Promoting employee ownership is an opportunity to empower Brits and boost the economy, writes Bartek Staniszewski
Buying British can be a little, everyday expression of patriotic fervour. By buying British products, the thought process is that one is helping British companies and the plucky Brits that run them. This desire is so strong that, recently, both Aldi and Morrisons added a ‘buy British’ section to their respective websites; around two-thirds of Brits are more inclined to buy a product if it is UK-made. Alas, today, increasingly many UK companies are British in name only.
Over the last few decades, the profits made by UK companies have increasingly gone not into the hands of locals, but to overseas investors. Currently, over 57 per cent of shares in UK firms are held by overseas investors, and increasing. As such, the brand of many UK firms may be British, but the ultimate beneficiaries are not. It is a relatively recent phenomenon; as recently as 1981, the same was true for only 3.6 per cent of UK-quoted shares.
This is not merely a disappointment for civic patriotism, but also a problem for the UK economy. Any profits that end up overseas instead of in the UK will most likely also be spent overseas. Money that could otherwise have gone to a UK greengrocer will instead fuel the retail sector in another country, and investment made from such profits will likely strengthen an economy overseas instead of helping the very country that produced them.
UK individuals, in particular, have lost out. It is they who, once upon a time, owned the majority of UK-quoted shares. In 1963, 54 per cent of shares in UK firms were held by UK individuals. Today, they own less than 11 per cent. The remaining 89 per cent belongs to financial institutions.
But it is UK individuals who need UK shares the most, especially now. Today, about a third of the UK population have less than £1,000 saved. About two-thirds would not be able to last for three months without borrowing money. Savings in the form of shares would be a natural means of remedying that. Dividends from said shares would also boost incomes, and individuals, unlike financial institutions, are overwhelmingly likely to spend said income locally, boosting the local economy.
Conversely, financial institutions are much more likely to spend the profits they derive from dividends abroad. Even when they do spend them in the UK, it is often either to pay their already relatively well-paid staff, or to make investments that are not always beneficial for Britons. Speculative investment in property, for example, has the potential to price out families looking for a home to live in.
The government should attempt to change the situation, but the firms that sold their shares to overseas investors presumably did so because it benefitted them. Any attempt at fixing the issue would have to offer firms some other benefit.
A win-win solution would be for the government to resurrect its effort to promote employee business ownership. Such efforts were made, most recently, by the coalition government, and could allow millions of UK employees to own shares in the businesses they work for. They then benefit from the extra income and savings, while the firms that employ them benefit from as much as 12 per cent extra productivity, superior innovation and much-improved resilience to economic downturns.
Employee ownership would be particularly valuable in sectors where average pay is relatively low – the resultant boost in otherwise low-paid employees’ savings and incomes could go a long way to improving the UK’s wealth and income inequalities, killing two birds with one stone.
Whoever ends up in Number 10 at the end of this year must not let the employee ownership opportunity go amiss.