Labour employee ownership scheme could be worth £500 a year to workers

Labour plans for employee ownership schemes in large companies could net almost 11 million workers up to £500 a year each, shadow chancellor John McDonnell has said.

But additional income would be capped at that level, with any further dividends going to a national fund to pay for public services and welfare, in an effective new levy on private business worth an estimated £2.1 billion a year.

Mr McDonnell announced plans for “inclusive ownership funds” (IOFs) at the TUC congress in Manchester earlier this month, telling union leaders they would give workers “a say in the management and direction of their company”.

In his keynote speech to Labour’s conference in Liverpool on Monday, he will pledge that workers will also receive dividend payments direct from the fund.

Under Labour’s plans – set to feature in the party’s next election manifesto – legislation would require private sector companies with 250 or more employees to transfer at least 1% of their ownership into an IOF each year, up to a maximum of 10%. Smaller companies would be able to set up an IOF on a voluntary basis.

Labour calculates that 40% of the private sector workforce – some 10.7 million people – will initially be covered by the scheme. Dividend payouts will be made at a flat rate to all employees of the firm.

The funds will be held and managed collectively and their shares cannot be sold or traded. Workers’ fund representatives will have voting rights in companies’ decision-making processes in the same way as other shareholders.

Aides said the creation of the funds would go some way to redressing growing inequalities after a decade when average pay has not increased in real terms.

But the dividend payments will not be available to state employees – including workers in industries such as water after they are nationalised under Labour’s plans.

The £2 billion social dividend fund would ensure that public sector workers and employees of smaller firms also benefit from what Labour terms a “broadening of ownership in our economy”, said party sources.

Mr McDonnell will tell the Liverpool gathering: “Workers, who create the wealth of a company, should share in its ownership and, yes, in the returns that it makes.

“The evidence shows that employee ownership increases a company’s productivity and encourages long-term thinking.”

He will say: “The shareholding will give workers the same rights as other shareholders to have a say over the direction of their company.

“And dividend payments will be made directly to the workers from the fund.

“The dividend payments workers will receive will be up to £500 a year. That’s 11 million workers each with a greater say, and a greater stake, in the rewards of their labour.”

Spelling out the thinking behind the social dividend, Mr McDonnell will say: “We all know it’s not just the workers of a company that create the profits it generates.

“It’s the collective investment that we as a society make that enables entrepreneurs to build and grow their businesses, maintaining the roads and investing in the infrastructure we rely upon, educating the workforce, caring for them when they’re sick and investing in the research and development that enables technological innovation.

“So we believe it’s right that we all share in the benefits that investment produces.

“That’s why a proportion of revenues generated by the inclusive ownership funds will be transferred back to our public services as a social dividend.

“Mobilising billions that could be spent directly on the social security system which supports those who have retired, are unable to work, or need society’s support in other ways.”

Chief Secretary to the Treasury Liz Truss said: “This proposal is yet another tax rise from a party that already wants to hike taxes to their highest level in peacetime history.

“It would make it harder for local businesses to take on staff and pay them a good wage.”

CBI director-general Carolyn Fairbairn said: “Rising wages are what everyone wants to see. But Labour is wrong to assert that workers will be helped by these proposals in their current form.

“Their diktat on employee share ownership will only encourage investors to pack their bags and will harm those who can least afford it. If investment falls, so does productivity and pay.”

Ms Fairbairn added: “While a social dividend sounds appealing, in current form it sounds like yet another new tax that adds to the impression that Labour sees business as a bottomless pit of funding.”