Doubling the size of the co-operative sector

The original co-operative and mutual societies were created as a way for ordinary people to come together to provide mutual self-help for their members – from good quality affordable food to fair rewards for their labour and protection against sickness and unemployment.

Today’s communities face a crisis of eroding rights in the workplace, rising living costs and stagnant wages. While the country is a very different place to when the Co-operative Party was founded a century ago, the solutions offered by co-operatives are as pertinent and important today as they were then. By existing to provide a service for their members rather than generate profits for external shareholders, co-operative and mutual enterprises are the key to creating an economy that puts people before profit.

Co-operative enterprises are more resilient than conventional businesses, and economies with a thriving co-operative sector have a narrower gap between the rich and poor – as seen in communities like Emilia Romagna in Italy where co-operative enterprises generate close to 40% of GDP in the province and which has the lowest socio-economic inequality of any region in Europe. Similarly, Mondragon in Spain, home of one of the world’s largest industrial co-operative societies, has among the lowest inequality in Europe.

The co-operative sector in the UK is currently worth £37 billion to the economy each year. This is still smaller than many European countries. The Co-operative Party calls on the next government to commit to at least doubling the size of the co-operative sector.

The Government has an important role to enable the growth of the sector – in creating a level playing field for co-operative businesses to thrive, providing tailored support, and reducing tax and regulatory burdens. Britain should be the best place to start or grow a co-operative business.

Levelling the playing field

Co-operative and mutual enterprises continue to operate under a regulatory framework that can disadvantage them in contrast to company law. In some sectors like energy, the regulation is ill-suited to co-operative business models, leaving them at a further competitive disadvantage. There should be a review of laws applying to co-operative and mutual enterprises to ensure they benefit from a level playing field.

To start, the government must provide official recognition of co-operatives as inclusive business models, and introduce a new statutory ‘duty to foster diversity of corporate reforms’ to enable a new culture of co-operative entrepreneurship.

This would include amending the government’s Impact Assessment on new legislation and regulation, to ensure that all legal forms are properly considered, and to identify and remove burdensome unintended consequences of new government policy.

The Inclusive Economy Unit, currently within the Office for Civil Society at the Department for Culture, Media and Sport, should be strengthened and moved to the Department for Business, Energy and Industrial Strategy (BEIS), and benefit from the appointment of a new Minister for Mutuals. The Minister should be tasked with developing a roadmap for policy development in Whitehall aimed at making co-operative options more user friendly, removing the unnecessary red tape faced by many co-operatives and allowing them to adopt a statutory asset lock if they choose. There is a strong case that current Treasury support for Co-operatives and Mutuals should be moved to the new unit within BEIS to ensure the new unit is as well placed as possible to drive the promotion of the co-operative economy.

Mutual reform

The law applying to mutuals should be reformed so that they have the opportunity to choose a legally binding corporate form that enshrines the principle of ‘disinterested distribution’ common in other EU states, ensuring that there can never be a benefit from ‘cashing out’ because the assets must be transferred to another mutual.

Corporation tax, business and non-domestic rates exemption

Community benefit societies are non-profit distributing businesses that exist for a specific social purpose. While several of these are also registered as charities, this can be a difficult bureaucratic hurdle to navigate for some smaller organisations. As businesses solely concerned with social outcomes, the government should exempt community benefit societies from paying corporation tax and business and non-domestic rates.

Access to funding

Regulation and law should be changed to ensure co-operatives are better able to access investment. Given their unique structure, they are often excluded from traditional investment methods. A new funding model for co-operatives must be developed, based on a similar model to the permanent interest bearing shares (PIBs) pioneered by the Building Societies.

Many co-operative projects rely on community share offers. Currently, individual investment limits mean there is a ceiling on the amount that can be invested in a co-operative project. As well as addressing this issue, there are suggestions within the co-operative movement to develop a co-operative investment fund, which could invest in the debt and/or minority holdings and non-voting equity of co-operative businesses and projects. This would enable investors to fund not only single projects, but to acquire a diversified co-operative portfolio without undermining the co-operative principles and operation of each individual project.

Patient capital and pension funds

Long-term institutional investors have enormous potential to act as providers of ‘patient capital’ and as responsible owners of businesses at home and abroad, but Britain’s investment markets are dysfunctional. We urgently need a more accountable investment system that would give more opportunities for greater scrutiny and participation by savers.

