Labour propose confiscating 10% uk equities - pension planning response?

Paul_Herring

steampowered wrote: »

No, but that is not what is being proposed.

Well the company will no longer be in control of this 10% that's being stolen off them.

The employees don't have any say over this 10% (the actual 10%, not any rights because of it) - merely 'presence on the board' because of it. And maybe £500 each.

Where exactly is, and who ultimately controls, this 10% then? It's not the employer, and not the employees, which leaves....?

Oh - look:

https://news.sky.com/story/staff-will-share-ownership-of-firms-under-labour-plan-11507050

But now he is also pledging to make £2bn more available for public services and social security by capping dividend payments at £500 and putting the rest into a social dividend.

Maybe 10% of the stakeholders of the company could remove that cap?

AndyAdams

michaels wrote: »

So this is currently a hypothetical but if labour do confiscate 10% of all uk equities presumably any uk equity funds will suffer the same loss and this will get priced in depending on how soon an election is likely and opinion polls.

Would it make sense to shift funds out of uk equities before the market starts pricing this in seriously?

Interesting. I would argue the equities are not confiscated as they will still exist and I assume would need to be bought from the market, or companies would be made to "give up" some of their equity if they held any equity in their own company.



Depending on the legislation it could mean there would be higher demand for the outstanding equities as there would be less to go round and share prices may increase.



As equity funds are privately held I would not expect the funds to be impacted. At a guess the 1% per annum labour are suggesting I would expect to be brought from the open market from the companies which would then go to the workers. Only a guess though as normally partnerships where money is distributed are not normally listed on a trading exchange. So in my opinion a new paradigm is being introduced.

Paul_Herring

At a guess the 1% per annum labour are suggesting I would expect to be brought from the open market from the companies which would then go to the workers.

Normally, the companies don't own the shares - that's the whole point - anyone but the company holds them.

The only way I can see this working is the companies themselves must re-purchase (or create, thus diluting everyone else's) 1% of shares per annum and hold them on behalf of the employees, while not benefiting in any way from that holding.

Unless Labour would like to propose that the Government (i.e. the taxpayer, because the government doesn't have money) buys them...

AndyAdams

Paul_Herring wrote: »

Normally, the companies don't own the shares - that's the whole point - anyone but the company holds them.

The only way I can see this working is the companies themselves must re-purchase (or create, thus diluting everyone else's) 1% of shares per annum and hold them on behalf of the employees, while not benefiting in any way from that holding.

Many companies own their own shares, and sometime even have a share buyback when they have a lot of cash available.

https://www.investopedia.com/ask/answers/042015/why-would-company-buyback-its-own-shares.asp


If companies created new stock it would have to be via a rights issue giving all shareholdors the option to buy new shares so their stock is not diluted.



I think the 1% would be found out of current stock holding or share buy back.

Paul_Herring

share buyback

But they don't normally buy them for the sake of simply buying them, it's normally to either (1) resell at a later date (2) give/sell to employees or (3) to cancel them.

None of which falls into whatever Labour seems to have planned.

AndyAdams

Paul_Herring wrote: »

But they don't normally buy them for the sake of simply buying them, it's normally to either (1) resell at a later date (2) give/sell to employees or (3) to cancel them.

None of which falls into whatever Labour seems to have planned.

There are a number of reasons for a buyback, they definitely can't cancel them as that would have an impact on the market capitialisation of the company, when they buy them back the shares will still exist. They may want to hold more stock so they have more control, may want to increase the share price etc.

NewShadow

AndyAdams wrote: »

Interesting. I would argue the equities are not confiscated as they will still exist and I assume would need to be bought from the market, or companies would be made to "give up" some of their equity if they held any equity in their own company.

Depending on the legislation it could mean there would be higher demand for the outstanding equities as there would be less to go round and share prices may increase.

The obvious massive drawback is that this tax - and that’s exactly what it is, whatever they call it - won’t apply to many foreign owned subsidiaries, or to all privately owned companies not quoted on the stock exchange.

For 'eligible companies' to raise equity capital:

- Companies would have to raise at a price lower than their current market price, so would have to give away more equity for the same cash raised; or

- companies would have to raise more money than they required - because there would be a 10% ‘tax’ going immediately to employees/the government.

This would make raising equity capital massively more expensive than currently. This would raise the bar for companies to invest in new factories, facilities, employees, technology… and a lack of investment we know reduces productivity.

Ultimately it provides a huge incentive to delist from the stock exchange, or invent other clever ways to avoid the tax. The impact is - quite literally - incalculable.

Paul_Herring

they definitely can't cancel them

Of course they can.

https://www.accountingweb.co.uk/business/finance-strategy/share-buybacks-what-you-need-to-know

Section 733 under Chapter 7 of CA06 Supplementary Provisions makes reference to the ‘capital redemption reserve’. Section 733(2) requires company whose shares are redeemed or purchased wholly out of the company’s profits to transfer a sum equivalent to the amount by which the company’s share capital is diminished on cancellation of the shares. This transfer is required to maintain the company’s capital and also to protect creditors.

as that would have an impact on the market capitialisation of the company

Well, yes. That's sorta (one of) the point.
https://www.informdirect.co.uk/shares/share-buyback-explained/

A buyback of shares is where the company buys some of its own shares from existing shareholders. There are three types of share buyback:

[...]
• Share capital reduction by:
  • cancelling shares
    [...]

Paul_Herring

NewShadow wrote: »

[this won't apply] to all privately owned companies [based in the UK] not quoted on the stock exchange

Are you sure about that? I'm not...

DairyQueen

Turpinr wrote: »

I'd love to go back to the 70's and full employment, a manufacturing industry, proper apprenticeships etc etc and before zero hour contracts

.... and electricity cuts 3 days each week, 20% inflation, and going cap in hand to the IMF because the country was... ahem... bankrupt.

Feel free to take my place on the next time machine trip to the 70s.