Just one thing: introduce capital gains tax relief

The Employee Ownership Association tells George Osborne what it wants to hear in the 2012 Budget.

If George Osborne does one thing it will be to introduce capital gains tax relief for business owners selling to their employees, increasing the number of employees playing an active role in the way their business is run.

Co-owned firms are often more profitable and productive, with happier staff and customers, than conventionally structured businesses. Unfettered by the need to produce short -term returns for external shareholders, businesses owned by their employees can focus on long term sustainability, rewarding staff and enriching the local and national economies.

So why are there not more of them?

Employee ownership is a well kept secret. When it comes to succession planning, not enough business owners are aware that it is an option. And those who are interested are often dissuaded by advisers and experts who are unfamiliar with the model and perceive it to be high risk. Received wisdom (whether it's from the company accountant, family lawyer or mate on the golf course) is that you flog your business for as much as you can get: Why worry about the people, the jobs, the suppliers and customers who rely on the firm?

Whilst it's true that some business owners who pursue employee ownership accept less for their business than they might have made from a trade or private equity sale, employee ownership is about securing the business' future - which may have taken years to build up. Whilst selling can mean that staff, buildings and brand become fair game for asset stripping.

Increasing the number of businesses under employee ownership will be achieved by incentivising the sale through relief for the vendor and buyers, which will in turn tackle the issue of the dearth of professional advice (as the adviser will be compelled to explain the relief to clients).

In the US many states offer discounts or exemptions for business owners selling to employees, which has led to an increase in the number of employee owned businesses. Research shows that the cost of such relief is more than compensated by the net Corporation Tax gain on the resultant increase in profitability. The NCEO predict a threefold rise in the number of employee owned firms by 2020.

Politicians agree that employee ownership is good for the economy, the community, business and staff. We'd welcome bold action to encourage more owners to sell their business to employees, and to a healthier and happier economy.

Carole Leslie is Policy Director of the Employee Ownership Association

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