Give workers a stake

The UK has one of the highest levels of regional inequality in Europe, so it is crucial for us to focus on the challenge of making sure any benefits growth are spread across the whole country. 

Coming up with just one key idea for this new social contract is a challenge. But the one I would pick is – which may come as a surprise – is shared ownership, giving workers a greater stake in the companies that employ them. 

We know that wage growth has stagnated for many since the global financial crisis and we are facing serious generational inequality, but the problems faced by our young people do not only revolve around pay. They centre on wealth too. So, we need to think more innovatively about how workers can gain from the returns of their labour at a time when capital has become more concentrated in the hands of a few people. 

Some businesses are already following a range of ownership models – we have mutual organisations, cooperatives, employee-owned companies and many listed companies provide a means for employees to share in the returns of their employer through share ownership schemes. But the take up of these schemes is actually very low. So, we need to make such existing schemes work better.  

Any proposal for inclusive growth through shared ownership needs to ensure that it creates the right incentives for employees and companies to focus on investment and returns over the long term. An increase in short-termism would be a step backwards.  

But importantly, we need to think about mechanisms that work well across a range of companies , because the vast majority of companies – from small cornershops to startups to growing firms of all sizes– are not listed. In the UK, we have 2,500 companies listed on the London Stock Exchange, but 5.7 million businesses. 

And we also need to make sure that schemes are inclusive and support people working part-time as well as improving financial literacy. Schemes need to be simple to understand and to benefit from,.  

So, maybe we could build on the success of auto-enrollment pension programmes – since that is one of the most successful ways in which people have been able to share in the returns of capital. It has been and continues to be a huge success in ensuring people have savings to live on during retirement, but we need a way to enable people to access capital and savings before the age of 65.  

A programme, like an ISA, where employers and employees put away money on a regular basis to promote saving by default, which people could access before their retirement, could be a very effective way of doing so. 

This may be preferable to just increasing employees’ stake in the company they work for, since it prevents having too many eggs in one basket, diversifying risk and pooling the returns of economic growth.  

More radical options have also been put forward by academics, such as Matt Bruenig, proposing the establishment of a sovereign wealth fund that invests on behalf of its citizens and then distributes the dividends back to them each year. 

We need to consider these big, innovative ideas. And for this to work properly, policymakers and businesses need to talk to each other and work in partnership since it only through such a dialogue and working together that we will be able to make inclusive growth a reality.

Rain Newton-Smith is Chief Economist at the CBI

This post is a summary of Rain’s remarks at the APPG’s Future of Work and Inequality conference