Osborne's "employee-owner" plan is Beecroft through the back-door

Remember "fire-at-will"? It's back! In co-op form!

George Osborne's plans for an "employee-owner" scheme, announced today, may sound familiar to people who care about employee protections. That's because we've heard much of it before, when it was announced by Tory donor and venture capitalist Adrian Beecroft.

The plan is described by the Treasury as a "new type of contract":

Employees will be given between £2,000 and £50,000 of shares that are exempt from capital gains tax. In exchange, they will give up their UK rights on unfair dismissal, redundancy, and the right to request flexible working and time off for training, and will be required provide 16 weeks’ notice of a firm date of return from maternity leave, instead of the usual 8.

Crucially, while the status is optional "for existing employees", any company can chose to offer only that type of contract for new hires.

In other words, for the princely sum of £2,000 of equity, companies can completely and permanently buy out their employee's protections again unfair dismissal and redundancy, and their rights to flexible working and time off for training, as well as severely curtailing their maternity leave flexibility.

The last time we heard changes to employment law of this magnitude was the publication of the Beecroft report, the raft of employment law reforms suggested in May this year. The report, when published (ahead of schedule, due to leaks), was ridiculed for the complete lack of evidence to support its assertions. Clive Hollick, the co-founder of IPPR, wrote that Beecroft had told him his recommendations were "hearsay", based only on what he had been told, while Helen Lewis spotted that "the words “I” or “my” appear 20 times in 16 pages, while the words “research” or “studies” don’t feature at all."

Shortly after, many of the proposals suggested by Beecroft were implemented by Vince Cable – but not, notably, the fire-at-will provisions, which were blocked by the Liberal Democrats, with Cable saying he was opposed to the "ideological zealots who want to encourage British firms to fire at will".

Five months on, and the proposal is back on the cards. But this time, the government wants the public to think that employers aren't getting something for nothing. Whereas a switch to everyone's employment rights looks rather nasty, a negotiated switch between employers and employees is much fairer. And being paid £2,000 for your rights looks like a downright good deal.

Except it's not. Even if the £2,000 was in cash, upfront, and negotiable, it would still be a comparatively small amount (it is, for instance, less than four week's wage at the median full-time salary, although it stretches further due to its tax-free nature). And the provisions contain a number of measures which make it even more preferable for employers, and less for employees.

The minimum value of the shares required to be given is £2,000, but there is a nasty hidden in that. The Treasury writes:

The Government consultation on the owner-employee contract will include the details of restrictions on forfeiture provisions to ensure that if an owner-employee leaves or is dismissed, the company is not able simply to take the shares back but is able to buy them back at a reasonable price.

The £2,000 in shares the employee holds may be bought back "at a reasonable price" if the company decides to dismiss them. For non-listed companies (precisely the "fast growing small and medium sized companies" at which the initiative is aimed), this price will be extremely hard to determine. And if an employee thinks they've been short-changed, their only option is to take their employer to court; always tricky for someone without a job, and trickier still if the Government's plan to introduce fees for employment tribunals goes ahead.

The new rules are an attempt to introduce Beecroft back in through the back door. For £2k, you will be expected to sell your rights. No wonder Beecroft wrote:

This is a creative and exciting version of proposals that I made in my report.

There is, though, one last twist to the story. Dan Davies, of Crooked Timber, has been tweeting about the other implication of offering up to £50,000 shares tax free: if you're thinking of starting up a private firm, it could let you get away with not paying much tax at all.

The founders of a company rarely need much employee protection; and since they are also the ones who choose how much the shares are "worth", it might be extremely easy to end up owning large proportions of a new company with permanent tax-free status. A similar dodge was used by Mitt Romney; his retirement savings, which could only accept $450,000 in nominal shares during his years at Bain Capital, are now worth over $21m. When you say how much a company is worth, limits don't count for much.