Mutual Guarantee Societies

Mutual methods of working for SMEs across Europe ensures that there is another avenue for attracting investment. Mutual Guarantee Societies (MGS), which have several forms and legal underpinning, allow up to 9% of all European SMEs to work together, pay in to a MGS and more easily access banking lending. The Co-operative Party believes that for the UK to have just one MGS – the British Business Bank – does not allow British SMEs to be as competitive and as well placed to innovate as their European counterparts. A new government must provide the appropriate regulatory guidance to allow MGS to form.

A British Investment Bank

A new investment bank should be created along mutual lines, in addition to the British Investment Bank and new mutual guarantee societies, which is jointly owned by bondholders and the UK Government. The Bank should support the expansion of the co-operative, mutual and social enterprise sector through the provision of patient risk capital.

Enterprise Investment Scheme

Changes to the Enterprise and Seed Enterprise Investment Schemes should be made to ensure that asset locked mutuals have access to funding. Currently, small asset-locked mutuals are unable to benefit from the EIS due to the limited role that external capital plays in member-owned organisations. Where mutuals decide to opt for an asset lock, their retained profits should qualify them for tax relief under EIS.

Employee ownership

Ownership matters. Who owns a business dictates in whose interests it is run. In progressive politics, we have rightly been concerned about ownership in the public sector and of public services, and stood up to the privatisation of public services and infrastructure. The Co-operative Party believes we must be equally concerned about ownership in the private sector.

Companies and organisations in which employees have a real influence, in particular where this comes in parallel with an ownership stake, are more productive than organisations where this is not the case. In these organisations workers are happier, better remunerated and more productive.

This can be seen, for example, in the performance of co-owned companies. The Employee Ownership Index compares the share price performance of companies that are more than 10% owned by employees or employee trusts with the performance of FTSE Companies. Since 1992 the EOI has outperformed the FTSE by an average of 10% a year. In cash terms, an investment of £100 in the EOI in 2003 would have been worth £754 in 2014. The same investment in the FTSE would have been worth just £280.

There is clear appetite for this route to inclusive, balanced growth and increased productivity, as can be seen from results of recent YouGov polling which found that 68% of people in work feel they have no control in their workplace. By giving employees a stake in their business, workers are provided with economic gain and the companies become more responsive to their frontline staff. The appropriate incentives, support and funding must be put in place by the government to significantly grow employee ownership across Britain’s economy.

Tax relief

Tax relief should only be offered to all-employee share ownership schemes that, require employees to purchase and hold shares for a number of years in order to benefit. This would save the Government £285m per year, which should be invested in giving permanent employee benefits trusts the same tax treatment as temporary schemes, developing new schemes that give employees a collective democratic choice, and a new Co-operative Entrepreneurs’ Programme to augment existing start-up support.

Employee buyouts

Employee buyouts show how self-help and co-operation can build resilience into our economy, saving productive businesses and providing an attractive option for business sucession. Because they transfer ownership to employees, there is a guarantee of the new owners taking a genuine interest in an enterprise’s long-term success.

New legislation should give employees a statutory ‘right to request’ employee ownership during business succession, alongside an ‘early warning’ resource capable of informing workforces in advance of insolvency or disposal of a viable business. This would enable employees to assess the scope for acquisition and prepare a bid.

The Co-operative Party calls on the next government to also be more proactive in supporting the process of employee buyouts, in particular giving the employees the financial freedom to do so when needed. For example, Italy’s ‘Marcora Law’ provides funds and business support for employee buy-outs, and has returned an economic return of 6.8 times the capital invested by the funding mechanisms. The government needs to build on the lessons from innovative policies like this to adapt and adopt them in the UK – the existing British Business Bank could be strengthened to become an important lending and guaranteeing institution within the delivery of a UK version of this law.

Equally, in Spain’s ‘Pagio Unico’ law there is a mechanism by which newly unemployed workers from a private company are able to generate capital to buy the firm through the deployment of three years’ unemployment benefits which the state pays up front. This has proved a valuable tool for increasing employee ownership and divestment of ownership. The government should review the scope for allowing employees to divert a portion of possible redundancy compensation in a tax advantaged way should they choose to take a collective equity stake in a reconstituted business.

