Plans have been floated in parliament for company shares to be used to help plug the gap in low-income employees’ finances amid high inflation and the rising cost of living.
Ahead of next week’s Budget, an influential group of Conservative MPs and peers has called on the government to introduce a temporary scheme to enable companies to offer free shares to staff earning below a minimum threshold.
Those benefiting from changes would be able to sell shares received, free from any tax, after a single year. Backers of the reforms include former minister Esther McVey and Sir Graham Brady, chair of the backbench 1922 committee.
While the proposals are unlikely to be included in the Budget, the plans highlight widespread concerns among MPs about supporting the low-paid during the cost of living crisis.
“With inflation still running at over 10 per cent, the majority of employers want to be able to support their staff, but offering pay rises of this magnitude is clearly a challenge,” said Jonathan Djanogly, MP for Huntington, who is leading the campaign.
The scheme would be modelled on the structure of share incentive plans (SIP), which has proven popular with about 840 UK companies taking advantage of the scheme. Currently, employers are allowed to give up to £3,600 in free shares annually to each employee.
Under the current SIP regime, shares issued by employers in schemes are exempt from income tax and national insurance contributions only if kept in a plan for at least five years. They can then be sold free from capital gains tax.
Djangoly said: “I believe that by including this idea in the Budget, the chancellor would demonstrate how the government is seeking creative solutions to support employees and employers at this time.”
However, cutting the exemption period to a year would be a break from precedent, which the Treasury would view with caution. “The Treasury could end up spending a lot of time and money on a scheme which is costly to administer and may see some employers reluctant to participate,” said Nimesh Shah, chief executive of accounting firm Blick Rothenberg.
In a letter to the chancellor Jeremy Hunt, the group of MPs said changes would help tackle the inflexibility of SIPs, which require all employees including senior executives to be included in any offer of shares.
“There isn’t really any justification for higher rate taxpayers to benefit from these schemes,” said David Cohen, a partner at law firm GQ Littler. He said any employee share scheme policy which shifted the balance towards low earners would be a welcome intervention.
Employees participating in SIPs benefited from £210mn in income tax and NICs relief in 2020-21, according to HM Revenue & Customs. This was less than a third of the £760mn in cumulative relief offered for all types of employee share schemes.
“The initiative would sit alongside salary increases and other benefits by helping create a buffer for unexpected expenses, at no cost to the employee,” said Murray Tompsett, head of employee ownership group ProShare, which is part of the Chartered Governance Institute.
ProShare is backing the plans, which it said would help businesses support employees handling the current cost of living crisis and also help boost organisations’ productivity.