Osborne's crafted a plan which, at a stroke, gives employers the ability to dodge tax on their companies, while dodging the responsibilities they have for towards their employees. It's almost impressive. 

The Old Street roundabout, an area full of tech startups hoping to benefit from Osborne's scheme. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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How Jeremy Corbyn won the Labour leadership election

The revolt against the leader transformed him from an incumbent back into an insurgent. 

On the evening of 12 July, after six hours of talks, Jeremy Corbyn emerged triumphantly from Labour’s headquarters. “I’m on the ballot paper!” he told supporters gathered outside. “We will be campaigning on all the things that matter.”

The contest that Corbyn’s opponents had sought desperately to avoid had begun. Neither a vote of no confidence by 81 per cent of Labour MPs, nor 65 frontbench resignations had persuaded him to stand down. Days of negotiations led by Tom Watson had failed (“For years I’ve been told that I’m a fixer. Well, I tried to fix this and I couldn’t,” Labour’s deputy leader sorrowfully told the parliamentary party). The rebels’ last hope was that the National Executive Committee would force Corbyn to reseek nominations. After being backed by just 40 colleagues in the confidence vote, both sides knew that the leader would struggle to achieve 51 signatures.

But by 18-14, the NEC ruled that Corbyn would be automatically on the ballot (“Watson, Watson, what’s the score?” chanted jubilant aides in the leader’s office). After withstanding a 16-day revolt, Corbyn appeared liberated by the prospect of a summer of campaigning. His confidence prefigured the outcome two months later.

Corbyn did not merely retain the leadership - he won by a greater margin than last time (with 61.8 per cent of the vote to last year's 59.5 per cent) and triumphed among all three sections: party members, affiliated supporters and registered supporters. The rebels had hoped to narrow his mandate and win among at least one group: they did neither. Far from being a curse for Corbyn, the contest proved to be a blessing. 

***

The day before the pivotal NEC meeting, Angela Eagle, who had been preparing to stand for months, launched her leadership bid. The former shadow business secretary was admired by MPs for her experience, tenacity, and economic acumen. Her trade union links and soft left background were further cited in favour of her candidacy.

But after an underwhelming launch, which clashed with Andrea Leadsom’s withdrawal from the Conservative contest (leaving Eagle calling questions from absent journalists), MPs gravitated towards Owen Smith.

Like Eagle, Smith hailed from the party’s soft left and had initially served under Corbyn (two prerequisites in the rebels’ eyes). But unlike her, the former shadow and work pensions secretary did not vote for the Iraq war (having entered parliament in 2010) or the 2015 Syria intervention. “It looks like the war party,” a senior Corbynite said of Eagle’s campaign launch with Hilary Benn. Many Labour MPs feared the same. With the left-leaning Lisa Nandy having ruled herself out, only the ambitious Smith met the criteria.

“I’d been in hospital for two days with my brother, who was unwell, in south Wales,” he recalled when I interviewed him.  “I came out having literally been in A&E at Cardiff Heath hospital for 29 hours, looking after him, to have my phone light up with 30, 40, 50 colleagues, MPs and members, ringing up saying ‘there’s going to be a contest, Angela Eagle has thrown her hat into the ring, you should do likewise.’ And at that point, on the Wednesday night, I started ringing people to test opinion and found that there was a huge amount of support for me.”

On 19 July, after Smith won 90 MP/MEP nominations to Eagle’s 72, the latter withdrew in favour of the Welshman. A week after the Conservatives achieved their second female prime minister, Labour’s 116-year record of all-male leaders endured. Though Smith vowed that Eagle would be “at my right hand throughout this contest”, she went on to appear at just one campaign event.

Corbyn’s challenger was embraced by MPs as a “clean skin”, untainted by service during the New Labour years. But Smith’s non-parliamentary past was swiftly - and ruthlessly - exploited by his opponents. His time at the US drugs firm Pfizer was cited as evidence of his closeness to big business. Corbyn’s supporters also seized on interviews given by Smith as a by-election candidate in 2006.