Responsible business

Many of the economic and social problems we face in today’s economy can be put down to the lack of accountability of Britain’s big businesses. Some notable exceptions notwithstanding, too many companies have become fixated on short term profit maximisation at the expense of their workers, their customers and the wider economy. From the scandal at Sports Direct to the collapse of high street shops like BHS, it is clear that consumers, employees and high streets pay the price for irresponsible business practices.

Despite the 2006 change to Company Law requiring businesses to focus on long-term profitability and their impact on their stakeholders, little has changed and the news is dominated by stories of rising bonuses at the top, low wage jobs and unsustainable business practices that erode public trust.

Profit sharing

Urgent action is needed to re-establish the link between profits and wages. There should be legislation to ensure that all British businesses with more than 50 employees are obliged to set up a profit sharing scheme with their staff, with a minimum profit share pot set aside based on a calculation of its annual profits and its financial position.

Shake up Britain’s boardrooms

In the European ‘stakeholder’ approach to business, employees are given a formal role in making decisions about how a company is run. All publicly listed companies should have a ‘duty to involve’ their employees at a workplace level, and have representatives of employees on their board. These new rights would operate in addition to, not instead of, the vitally important role that trade unions play in Britain’s workplaces, and the Co-operative Party would like to see a higher penetration of trade union membership and recognition in the private sector.

Duty of stewardship

Business should be required to make a statement of purpose in their annual report, measuring and reporting on shared value rather than simply profit – including their impact on the environment, their employees and their community.

The fiduciary duties of board members should be expanded to include a duty of stewardship to the company’s stakeholders and the long-term future of the business. This should attract new ‘safe harbour protections’ insulating their judgements from legal challenge.

Strengthen board governance

The ability of non-executive directors to challenge should be improved to cut down on an overdependence on managers. For this to take place, they should have confidence that they are receiving independent information but currently in the majority of the FTSE100 companies they are appointed, remunerated and line-managed by the Chief Executive Officer.

The government should modify the Combined Code to ensure that the Company Secretaries are appointed by the non-executive directors, reporting to the chair. Non-executive directors should have their own independent resources and staff.

Protecting private pensions

The takeover code should be reformed so that workers and their pensions don’t suffer when a company is sold or shut down. Irresponsible company owners who put their employees’ private pensions schemes at risk should be held to account.

More power to consumers

Consumers are a key driver of our economy, creating the demand for goods and services and providing jobs and vibrant local economies. In a well-functioning economy, well informed and empowered consumers can improve standards, innovation, supply and value for money.

However, in a system where there is a lack of competition, a focus by business leaders on short term profit maximisation at any cost, inadequate access to information, barriers to shopping around, and exploitative practices, consumers are unable to play this significant role. Consumer harm from unfair trading is estimated at £6.6 billion a year and causes serious structural damage to the functioning of our economy.

The Co-operative Party has championed the rights of consumers throughout its history. We have been responsible for legislation that underpins much of today’s consumer protection. However, this is now out of date and consumers too often face an uphill battle for a fair deal or proper redress. Brexit risks the further erosion of consumer rights, as many of the rules protecting customers come from the EU.

We want to see the government once again as a consumer champion, leading a consumer revolution that rewards the companies who behave fairly and ethically in everyone’s interests, rather than those who maximise profits for the few.

Consumers on boards

Britain’s businesses lack the scrutiny needed to prevent bad corporate behaviour and to ensure consumers get a fair deal. Corporate governance requires urgent reform so that, where appropriate, consumers have a voice on company boards.

A single Consumer Ombudsman

There are at least 17 different Ombudsman services and fourteen different recognised complaint handling services. Navigating this confusing system makes it harder for consumers to get justice. There should be a single Consumer Ombudsman with US-style powers and the ability to take up class actions on behalf of consumers against companies.

Access to impartial advice

Legislation should go further and ensure that consumers are given access to accurate and portable information. Too many companies are opaque in their dealings, obscuring charges and costs to hold on to customers or to overcharge them.

Access to advice and advocacy services are also important. Having access to independent advice can help consumers understand their rights and resolve problems more quickly. A new duty should be placed on statutory regulators to report annually on the provision of free independent advice available to consumers purchasing services in their sector.

negotiate them for a wide range of services from energy to banking, and provide a new weapon in their fight for a fairer deal.

