Top UK employers urge Jeremy Hunt to reform all-employee share plans to support younger and lower paid employees and to increase productivity

Major UK employers, including Diageo, easyJet, Legal & General, and Vodafone, have today written to Jeremy Hunt, the Chancellor of the Exchequer, to urge him to open up Share Incentive Plans (SIPs) to young and lower paid employees by reducing the tax-efficient holding period from five to two years.

It is 23 years since the SIP was first introduced - and it has been a huge success over that time, benefiting many millions of employees - but it must now change with the times. Reducing the SIP holding period to two years will help us unleash a new wave of employee share ownership for the next twenty years.

Murray Tompsett, Head of ProShare, the industry body for the sector, commented:

‘The Chancellor has said he wants to back British business to ‘unlock growth’, This one simple reform would demonstrate he is listening to our leading companies. Shortening the SIP holding period for all employees would support business by boosting productivity while being eminently affordable.

It would also target tax relief at employees who struggle more with the cost of living, including younger staff, the lower paid and those on part-time contracts. Making this change will help unleash a new wave of employee share ownership for the next twenty years.’

SIP participants benefit from two tax reliefs to National Insurance and Income Tax. However, in order to qualify for these reliefs in full, the employee must hold the shares in the SIP trust for the full five years. This five year holding period has now, for a growing number of employees, become a barrier to participation in the SIP. HMRC’s data demonstrates that the number of employees who are awarded or purchase shares in a SIP has fallen over the last decade .

These companies know from conversations with their own staff, and from wider sector data, that young people, those on lower pay and part time staff in particular are put off investing in SIPs. Job tenure is falling and many don’t expect to be at the same company for more than three years, let alone five, and for many companies tenure is also considerably shorter for lower paid workers. With the prospect of penalties for early exit from the SIP, committing to a five year investment means that SIPs currently are not relevant for many employees, with the issue exacerbated for younger and lower paid groups.

The more employees participating in a SIP in any one company, the more motivated and productive their workforce will be. Participation in a SIP increases employee loyalty and engagement, and is proven to increase company productivity. But the current five year holding period locks staff into plans for longer than many are comfortable with, and takes away the benefits if they choose to exit early.

SIPs have the potential to directly support the government’s policy-making agenda. Employee share plan participants are spread across the UK, so increasing the use of the SIP by all groups of employees, including removing barriers for lower paid employees, share plans can form part of the approach towards Levelling Up helping to tackle disparities in relative prosperity and productivity across regions in the UK.

For companies which are committed to good corporate governance and fostering strong employment relations, the SIP is a fantastic tax-advantaged vehicle but the current rules are limiting the rates of participation.

Murray Tompsett, Head of ProShare further commented,

“Share incentive plans have long been regarded as a vital way to widen share ownership and to strengthen the ties between employees and companies. The five-year rule has been a problem for many years and we urge the Chancellor to act without delay to remove this archaic rule. Reducing the holding period to two years will help us unleash a new wave of employee share ownership, whilst boosting productivity.”

- Ends -

For further information, please contact David Mortimer, Head of External Affairs, ProShare, dmortimer@cgi.org.uk, Tel: 07904012673.

Notes to Editors:

1. Signatories to the letter to the Chancellor, all of which issue SIPs:
   
   abrdn plc, Achillies Therapeutics plc, Admiral Group plc, Aviva, Babcock International Group PLC, BAE Systems, Bally’s, Bango, BAT, Beazley PLC, C&C Group PLC, Coco Cola Europacific Partners, Croda International Plc, Diageo, easyJet plc, Funding Circle Holdings plc, Haleon plc, Halma plc, Harbour Energy, Helical plc, Howden Joinery Group Plc, Informa PLC, Jupiter Asset Management, Kingfisher, Legal & General, LendInvest plc, M&G plc, National Grid, Pearson, Trainline plc, Vanquis Banking Group plc, Vodafone,
   
   The letter is also supported by: Clifford Chance LLP, Computershare, Equiniti Limited, Eximia, Link Group, Mazars LLP, RM2 Partnership Ltd, ShareGift, Tapestry Global Compliance Partners

2. ProShare is an industry body representing all areas of the employee share plan sector. Its corporate members include many of the UK's largest employers.
   