The man pitching to the left was found to have defended Tony Blair (suggesting that they differed only over the Iraq war), supported private sector involvement in the NHS and praised city academies. “I'm not someone, frankly, who gets terribly wound up about some of the ideological nuances,” he told Wales Online. Such lines were rapidly disseminated by Corbyn supporters through social media.

“Getting out early and framing Owen was crucial,” a Corbyn source told me. A Smith aide echoed this assessment: “It helped secure their base, it took a load of people out of contention.”

Throughout the campaign, Smith would struggle to reconcile his past stances with his increasingly left-wing programme: opposing private provision in the NHS, returning academy schools to local authority control, banning zero-hours contracts and imposing a wealth tax of 1 per cent. “It was easy for us to go for the jugular over his background when he portrayed himself as a left candidate,” a Corbyn source said.

Smith insisted that the charge of opportunism was unmerited. “To be honest, my opponents have extrapolated rather a lot in an attempt to brand me as a ‘Blairite wolf in sheep’s clothing,’” he told me in August. “Well, I’m nothing of the sort, I’ve always been a democratic socialist and I always will be.” He added: “I’m someone who’s been surrounded by people who’ve been on the left of the Labour movement all their lives. It should come as no surprise that I’ve come out of that background and I’m pretty red. Because I am.”

But a former shadow cabinet colleague said that Smith did not stand out as “a radical” in meetings. “The only time that I remember him becoming really animated was over further tax-raising powers for Scotland and the implications for Wales.”

As well as Smith’s ambiguous past, Corbyn’s allies believe the breadth of his political coalition hindered him from the start. “He was trying to bring together Blairites, Brownites and every other -ite in between,” a campaign source said. “That was never going to hold, we knew that and from the moment there were splits it was easy to point out.”

Jon Trickett, the shadow business secretary and one of Corbyn’s early supporters, told me: “They tried to pretend that there was no distinction between them and Jeremy on policy grounds, they tried to narrow down the areas of difference to electability. But, frankly, it didn’t seem credible since some of the people behind it were absolutely ideologically opposed to Jeremy. Peter Mandelson and people like that.”

A frequently expressed charge was that Smith’s left-wing pledges would be overturned by Blairite figures if he won. John McGeechan, a 22-year-old postgraduate student who joined Labour after “self-indulgent, self-serving MPs initiated their corridor coup”, told me of Smith: “He’s just another mealy-mouthed careerist who says whatever he thinks is going to get him elected. I don’t believe at all that he means what he says about creating a radical socialist government given that he’s got the backing of Peter Mandelson, Alastair Campbell and Tony Blair, people who’ve disagreed with Corbyn on pretty much all his socialist policies. I don’t believe that he’s going to stand up to these people.”

Whether believable or not, Smith’s programme showed how Corbyn had shifted Labour’s centre of gravity radically leftwards - his original aim in June 2015.

***

On the night Corbyn made the leadership ballot, the rebels still found cause for hope. Unlike in 2015, the NEC imposed a freeze date of six months on voting (excluding 130,000 new members) and increased the registered supporter fee from £3 to £25 (while reducing the sign-up period to two days). “It’s game on!” a senior figure told me. By narrowing the selectorate, Corbyn’s opponents hoped to achieve a path to victory. With fewer registered supporters (84 per cent of whom voted for Corbyn last year), they believed full party members and affiliated trade unionists could carry Smith over the line.

But when 183,000 paid £25 to vote, their expectations were confounded. Far from being “game on”, it looked to many rebels like game over. Once again, Corbyn’s opponents had underestimated the left’s recruiting capacity. Smith’s lack of name recognition and undistinctive pitch meant he could not compete.

Alongside the main contest were increasingly fractious legal battles over voting rights. On 28 July, the high court rejected Labour donor Michael Foster’s challenge to Corbyn’s automatic inclusion on the ballot. Then on 8 August, a judge ruled that the party had wrongly excluded new members from voting, only for the decision to be overturned on appeal.

