Labour’s plans to give workers more shares in companies would lead to lower pay and productivity, CBI warns

'Labour raises the right questions, but these are not the right answers,' CBI director says

Labour’s plans for large companies to be part-owned by their employees would hit investment in UK firms, leading to lower pay and productivity, CBI director Carolyn Fairbairn has warned.

Under plans to be revealed at the Labour conference in Liverpool on Monday, shadow chancellor John McDonnell will say that companies should be forced to put 10 per cent of shares into “inclusive ownership funds.”

Workers would be given bonuses of up to £500 from the funds, while any additional money raised through the scheme would be spent on public services.

Business groups have criticised the plans, and Ms Fairbairn said the main consequence would be lower share prices, which would in turn affect companies’ ability to invest.

“You’ve got to remember that we are under the spotlight as a country at the moment,” she told the BBC.

“Competitiveness is everything, our every move is being watched. Shareholders are watching like hawks and I am in no doubt that share prices would fall. That affects the ability of companies to invest, that in turn affects productivity and pay. It would have an immediate effect.

“They would fall because what you’re effectively doing is taking money from shareholders and giving it to employees. Nothing wrong with that depending on how it is done. But the effect is to dilute shareholders.”

Ms Fairbairn added: “Business has been resilient in the face of uncertainty, but Labour’s anti-business positioning is starting to bite. It’s time for pro-enterprise collaboration, not public proposals that set alarm bells ringing in boardrooms at home and across the world.

“Labour raises the right questions, but these are not the right answers.”

However, Tom Kibasi, director of left-leaning think tank the IPPR, said “a fairer economy is a stronger economy”.

He added: “We therefore welcome this new initiative to give workers a greater stake in firms. It has the potential to boost productivity as well as improve household incomes after a decade of wage stagnation.”