The government's decision to halve the Employee Ownership Trust (EOT) capital gains tax relief has sparked intense debate across the employee ownership (EO) community and the wider ecosystem. Ministers have been clear that this is not a retreat from employee ownership. Support for EO as a succession solution remains firm.
But the message behind the reform is unmistakable:
The cost of the relief has grown far beyond expectations — and government may now demand proof that the value matches the spend.
When the EOT regime launched in 2014, HM Treasury forecast it would cost under £100m by 2018–19. Yet by 2021–22 the CGT relief alone had reached £600m, with nearly half going to the largest 10% of disposals. It was on track to exceed £2bn by 2028–29.
The gap between projection and reality had become too large to ignore — and the public value too difficult to evidence. Perhaps understandable, given that most of the growth is fairly recent.
Yet emerging evidence suggests the investment may already be delivering substantial returns. Research by the Employee Ownership Association (EOA) and Ownership at Work (OAW), conducted with the University of Stirling, shows that employee-owned businesses are 8–12% more productive than comparable firms (measured by GVA per employee). They are also less likely to make redundancies, more likely to invest in skills and R&D and collectively contribute £32–41bn to UK economic activity—despite representing only 0.1% of all firms.
These are precisely the kind of productivity and resilience outcomes that justify tax expenditure. The challenge is not whether employee ownership delivers value. The challenge is proving it does so systematically, at scale, and in ways that Treasury can measure and trust.
The real question now facing the sector: Can we build nationally credible, quantitative evidence that demonstrates what the taxpayer receives in return for rising relief costs?
What We Know — and What We Don't
There is emerging and encouraging evidence on the benefits of employee ownership in the UK. But the national picture remains incomplete.
What we have
HMRC's 2025 qualitative evaluation confirms the relief clearly changes owner behaviour — it does incentivise transitions.
The EOA/OAW "People-powered Growth" research findings on productivity, job security, and investment behaviour provide strong signals of economic value.
What we don't have
A system-level analysis linking EOT tax expenditure to fiscal returns
Counterfactual evidence ("what would have happened without EO?")
➡️A vital counterfactual: business preservation
One of the most important — yet untested — hypotheses behind EOT policy is that employee ownership preserves firms that might otherwise close, be sold overseas, or be absorbed into larger competitors. This “succession rescue” effect is widely cited by advisers and business owners.
But we currently have no systematic evidence to answer the core counterfactual question: How many of the firms that transitioned to EOT would have otherwise wound down, sold off jobs, or disappeared entirely?
If even a modest proportion of EOT transitions truly prevent business closure, the fiscal and regional economic value could be significant — but without structured data, this remains an assumption rather than an evidence base.
Longitudinal tracking of jobs, pay, productivity, and investment
Regional resilience analysis (firms through shocks)
The EOA itself, in the same week reliefs were rolled back, announced its Employee Ownership Growth Strategy 2026–2030, which highlights — among other priorities — "convening evidence" and strengthening adviser standards. This work will now be essential.
It is also telling that in this year's Robert Oakeshott Memorial Lecture, Joseph Blasi, Professor and Director of the Institute for the Study of Employee Ownership and Profit Sharing at Rutgers University, highlighted significant data gaps in the UK EO sector: no measure of total UK employee equity ownership; no national count of total employee-owners; no wealth-creation impact analysis; no demographic distribution.
His message was clear:
"You can't manage it if you can't measure it."
The Catch-22 the Sector Must Now Confront
There is an unavoidable tension at the heart of this challenge. The EOT regime is only ten years old, and the overwhelming majority of transitions have taken place since 2021. The outcomes HM Treasury now needs to evaluate — sustained productivity improvements, resilient regional employment, and long-term tax receipts from durable, employee-owned firms — are outcomes that emerge over time, not overnight. Yet the fiscal and political demand for evidence may be immediate.
This creates a policy paradox: the sector cannot provide longitudinal data that, by definition, does not yet exist — but without that data, the reliefs remain exposed to further tightening.
The only credible way through is partnership. Government will need to help build the evidence infrastructure it intends to rely on. That means integrating employee ownership markers into existing Office for National Statistics (ONS) business surveys, establishing basic reporting requirements for EOT transitions, and supporting — whether through funding or convening power — the development of a national EO data registry.
Treasury cannot reasonably demand proof while withholding the tools necessary to generate it. The sector will play its part. But if EO is to be judged fairly, this must be a shared endeavour.
Why Evidence Is Now Strategic, Not Optional
If employee ownership is to retain sustained political support and tax reliefs, the sector must show measurable, defensible public outcomes such as:
Productivity gains
Business resilience
Job quality and wage effects
Regional economic stabilisation
Long-term tax receipts from stronger, durable firms
These outcomes are widely believed to be true — and early evidence suggests they are. But belief will not be enough as fiscal pressure intensifies.
Government needs data. The sector needs data. The future of the EOT regime depends on it.
Where the Sector Should Now Be Heading
Rather than prescribing a technical blueprint, the direction of travel is clear. The next phase of EO requires the sector to act in three essential areas.
Build a shared, credible evidence base
No single organisation can do this alone. But the sector must begin aligning around:
A clear statement of what EOT reliefs are intended to deliver in public value terms
A basic, agreed theory of change (relief → transition → behaviour change → outcomes → fiscal effects)
A consistent national dataset of EOT and EO businesses
Partnerships with universities to validate and interpret data
Dialogue with HMRC, HM Treasury and ONS to embed EO into the UK's statistical infrastructure
This is not about creating a "perfect" model. It's about creating enough coherence that government can trust the numbers.
Strengthen governance and quality standards
The EOA's growth strategy rightly highlights the need for a shared theory of change and better adviser accreditation. If misuse or low-value transitions concern government, the sector should lead.
That means maturing shared norms on:
When an EOT is (and is not) the right succession route
Transparent valuation expectations
Trustee independence
Workforce engagement after transition
Responsible adviser practice
Setting the bar high protects both the reliefs and the movement.
Build the institutional capacity to sustain this work
Evidence cannot rely on ad-hoc reports. The sector will eventually need an independent EO Impact Observatory or equivalent long-term knowledge programme. The White Rose Employee Ownership Centre - already generating foundational data used by the EOA - provides a strong focal point.
This is not bureaucracy. It is the infrastructure the sector needs. It ensures:
A maintained national EO register
Surveys aligned to ONS and HMRC structures
Methodologically robust value-for-money assessments
Policy engagement grounded in shared facts
This can be built collaboratively and incrementally — but it must start.
Where Do We Go From Here?
The halving of EOT relief is not the beginning of the end. It is the end of the beginning for a now mature sector.
If the EO movement can demonstrate real economic and social return, it will secure political backing for the next decade — and potentially even modernise or expand reliefs.
If it cannot, this reform may be only the first step in a longer tightening.
The opportunity is still there. The government has not walked away.
But the next chapter of employee ownership will be written in evidence.
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