In the view of Corbyn’s allies, such legal manevoures unwittingly aided him. “They turned Jeremy, who was an incumbent, back into an insurgent,” Trickett told me. “The proponents of the challenge made it seem like he was the underdog being attacked by the establishment.”

Smith, who repeatedly framed himself as the “unity candidate”, struggled to escape the shadow of the “corridor coup”. That many of his supporters had never accepted Corbyn’s leadership rendered him guilty by association.

“The coup had an enormous galvanising effect and an enormous politicising effect,” a Corbyn source told me. “For a great number of people who supported Jeremy last year, there was a feeling, ‘well, we’ve done the work, that’s happened, now over to him.’ What the coup meant for a lot of people was that this isn’t about Jeremy Corbyn, this is a people’s movement, which we all need to lead.” The Corbyn campaign signed up 40,000 volunteers and raised £300,000 in small donations from 19,000 people (with an average donation of £16). Against this activist army, their rivals’ fledgling effort stood no chance.

“At the launch rally, we had 12 simultaneous events going on round the country, livestreamed to each other,” a Corbyn source said. “We had a lot of communication with people who were big in the Sanders campaign. In the UK context, it’s trailblazing.”

On 12 August, after previously equivocating, Smith ruled out returning to the shadow cabinet under Corbyn. “I've lost confidence in you. I will serve Labour on the backbenches,” he declared at a hustings in Gateshead. In the view of Corbyn’s team, it was a fatal error. “He shot apart his whole unity message,” a source said.

Smith, who initially offered Corbyn the post of party president, was rarely booed more than when he lamented Labour’s divisions. As one of the 172 MPs who voted against the leader, he was regarded as part of the problem, rather than the solution. By the end, Smith was reduced to insisting “I wasn’t in favour of there being a challenge” - a statement that appeared absurd to most.

As well as his leftist credentials and unifying abilities, Smith’s other main boast was his competence and articulacy. “HIs USP was that he was this media-savvy guy,” a Corbyn source said. “As a result, he threw himself up for any and every media opportunity and made tons of gaffes. We just made sure people were aware of them.”

The most enduring gaffe came early in the campaign, on 27 July, when he spoke of wanting mto “smash” Theresa May “back on her heels”. Though Smith initially defended his “robust rhetoric” (“you’ll be getting that from me”), by the afternoon his campaign had apologised. What was explained as a “rugby reference” dogged them for weeks. “It played into the hands of how Corbyn wanted to depict us,” a Smith source told me. “It was really hard to shake off.”

More unforced errors followed. Smith suggested getting Isis “round the table”, in anticipation, many believed, of Corbyn agreeing. But the Labour leader baulked at the proposal: “No, they are not going to be round the table”. Corbyn’s communications team, more organised and agile than in 2015, denounced Smith’s remarks as “hasty and ill-considered”. As with “smashed”, the Labour challenger had achieved rare cut-through - but for the wrong reasons.

Smith’s rhetorical looseness became a recurring problem. At a rally on 23 August, he appeared to refer to Corbyn as a “lunatic”. In an interview with the Daily Mirror, he said of meeting his wife: “1,200 boys, three girls and I pulled Liz. So I must have something going on. That must be leadership.”

Earlier in the campaign, Smith’s team denied that the candidate referred to the size of his penis when he quipped of his height: "5ft 6. 29 inches - inside leg!” The guffaws from his supporters suggested otherwise.

We used to have a gaffe counter,” a Corbyn source told me. “I think it got up to 30 by the end.”

Smith’s team, meanwhile, despaired at how the Labour leader’s own missteps failed to dent him. The discovery that Corbyn had in fact secured a seat on a Virgin train, contrary to initial impressions, did little lasting damage. “It’s priced in, the bar is much lower for him,” a Smith source complained.