   ProShare  was established in 1992 by HM Treasury, a group of FTSE 100 companies and the London Stock Exchange to promote employee share plans and wider employee participation. Today, it works with companies of all sizes and across all sectors, as the voice of employee share plan practitioners and professionals. ProShare is a non-partisan organisation and has been part of the Chartered Governance Institute UK and Ireland since 2018.
   
   The Chartered Governance Institute UK & Ireland is the professional body for governance and the qualifying and membership body for governance professionals across all sectors. Its purpose under Royal Charter is to lead ‘effective governance and efficient administration of commerce, industry and public affairs’ working with regulators and policy makers to champion high standards of governance and providing qualifications, training and guidance. As a lifelong learning partner, the Institute helps governance professionals to achieve their professional goals, providing recognition, community and the voice of its membership.
   
   One of nine divisions of the global Chartered Governance Institute, which was established 130 years ago, The Chartered Governance Institute UK & Ireland represents members working and studying in the UK and Ireland and in many other countries and regions including the Caribbean, parts of Africa and the Middle East.
   
   Website:  www.cgi.org.uk

3. The word ‘Institute’ is one of the ‘sensitive words or expressions’ restricted under the Companies Act 2006. s1194(1) of the Act provides that “A person must not, without the approval of the Secretary of State, carry on business in the United Kingdom under a name that includes a word or expression for the time being specified in regulations made by the Secretary of State under this section.” As a Royal Charter body, The Chartered Governance Institute UK & Ireland is legally entitled to use this term and has no connection with other training providers with similar names, calling themselves an ‘Institute’ without the necessary approval to do so.

4. Full text of letter
   
   Dear Chancellor,
   
   Call for Evidence: SIP holding period to change from 5 to 2 years
   
   The companies who have signed this letter have asked that we write to you on their behalf.  These are companies who all operate Share Incentive Plans (SIPs) for their employees and we urge you to consider introducing a simple but vital reform to these plans to encourage greater participation: the reduction of the SIP holding period from five to two years.
   
   As you will be aware, SIP participants benefit from two tax reliefs; to National Insurance and Income Tax. However, in order to qualify for these reliefs in full, the employee must hold the shares in the SIP trust for the full five years. This five year holding period has now, for a growing number of employees, become a barrier to participation in the SIP. You will be aware from HMRC’s own data that the number of employees who are awarded or purchase shares in a SIP is falling. The trend over the last decade - comparing the most recent available data (2020-21) with the 2010/11 data - is one of declining participation. HMRC data shows the number of employees who purchased partnership shares fell from over 4m to under 3.5m over the decade, and the number who awarded matching shares also fell, from almost 2.7m to 2.43m.
   
   These companies know from conversations with their own staff, and from wider sector data, that young people in particular are put off investing in SIPs. Job tenure is falling and many don’t expect to be at the same company for more than three years, let alone five, and for many companies tenure is also considerably shorter for lower paid workers. With the prospect of penalties for early exit from the SIP, committing to a five year investment means the plan is not relevant for many employees, with the issue exacerbated for younger and lower paid groups. The more employees participating in a SIP, the more motivated and productive our workforces will be. SIP participation should be a carrot not a stick. Participation in a SIP increases employee loyalty and engagement, and is proved to increase company productivity. But the current five year holding period locks staff into plans for longer than many are comfortable with, and takes away the benefits if they choose to exit early.
   
   SIPs have the potential to directly support the government’s policy-making agenda. Employee share plan participants are spread across the UK, so increasing the use of the SIP by all groups of employees, including removing barriers for lower paid employees, share plans can form part of the approach towards Levelling Up - tackling large disparities in relative prosperity and productivity across regions in the UK.
   
   These companies are committed to good corporate governance and fostering strong employment relations. The SIP is a fantastic tax-advantaged way for us to do this, but the current rules are limiting the rates of participation. It is 23 years since the SIP was first introduced and it has been a huge success over that time, benefiting many millions of employees. But it must now change with the times. Reducing the SIP holding period to two years will help us unleash a new wave of employee share ownership for the next twenty years. As you consider reforms to share plans, following the Treasury’s Non-Discretionary Tax Advantaged Share Schemes Call for Evidence, we hope that you give serious consideration to this proposal.
   
   Yours sincerely,
   
   Murray Tompsett
   Head of ProShare