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Does employee ownership work as a model for delivering public services?
Trowers Public Insight

Does employee ownership work as a model for delivering public services?

Employee ownership was brought into the spotlight in the recent Budget with the Chancellor announcing a series of tax reliefs aimed at the promotion of employee ownership as means of running a company.  These include income tax exemptions for bonuses paid to employees of employee-owned companies and an increase in the maximum value of shares that employees can acquire under share incentive plans.  But what is employee ownership and how can it be used in the delivery of public services?

Employee-owned companies are those where the employees own a significant stake in the company they work for. There is a wide variety of business and ownership models in the employee-owned business sector however these can be grouped into three types:

  • Direct employee ownership – using one or more tax advantaged share plans, employees become registered individual shareholders of a majority of the shares in their company;
  • Indirect employee ownership – shares are held collectively on behalf of employees, normally through an employee trust;
  • Combined direct and indirect ownership – a combination of direct and indirect share ownership.

At the recent Trowers & Hamlins Annual Public Sector Conference (this year entitled "Steps to Growth"), Iain Hasdell, Chief Executive of the Employee Ownership Association explained the following benefits of Employee Ownership:

  • A combination of shared ownership and employee participation in management decisions delivers superior business performance and greater resilience in difficult economic times;
  • Evidence suggests, that under certain circumstances, there are productivity gains from being employee-owned;
  • The focus of employee-owned companies tends to be on the long term development of their products, services and staff rather than short-to-medium term share price;
  • Staff in employee owned businesses tend to be more entrepreneurial and committed to the company resulting in greater job satisfaction and lower rates of staff absence and turnover.

Many of these benefits resonate in light of the oft-cited criticisms of relative lack of public sector productivity and innovation in the austerity era.  In the appropriate circumstances, these benefits could be realised in the delivery of public services by spinning out parts of central or local government or the NHS into employee-owned organisations.  Indeed, this has been part of the current government's Big Society agenda and is likely to remain of interest to all political parties.

Of course, some services are more suitable for mutualisation than others and employee entrepreneurialism will be key to success.

In our experience, it is also critical to pay early attention to governance and propriety—see for example, the lessons learnt from the spin-out of My Civil Service Pension outlined in the NAO's report last year.

Trowers & Hamlins have helped establish literally hundreds of successful mutuals and social enterprises over the last thirty years.  Some recent examples are Rochdale Borough-wide housing, the UK's first tenant and employee co-owned mutual housing society, 3BM Education Partners, a schools support services mutual joint venture spun out from three London boroughs in 2013 and Epic CIC (a youth services mutual spun out from the Royal Borough of Kensington and Chelsea in earlier this year).

For more information on how we can assist in establishing public service mutuals contact Helen Randall.