Incorrect claims, such as Labour being level in the polls before the coup attempt and Corbyn giving 122 speeches during the EU referendum campaign, were believed by many of his supporters. “How do you rebut bullshit?” a Smith aide asked. “If you respond, it becomes a story.”

So frequently had Labour MPs condemned their leader that extraordinary charges were soon forgotten. On 22 August, shadow business minister Chi Onwurah wrote in the New Statesman that Corbyn’s treatment of her and Thangam Debbonaire could constitute “racial discrimination”.

If this had been any of my previous employers in the public and private sectors Jeremy might well have found himself before an industrial tribunal for constructive dismissal, probably with racial discrimination thrown in,” she argued. But within a day, the story had moved on.  

For Smith, fleeting momentum was achieved through significant endorsements. On 10 August, the GMB backed his campaign after becoming the only trade union to ballot its members. The following week, Labour’s most senior elected politician, Sadiq Khan, endorsed Smith. Unlike Andy Burnham, the London mayor believed he could not remain neutral during this profound schism. Smith was subsequently also backed by the Scottish Labour leader, Kezia Dugdale. Neil Kinnock and Ed Miliband trumpeted his cause. Yet such declarations counted for little. “It’s like the Remain campaign and the Archbishop of Canterbury,” one Smith ally told me, suggesting that Labour members, like Leave voters, ”weren’t listening” to such grandees.

But in the view of Corbyn’s team, the rebels profoundly “underestimated” their opponent. “He’s a nice guy but he also has an inner steel and won't flinch from a challenge. The Obi-Wan Kenobi comparison is very accurate when you work up close with him. He’s also extremely intelligent and has a great grasp and retention of detail. It showed in the debates.”

“I have to say, I felt pretty sorry for Owen at several points,” another Corbyn source reflected. “Whatever it was, his ambition or being pushed into it, it didn’t seem like it was the right time for him. He hadn’t worked out what he was about and why that fitted with the times.”

***

Those Labour MPs who long warned that an early challenge to Corbyn would prove futile have been vindicated. “Party members are always loyal to the incumbent,” a senior source astutely noted. In the case of Corbyn, a lifelong campaigner, who many contended was “never given a chance”, this traditional fealty was intensified.

“Most of the people backing and funding him didn’t think Owen was going to win,” a Corbyn source said. “Their aim was, one, to reduce Jeremy’s mandate and, secondly, to map the selectorate.”

Having won a second leadership contest - an unprecedented achievement for the Labour left - the leader’s supporters insist their ambitions do not end here. “We’ve got to think incredibly seriously about how we win a general election in a totally changed landscape,” a Corbyn source told me. “This campaign has been showing how to do it.” But a Smith aide warned that it was a “massive strategic error” to make electability, rather than principle, the defining test of Corbyn. The leader, he suggested, could withstand a general election defeat provided he simply affirmed his values.

Beyond regarding a split as worthless, Labour MPs are divided on how to proceed. Some want another leadership challenge as early as next year. Rather than seeking to narrow the selectorate, they speak of recruiting hundreds of thousands of new members to overpower the left. “There are lots of people out there who want a credible, electable, centre-left proposition and we have not given them enough of a reason to sign up,” a former shadow cabinet minister told me. “Who has an offer and the charisma to be able to bring in new people? That has to be the question the next time round.”

Others believe that backbenchers should follow Thumper’s law: “If you can’t say something nice, don’t say anything at all.”  A senior MP argued that MPs should “just shut up” and “let Jeremy crack on with it.” The imperative, he said, was to avoid MPs “taking the blame for us getting thumped in a snap election”. Some are prepared to move beyond neutrality to outright support by serving under Corbyn.

The Labour left and their most recalcitrant opponents both confront challenges of electability. The former must demonstrate a path to victory despite Corbyn’s subterranean poll ratings. The latter, who boast so often of their superior appeal, must face a remorseless truth. Until they are electable in the party, they will never be electable in the country.

George Eaton is political editor of the New Statesman.