Collective action

Consumers deserve the right to access their data in a meaningful format and to be allowed to share it. The government should bring forward legislation to create a framework for Next Generation Intermediaries (NGIs) – these ‘consumer clubs’ need the ability to use data shared by consumers to negotiate services on their behalf. NGIs would enable consumers not only to individually compare prices but to collectively

Competition and Markets Authority

It is vital that the Competition and Markets Authority (CMA) remains responsive to consumer concerns, acts on the priorities of consumers, and works closely with other consumer champions. The government needs to put CMA reform at the top of the agenda and introduce an annual ‘Competition Health Check’. Led jointly by consumers and the competition authorities, the annual health check would ensure regulators and politicians act where markets do not work in the public interest.

The gig economy

The nature of work in Britain is changing. There have been high profile examples of companies profiting from the insecure, low wage labour of their drivers and riders. While to many of us these workers look a lot like employees, their self-employed status means they go without sick pay, job security, minimum wages or pensions.

This new ‘gig economy’ is hailed as providing flexibility and freedom. Its proponents assert that self-employment is an active choice for a ‘new generation of agile, go-getting workers’. However, it is increasingly clear that the winners are the owners, while workers in bogus self-employment are not receiving the proper reward for their labour.

The co-operative movement emerged as a way to empower people who were being left behind. Much like when, 150 years ago, the self-employed garment workers and launderers came together, we believe the co-operative model continues to have much to offer in this area. Similarly, the work of trade unions to challenge this definition of self-employment is incredibly important, and we want to see the riders, drivers and cleaners of the new gig economy able to organise and be represented in their daily working lives.

A voice for self-employed workers

The interests of self-employed workers are poorly represented in national policy making. The Department for Business, Energy and Industrial Strategy should identify how to create a voice for self-employed workers in business policy, regulation and commissioning, learning from the way in which the wider small business community has successfully become recognised.

Support self-employed workers to organise

The rights of workers to trade union representation in the workplace must be enforced in every business – including those that rely on a largely self-employed workforce.

Many self-employed workers are forced to rely on expensive, profit-making agencies. The government should play an active role in supporting self-employed workers who are organising themselves into co-operatives and starting service co-operatives, through improving access to start-up advice and investment, and ensuring that they have a level playing field to compete with big commercial enterprises.

For example, the Link Psychology Co-operative in Preston is a consortium of self-employed educational psychologists who offer services to schools. Their co-operative model enables them to join forces to gain mutual benefits such as access to administrative support, marketing services and training.

Employment co-operatives

The Department for Work and Pensions should explore the potential for employment co-operatives for people on benefits such as Job Seekers Allowance. This would mean that unemployed people would not lose out on the security of their benefits payments while they start out as self-employed workers, and enable them to access the collaboration, services and mutual support of the co-operative.

Support for the development of mutual aid and insurance would help self-employed workers who experience or are at risk of periods of unemployment. For example, ‘Bread funds’ in the Netherlands enable freelancers to pool the risk of periods of unemployment by creating funds into which freelancers can pay when they are working and then draw upon if they are not able to work.

Fairer, transparent taxes

Society relies on tax revenues to provide essential services. Individuals and business alike should pay tax in the countries in which they earn it. High profile examples of companies, and individuals, being seen to avoid tax to extreme levels have exposed a system that requires significant reform.

On the other end of the spectrum, while some multinationals get away with going to any length to reduce their tax bill, the increase to business rates is putting an unnecessary and damaging burden onto small businesses.

The Co-operative Party wants to see a more equitable system of taxation for businesses in the UK which enables small, regional and co-operative businesses to grow while ensuring big businesses play by the rules and contribute their fair share.

Tax transparency

Tax transparency is key to ensuring that UK businesses are paying their fair share of tax. Measures such as the Fair Tax Mark will make it easier to reward firms doing the right thing and identify those who are not.

Country by country reporting

Companies who shift profits to tax havens should play by the same rules as every other business. The Treasury should use its powers under the Finance Act 2015 to properly enforce country-by-country reporting for global corporations, so that public scrutiny of corporate behaviour can put pressure on businesses to be more responsible.