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and is probably more sympathetic to the introduction of new machinery or work practices. However, a company does not benefit if it simply uses such schemes as a way of warding off takeovers.5 Loyalty is important not only for the company itself but also more widely, since a company with a loyal workforce is far more likely to spend money in its training and development, a matter seen as a real problem when the UK is compared with other countries. When the logic of such reward systems became too obvious, as in the case of the newly privatised companies which made substantial profits in cutting expenses by making staff redundant, the populist streak of Conservatism meant that benefits were restricted (eg the £30,000 limit imposed in 1996). By contrast (Old) Labour governments have traditionally been hostile to schemes attracting tax privileges, and have usually sought to impose tax penalties. Profit-sharing schemes have been anathema both to the hard left (collaborationist) and the right-to-manage right, but one can oppose them on other grounds. Some critics emphasise that options may become valueless due to a change in the general market conditions even though the company itself has been successful in comparison with other companies in the sector in which it competes. Such critics prefer long-term incentive plans using such comparisons.6 The Liberal Democrats7 were responsible for the introduction of Savings related option Schemes and approved profits sharing schemes in the period of minority government from 1977–1979. |
Secondly, much of the practical effect of the different schemes must be assessed against a changing background of the relationship between income tax and CGT. The alignment of the rates of tax in 1988 reduced the advantage of having capital gain rather than income; however one now has the complications of tapering relief. The question whether it is better to have capital gain or ordinary income depends on the individual taxpayer’s circumstances. |