How Many Employee Ownership Trusts Are There In the UK? (And Why Are They Becoming So Popular?)

The employee ownership market has been growing at an increasing rate over the past decade, but exactly how many Employee Ownership Trusts (EOTs) are there in the UK?

In today’s blog, we are going to take a closer look at the burgeoning sector and explore how the number of employee-owned businesses stack up, what has driven this growth and take a look at some of the UK’s most prominent employee-owned businesses.

So without further ado, let’s get started.

How Many Employee Ownership Trusts Are There In the UK?

Where It All Began

Almost a decade ago the Finance Act of 2014 introduced specific legislation to encourage the growth of employee-owned businesses.

But it was two years previously the process started when Graeme Nuttall conducted his independent review for the UK Government on employee-owned companies.

The 2012 Nuttall Review showed that such companies tended to outperform other businesses and were more resilient in terms of economic downturns.

Subsequently the Finance Act 2014 introduced two key reliefs to encourage companies to move towards employee ownership:

• Business owners can sell their company, for a fair market value, with zero capital gains tax payable on the proceeds.
• Employees working for an EOT-controlled company can benefit from tax-free bonuses of up to £3,600 per year, per employee. 

So how successful have these measures been in encouraging employee ownership?

Let’s Talk Numbers...

A decade after his review was carried out Graeme Nuttall was in no doubt how successful it have been:

I like to think we’ve reached the point I originally set out to achieve – to make employee ownership a mainstream business model.

Figures released by the Employee Ownership Association (EOA) at the start of 2023, more than bear this out.

The EOA releases data both around the number of EOTs in the UK and employee-owned businesses in general.

Let’s start more generally with some of the headline figures around employee-owned businesses:

• By December 2022, there were 1,300 employee-owned businesses in the UK.
• 2021 was a record year for growth with 285 businesses making the transition to being employee owned.
• The employee-owned sector has doubled since 2020.

When it comes to EOTs, the numbers are equally impressive:

• By June 2021 there were 576 EOTs in the UK, this was up from 474 in 2020 and 335 in 2019.
• Q1 of 2021 (the most recent year for which there is data) was a record quarter for companies becoming EOTs, with 71 transitioning.
• In January 2021 it was found that EOTs represented 1 in 20 of all private company sales.

Beyond the numbers that reveal an accelerated growth in the sector, the EOA survey also reveals some other positive data about employee-owned businesses (EOBs):

• 90% of EOBs report that employees have some or a lot of say in decisions on working conditions and 85% have some or a lot of say in new working methods.
• The upper end of the employee ownership sector outperforms the rest of UK business in terms of productivity at two or three times the national average.
• Professional services make up the biggest proportion of the employee ownership sector, making up nearly 40% of the total.

Source: Employee Ownership Association.

And there is one company that is most talked about when it comes to the employee ownership model…

Is John Lewis an Employee Ownership Trust?

At the time of writing John Lewis is 100% EOT owned.

At the moment, with over 80,000 employees, John Lewis is by far the biggest employee-owned company in the UK.

It has been employee-owned since 1929.

It has however been in the news recently as they are considering taking investment in return for a minority stake in the business.

There are reports that the company Chair, Sharon White is exploring the possibility of selling a minority stake in the business, to raise somewhere between £1billion and £2billion of new investment.

Campbell McDonald, CEO of the Ownership at Work (OAW) thinktank, believes this shows the strength of the employee ownership model:

The fact that John Lewis is in a position to say, ‘We might temporarily dilute some of our shareholding in order to repair our market position and then buy it back later to get back to 100%’ is further evidence that this can be a very agile and resilient business model, rather than that the whole thing’s broken.

David Alcock, who is a partner at Anthony Collins Solicitors, an employee-owned business, agrees:

It’s been a really difficult time for retailers generally and particularly those who rely on large stores. It’s no surprise that John Lewis has had their challenges when you look at what has happened to Debenhams, House of Fraser, and others. In general, the research shows that employee-owned companies do better in challenging times than other businesses.

