How to build support for capitalism

Support for free markets and business is waning. Matthew Lynn outlines his plan to make the public fall back in love with capitalism.


Give the oompa-loompas a stake
(Image credit: Credit: Everett Collection Inc / Alamy Stock Photo)

Wages are stagnant. The gulf between workers and bosses has been growing wider every year. Rising support for Jeremy Corbyn suggests disillusion with capitalism is gathering strength. Support for free markets and business appears to be waning sometimes so dramatically it calls into question whether they can survive the next decade. There is one positive sign, however: the numbers of people with shares in the company they work for is growing year by year.

In the past decade, there have been some substantial tax breaks on offer to encourage this. The most substantial is the Save As You Earn scheme that allows workers to put a regular monthly sum into the equities of their employer. There is also the Enterprise Management Incentive scheme, which allows staff at small entrepreneurial start-ups to be offered share options largely tax free.

How are those going? Pretty well, as it happens. The value of shares and options handed out to staff by British companies hit £4.3bn in the past year, a rise of 24% over two years, according to figures from HM Revenue & Customs. In total, more than 10,000 firms now operate some form of tax-efficient share-option scheme. By far the largest rise was in SAYE schemes, the most widely available, which saw a 47% rise in their popularity, while the start-up friendly EMI scheme saw a 23% rise. Overall, 520 companies are now offering the SAYE scheme, an 18% rise over two years. The start-up schemes are far more widespread, but the numbers of people involved are smaller. Overall, those schemes are now costing the Treasury £880m a year in lost tax revenue, according to HMRC's estimates. That is a lot of money, but it is well worth it.

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First, it increases motivation and loyalty. It is an article of faith on company boards that the boss has to be loaded up with a few million in shares and options to make him or her feel it is worthwhile slogging into the office every day. If it increases motivation on the board, where the jobs are actually fairly interesting, then surely it should have an even more powerful impact lower down the hierarchy as well? If companies had better motivated staff, they would work harder, productivity would rise, and the Treasury would collect more than enough from income and other taxes to pay for the cost of the scheme.

Next, if people own a stake in the business, it aligns the interests of staff with the shareholders and so with the wider economy. Again, one of the main arguments for giving board members generous share awards is that it will mean they think and act like owners rather than mere managers. But surely that applies to workers as well? Finally, and most importantly, just as is the case with wider home ownership, giving staff more of a stake in their businesses will build support for a free-market economy. They will have a stake in the wealth that business-friendly policies create.

These schemes are a start 91% of companies in the FTSE 350 now offer some sort of staff-share scheme. But many of them are still not generous enough to maximise the number of people taking them up. We should encourage adoption. How about offering companies a 1% discount off corporation tax for running a scheme? Or make Save As You Earn schemes the most popular for ordinary workers completely free of capital gains tax, rather than just partially so, as is the case right now? Most radically of all, why not make opting in automatic, with workers having to specifically ask to be excluded. That is the rule for the new workplace pensions, so why not see if the same trick will work for share schemes as well?

Who's getting what

Sky's chief executive, Jeremy Darroch, almost quadrupled his pay in the year to the end of June from £4.6m to £16.3m, thanks to a £12m payout under the broadcaster's long-term incentive scheme. Darroch also received a £1.04m salary and a £1.9m bonus, despite total operating profits falling by 6% for the year.

Robert Black is understood to be still receiving his full six-figure salary, despite resigning as boss of the organisation that managed Grenfell Tower, following the fire in June in which around 80 people died, reports The Guardian. The organisation, in which "key management personnel" shared £760,000 in salaries, according to its latest accounts, argued that assisting multiple inquiries was a full-time job.

London-listed television, film and music producer Entertainment One is facing a shareholder revolt over plans to award its CEO, Darren Throop, a £7.6m share award, regardless of performance. The award is payable in 2019, by which time his basic pay will have soared to £925,000. Last year, he received a 65% salary rise to £605,000.

Qantas chief executive Alan Joyce received total pay of A$24.6m (£14.6m) for the year to the end of June. His earnings were driven by a steep climb in the Australian airline's share price, which in turn lifted his performance-based pay to A$14.5m (£8.6m), compared with A$3.2m (£1.9m) for the previous year.

Nice work if you can get it

Julian Dunkerton and James Holder, the founders of Superdry, who still own 27% and 10.6% of the fashion label respectively, have vowed to set up a bonus scheme for all the company's 4,500 staff. Under the terms, the scheme would pay out as long as the share price of the company, SuperGroup, hit £18 by 30 September 2020. Every £5 over the threshold will result in the co-founders adding £30m to the bonus fund. The firm's shares, which floated on the London Stock Exchange in 2010 at £5, are currently valued at around £15.60. While the share price reached a peak of £17.50 in 2011, shortly after listing, it has yet to hit the target. Any payouts under the scheme will take place in two vesting periods in 2021 and 2022.

Matthew Lynn

Matthew Lynn is a columnist for Bloomberg, and writes weekly commentary syndicated in papers such as the Daily Telegraph, Die Welt, the Sydney Morning Herald, the South China Morning Post and the Miami Herald. He is also an associate editor of Spectator Business, and a regular contributor to The Spectator. Before that, he worked for the business section of the Sunday Times for ten years. 

He has written books on finance and financial topics, including Bust: Greece, The Euro and The Sovereign Debt Crisis and The Long Depression: The Slump of 2008 to 2031. Matthew is also the author of the Death Force series of military thrillers and the founder of Lume Books, an independent publisher.