In Defense of Inclusive Ownership Funds

By Adam Peggs

A recent report by a Labour MP, and published by the Fabian Society, criticises the Inclusive Ownership Funds (IOFs) in the 2019 Labour Manifesto as ‘the most outrageous’ policy to appear in the parties’ platform last year, describing at as ‘brazen’ and suggesting an alternative. I don’t agree with that assessment. So, in the spirit of comradely debate, I’m attempting to explain why.

The report argues that employee ownership can be a good thing, that it is a ‘noble’ aim and that it can promote ‘longer-term thinking in the boardroom’. But instead the publication argues for targeted tax reliefs for businessmen to incentivise employee ownership (or possibly customer ownership) on a voluntary basis. A problem with this approach is that it would likely be a less egalitarian and a smaller scale method of promoting worker ownership. Where the IOFs would require companies to issue shares to a mutual fund owned by staff, this tax break would only give tax incentives (benefits) to those selling their companies to their staff. The tax break would be for the person selling the business, not the workers purchasing the company.

More wealthy people would be beneficiaries under this approach, and fewer workers would benefit. Where the IOFs would have created £300bn of employee-owned stakes in companies over a ten year period, this approach is unlikely to get close to that figure.

It’s also worth adding that the mechanism proposed in the report resembles a policy adopted by David Cameron’s coalition government. If a policy to replace the IOFs were needed (I don’t think that is the case anyway) I still don’t think this approach would be the right one.

It seems unlikely that tax incentives of the kind proposed would lead to anything near the scale of employee ownership offered by McDonnell’s proposed IOFs. Nor for that matter would it be likely to deal with the fact that Britain has less employee ownership than most OECD countries, for example the UK has one sixth of the level of employee ownership as France and one fourth of the level of Germany.

To my knowledge the policy was legally vetted, and it is surely relevant that the policy was directly inspired by Sweden’s Employee Funds (originally the Meidner Plan after its author Rudolf Meidner). J.M. Keynes also produced a plan during the war which has been compared to the Meidner plan, and has similarities to McDonnell’s proposed IOFs (described as a ‘kind of wage-earners investment fund’). As this letter to the FT from some 82 economists and academics (from a variety of traditions) emphasises, the IOF’s would not ‘seize’ the shares of companies (despite an FT headline using that language), it would involve issuing shares to employees just as companies regularly issue shares to their executives.

I would add that I tend to agree with the argument made by James Meadway, among others, that the cap on the existing IOFs proposal was too low, leaving workers with only a potential £500 pay-out from their stake in their workplace. A cap at a higher level would also enhance the degree of enthusiasm for the policy among those employees who benefit.

As the aforementioned letter states ‘ownership of capital helps determine whose interests the economy operates’. When Labour announced the IOF plan in 2018 it was an attempt to grapple with that fact and respond to it. It was a good response, one that addressed the drastically unequal distribution of resources and economic power in our society. It would have redistributed assets to the benefit of workers. It remains a good idea.