A scheme that could save thousands of furloughed jobs in small businesses and turn employees into shareholders is proposed in a new report Partnership Fund for Jobs.
The plan would let employees turn part of their pay into shares in the business where they work, with Government matching that sum via the British Business Bank. Both investments would act as convertible loans to the company, carry interest at 8% per annum and would be converted into equity after 3-5 years.
Author Nigel Mason says the plan would reduce companies’ costs in the short term, inject new capital into the firm and save many furloughed jobs that pandemic hit businesses may otherwise have to cut.
The plan Partnership Funds would be quick to implement, the author says, because an emergency Government investment scheme and an established vehicle for employee shareholding both already exist – the Future Fund and the Employee Benefit Trust (EBT) respectively.
Without such a plan there is a danger that winding down the furlough scheme will cause many businesses to make large numbers of employees redundant, and/or go to the wall, the report claims. It would be open to all privately-owned firms where the majority of employees and/or sales are based in the UK.
In a foreword to the report, Employee Ownership Association CEO Deb Oxley says: “The pandemic has presented UK business with an unprecedented threat. Without extraordinary and continuing measures thousands of companies may go to the wall, taking an incalculable number of jobs with them.
“This plan is innovative, but pragmatic. It builds on Government schemes that are already there; it requires no new institutions, no new legislation and it harnesses a movement already powering over £30 billion worth of turnover in the economy – namely employee ownership.”
A Partnership Fund for Jobs is published today by think tank Ownership at Work with the support of the Employee Ownership Association. Nigel Mason is a senior associate and former director of consultants RM2 who are sponsoring the paper.
Under the scheme, the employee stake would be held by the trustees of an EBT, to ease administration and provide a degree of protection and oversight for employees, with guaranteed conversion into cash by the company at market value within a few years, possibly by way of a share buy-back, a refinancing, a trade sale or sale to an Employee Ownership Trust (EOT). To make the idea as “shovel ready” as possible, it is modelled closely on the Government’s recently launched Future Fund, which has been three times over-subscribed.
Author Nigel Mason said: “This is about helping companies over the coming months, once furlough has ended, to tide them over until summer 2021, by when a new version of “normal life” and normal trading should have resumed. It’s not about bailing out failing companies, but easing the strain on cashflow for a finite period and strengthening companies’ balance sheets.”