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A Snapshot of Employee Ownership in the UK
A bit of background on the UK roots of employee ownership
Hi! I’m Tiffany, the newest member of EO+WD. I’m a junior at the University of Texas at Arlington studying political science.
In coming on board at EO+WD, I decided to start learning by researching the UK history of employee ownership trusts (EOTs). EOTs grant employees a stake in the company's ownership and often a say in its decisions. This business model, where shares in a business are held in a trust on behalf of employees, was made law in the United Kingdom in 2014, following recommendations from the 2012 Nuttall Review. According to GOV.UK, the trusts were set up by the government in 2014 to encourage businesses to sell controlling stakes to their employees. They also hoped this would increase employee ownership in the UK.
Before we begin talking numbers, I think it's important to introduce how employee ownership trusts began. The Finance Act of 2014 produced two significant incentives aimed to encourage companies to shift to employee ownership. The first incentive introduced a full capital gains tax exemption when business owners sell their shares to an employee ownership trust.
The second incentive included employees working for an EOT-controlled company, who could benefit from tax-free bonuses of up to £3,600 per year per employee.
According to the Employee Ownership Association, 2022 was a record year for the growth of employee-owned businesses (EOBs). Furthermore, during the year 2022, a total of 332 enterprises transitioned to employee ownership. This resulted in a total of over 1,400 employee-owned businesses (EOBs) by June 2023 and represented a noteworthy 37 percent surge within a span of 12 months. The Employee Ownership Association attributed the EOB growth to the success of EOTs which were introduced as a government initiative in 2014. Furthermore, EOA found that businesses owned by employees contribute 4 percent to the country's GDP.
Recent data by the Employee Ownership Association also shows that the employee ownership sector is expanding year by year. In June 2021, there were 576 employee-ownership trusts and by December 2022, there were 1,300 employee-owned businesses in the UK. According to BSR, a factor that could be contributing to the increasing popularity of BOTs is the growing financial strain on younger professionals in managerial roles who might seek to acquire the business they work for from their senior leaders.
Additionally, EOTs are gaining recognition as a more ethical option for business exits. According to Business Sales Report, this is a trend that aligns with the growing significance of Environmental, Social, and Governance (ESG) as they become more prominent.
You can read more about the growing EOT numbers here.