Apply a ​‘John Lewis law’ to businesses to give workers more control

Bringing forward new laws to put workers in the driving seat of business can help to tackling challenges such as low productivity or small business failure, according to a new report by the New Economics Foundation.

The report ​‘Co-operatives Unleashed’, commissioned by the Co-operative Party, looks at how to grow the size of the UK co-operatives sector and argues that businesses that serve a clear purpose and that are owned by their workers or customers offer a trend-bucking advantage compared to the wider business sector.

The report proposes a radical package of measures that would be needed to grow the UK’s Co-operative, employee-owned and mutual sectors. These include giving workers a ​‘right to buy’ when businesses are changing ownership, setting up a national Co-operative Development Agency to support and promote coops and introducing a ​‘co-operative enterprise grant’ for those facing unemployment or receiving in-work benefits

Co-operatives Unleashed further proposes a new ​‘John Lewis law’ — an Inclusive Ownership Fund into which shareholder- and privately-owned businesses would be required to transfer a small amount of profit each year in the form of equity. The Funds would be controlled collectively by workers or wider stakeholder-owned trusts and would steadily increase their control and ownership.

New NEF analysis, also contained in the report, suggests that if just 5% of the 120,000 family-run SME businesses in the UK likely to be facing a transfer of ownership in the next three years transitioned to employee ownership the UK could double the number of co-operative and employee-owned businesses. With many family firms not able to find clear lines of succession, the transfer of ownership to employees could ensure the stable and sustainable future of many of Britain’s SMEs and that they retain the original purpose.

As well as wider Inclusive Ownership Fund, the report recommends a five step package of measures to stimulate a rapid and significant expansion in the size of the UK’s co-operatives sector. These are:

• Creating a Co-operative Economy Act – a new legal framework to: underpin the creation of co-operative indivisible reserves and an asset lock; introduce a right to own to support employee buyouts/​cooperatisation of existing businesses; underline a duty to develop the diversity of corporate forms; establish a Co-operative Development agency.
• Developing a range of financial instruments and institutions tailored to the needs of the co-operative economy including: a National Investment Bank; a new model of co-operative financing to allow non-member investment; the creation of mutual guarantee societies; a tax relief on profits reinvested in asset-locked indivisible reserves; and the introduction of a co-operative enterprise grant for those facing unemployment or receiving in-work benefits.
• Deepening co-operative capabilities through a Co-operative Development Agency to: facilitate knowledge exchange among co-operatives; support co-operative business development; fund the development of a common digital infrastructure for coops; provide technical support in worker buy-outs.
• Transforming business ownership by: promoting co-operative or more democratic options of business-ownership at the point of business transition; introduce a ​‘right to own’ to support employee buyouts and co-operatisation of existing business.
• Accelerating community wealth building initiatives by: requiring local authorities to produce place-based industrial strategies; introducing a new approach to create genuine and powerful place-based localism; encouraging local procurement and commissioning strategies; supporting coops and other local businesses to bid for angor institution contracts (via local authorities, unions, community/​social enterprises).

Sara Mahmoud, Senior Economist at New Economics Foundation and co-author of the report, said:

“Co-operatives have been sound UK businesses for almost two centuries, but at a time of deep economic uncertainty and concern about who owns our businesses, this could be their moment. But this will not happen by accident — a coherent package of legislation and policy is needed to unleash the potential of coops.

“It’s no coincidence that the co-ops sector in many other countries enjoys a much greater share of business turnover than in the UK. This is because those countries have policies and agencies to shelter and support their co-ops and that’s because they recognise that coops aren’t just nice businesses, they’re also good businesses.

“Creating an economy that addresses the real-world challenges we face, such as an ageing society or climate change, and produces goods and services designed to meet these challenges, is immeasurably more difficult if control lies in the hands of powerful shareholding conglomerates whose habitat is capital markets. Stimulating a rapid and significant expansion of coops while also transforming the way all businesses more generally are owned and controlled is a really key way of achieving this change.”

Claire McCarthy, General Secretary, Co-operative Party said:

“The Co-operative Party is ambitious for the co-operative movement, which was why we commissioned this major independent report by the New Economics Foundation. The nation which gave birth to the modern co-operative movement deserves a sector at least comparable in size and impact to that found in other countries.

“Today’s report fires the starting gun on an exciting, and desperately needed, transformation of our economy. The recommendations provide a roadmap to a better, fairer and more productive economy that delivers rewards to the many. It is unashamedly ambitious and demanding; and challenges policy makers to think bigger.

“The benefits of co-operation are clear, we know that substantial growth in the sector provides a true alternative to business as usual. The co-operative movement and its political party stand ready to play our part.”

Notes to editors

Co-operatives Unleashed will be published at 00.01 Tuesday 3rd July at www​.newe​co​nom​ics​.org. Embargoed copies availble from the press office.

In 2017 there were around 6,000 co-operatives, with 13.6 million members and just over 226,000 employees and 118,000 workers and freelancers working in co-operatives.

Case studies are available on request including: Mondragon, Italian co-operativism, the Preson model, Co-operative Development Scotland.

The UK has disproportionately fewer co-operatives and mutuals than most other OECD countries. Germany has a co-operative sector four times the size of the UK’s as a proportion of GDP and France six times, while in the Netherlands, Finland, Sweden and New Zealand co-operatives amount to between 5 and 10% of GDP compared to 2% in the UK. In the EU, where the income for the sector is €1.3 trillioneach year, people are twice as likely (20% of EU citizens) to be a member of at least one co-operative than a shareholder in a listed company (11% of EU citizens). In 11 countries in the EU, including Germany, France, Italy, Spain, Denmark and Sweden, co-ops and mutuals are worth a per capita income of over €2,000 per citizen each each, compared to between €350 – 2,000 in the UK.

Download the report