTSE index will help raise awareness of how significant employee equity ownership can be advantageous for both companies and employees. "London Stock Exchange Group welcomes today's report and is delighted to be contributing to a greater understanding of how employee share ownership can help deliver growth. As part of our group, FTSE will work with Graeme Nuttall and his team to develop the Employee Share Ownership index as a fully fledged benchmark." Research also published today by Cass Business School shows employee-owned businesses typically invest more in human capital and put greater emphasis on long-term growth planning than non employee-owned businesses. They also prefer to focus on internal growth over external, by developing their own new products and extending operations to new markets, rather than acquiring new products and lines of business. This reliance on internal growth means employee owned businesses are far less dependent on external capital and more adept at using internal resources to pursue growth. The Employee Ownership review complements the ground-breaking agenda Government is undertaking to encourage public service mutuals to spin-out from the public sector and become employee owned. The Government also set out the next steps towards converting the Post Office to a mutual, bringing together those who use and work for post offices with the shared purpose of running the business for the benefit of the public.

The Government will formally respond to the Nuttall report in the autumn, setting out an action plan for implementing its recommendations.