How Osborne's shares for rights scheme has flopped

Only six companies have enquired about the Chancellor's plan to allow workers to give up employment rights in return for shares.

The centrepiece of George Osborne's speech to last year's Conservative conference was his plan for employees to give up their rights in return for acquiring shares in their companies. While losing rights and protections, including unfair dismissal, statutory redundancy pay and the right to request flexible working, they would gain shares worth between £2,000 and £50,000.

The Chancellor said:

This idea is particularly suited to new businesses starting up; and small and medium sized firms. It's a voluntary three way deal. You the company: give your employees shares in the business. You the employee: replace your old rights of unfair dismissal and redundancy with new rights of ownership. And what will the Government do? We'll charge no capital gains tax at all on the profit you make on your shares. Zero percent capital gains tax for these new employee-owners. Let shares and become owners of the company you work for. Owners, workers, and the taxman, all in it together. Workers of the world unite.

The policy was attacked from all sides in parliament, with former Tory Scottish secretary Lord Forsyth describing it as "ill-thought through, confused and muddled", Lord O'Donnell, the former head of the civil service, declaring, "In the old days the price of slavery was 20 or 30 pieces of silver – is it now £2,000?" and crossbencher Lord Billamora memorably warning, "This is not just a dogs's breakfast, this is a mad dog's breakfast". Andrew Adonis noted that "The idea that depriving employees of these basic rights is somehow going to boost growth is not supported by a single employer I have met, let alone [an] employee".

It turns out that the government is having trouble finding any too. With just two months to go until the scheme launches, today's FT reports that only six companies have enquired about it.  The Treasury had expected thousands of employers to sign up, pencilling in lost capital gains tax receipts of £135m in the three years to 2017/18.

Responding for Labour, Chuka Umunna said: "It was a ridiculous policy that had the support of very few people indeed. It was condemned by business and by people on all sides and it should be dumped. I am not at all surprised that it has attracted little interest from businesses who on the whole do not want to rob their employees of their fundamental rights at work."

The government rather optimistically remarked that its "approximate estimate" is that "around 6,000 companies" could choose to use the scheme, adding that "it could be more, it could be less."

In the absence of a 1,000 per cent surge in interest in the next two months, it looks like it will be less.

A member of the PCS union wears a George Osborne face mask at a demonstration on Whitehall on June 27, 2013 in London. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

Photo: Getty Images
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Autumn Statement 2015: George Osborne abandons his target

How will George Osborne close the deficit after his U-Turns? Answer: he won't, of course. 

“Good governments U-Turn, and U-Turn frequently.” That’s Andrew Adonis’ maxim, and George Osborne borrowed heavily from him today, delivering two big U-Turns, on tax credits and on police funding. There will be no cuts to tax credits or to the police.

The Office for Budget Responsibility estimates that, in total, the government gave away £6.2 billion next year, more than half of which is the reverse to tax credits.

Osborne claims that he will still deliver his planned £12bn reduction in welfare. But, as I’ve written before, without cutting tax credits, it’s difficult to see how you can get £12bn out of the welfare bill. Here’s the OBR’s chart of welfare spending:

The government has already promised to protect child benefit and pension spending – in fact, it actually increased pensioner spending today. So all that’s left is tax credits. If the government is not going to cut them, where’s the £12bn come from?

A bit of clever accounting today got Osborne out of his hole. The Universal Credit, once it comes in in full, will replace tax credits anyway, allowing him to describe his U-Turn as a delay, not a full retreat. But the reality – as the Treasury has admitted privately for some time – is that the Universal Credit will never be wholly implemented. The pilot schemes – one of which, in Hammersmith, I have visited myself – are little more than Potemkin set-ups. Iain Duncan Smith’s Universal Credit will never be rolled out in full. The savings from switching from tax credits to Universal Credit will never materialise.

The £12bn is smaller, too, than it was this time last week. Instead of cutting £12bn from the welfare budget by 2017-8, the government will instead cut £12bn by the end of the parliament – a much smaller task.

That’s not to say that the cuts to departmental spending and welfare will be painless – far from it. Employment Support Allowance – what used to be called incapacity benefit and severe disablement benefit – will be cut down to the level of Jobseekers’ Allowance, while the government will erect further hurdles to claimants. Cuts to departmental spending will mean a further reduction in the numbers of public sector workers.  But it will be some way short of the reductions in welfare spending required to hit Osborne’s deficit reduction timetable.

So, where’s the money coming from? The answer is nowhere. What we'll instead get is five more years of the same: increasing household debt, austerity largely concentrated on the poorest, and yet more borrowing. As the last five years proved, the Conservatives don’t need to close the deficit to be re-elected. In fact, it may be that having the need to “finish the job” as a stick to beat Labour with actually helped the Tories in May. They have neither an economic imperative nor a political one to close the deficit. 

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.