Whilst John Lewis is easily the biggest employee-owned business in the UK, there are numerous sizeable companies that have also gone down the employee-owned route in recent years.

What Are Examples of an EOT?

We’ve already mentioned that John Lewis is strides ahead in terms of size, but if you look at the EOAs list of the fifty largest employee-owned companies, there are some other notable names that are employee-owned.

The top five is made up of:

1. John Lewis: 100% employee-owned, 80,000 employees.
2. Mott MacDonald Group Ltd: 100% employee-owned, 15,107 employees.
3. Arup Group Ltd: 100% employee-owned, 14,922 employees.
4. Greenwich Leisure Ltd: 100% employee-owned, 10,167 employees.
5. Howden Group Holdings: 45% employee-owned, 7,494 employees.

Other significant employee-owned businesses include:

• Fosters & Partners Group Ltd: An international architecture firm that has designed many iconic buildings around the world including the Gherkin in London, the Reichstag in Berlin and the Hearst Tower in New York City.
• Go Ape (Adventure Forest Group Ltd): An outdoor adventure company formed in 2002, that runs tree-top adventure courses consisting of zip wires, rope swings, ladders and more, across 34 locations in the UK.
• Richer Sounds: A home entertainment retailer, whose owner Julian Richer sold 60% of his shares to an EOT in 2019.
• Riverford Organic Farmers: An organic farm and vegetable box delivery company based in Devon. Owner Guy Singh-Watson gave 76% of his shares to an EOT in 2018.
• Aardman Animations: The British animation studio famed for producing the Wallace and Gromit series, and the 2000 stop-motion film Chicken Run, the highest-grossing stop-motion film of all time. In 2018 the majority ownership of the company was transferred to its employees to keep it independent.

In June 2022, the EOA estimated that the combined sales of all EOTs in the UK for the year stood at £21.7billion, with over 180,000 members of staff employed in total.

Why Are Employee-Owned Businesses So Popular?

We’ve already taken a more in-depth look in a previous blog post at the benefits of a company being employee-owned, but it is worth reiterating some of the main reasons that have contributed to the sector seeing an explosion in growth:

Transitioning to becoming employee-owned is popular among selling shareholders because:

• The transfer is free of capital gains tax.
• The business is preserved, rather than being sold to a bigger competitor and disappearing completely.
• The owner can continue working in the business to the extent that they choose.

For employees, the benefits are:

• They can receive a share of any profits the company makes, with the first £3,600 per year completely tax-free!
• They have a genuine say in how the business is run.
• They indirectly own a share of the business, without investing anything themselves.

When it comes to the company itself, there are a number of advantages:

• As staff are more invested in the business and benefit from profits, productivity tends to increase.
• As a result, employee-owned companies tend to have a faster growth trajectory.
• As staff feel engaged and part of the business, employee-owned businesses tend to have lower levels of absenteeism and greater retention of staff.

As the founder of Go EO, Chris Maslin, who transferred a controlling stake of his accountancy firm Maslins Ltd to an EOT in 2021, says:

As an employee, you know that if the business makes a profit, you’re entitled to a share of it. Employee Ownership Trusts don’t particularly reward individual brilliance/hard work, the fruits of success are spread. It encourages staff to work together for the greater good. The staff know that if they slack, they hurt themselves and their colleagues, not some rich fat cat at the top. Therefore, productivity tends to increase, staff turnover reduces, the number of sick days drops, etc.

Summary

As you can see, the number of employee-owned businesses has been increasing rapidly since the Government’s Finance Act of 2014 introduced measures to encourage companies to move towards employee ownership.

The most recent figures released by the EOA show that:

• By December 2022, there were 1,300 employee-owned businesses in the UK.
• By June 2021, there were 576 EOTs in the UK.

The accelerated growth is due to the numerous benefits the business model offers to everyone involved.

It also seems the initial research findings that came as part of the Nuttall Review in 2012, have been backed up, employee-owned businesses do outperform other businesses in similar industries and are more resilient in terms of an economic downturn.