THE BLOG
28/11/2013 12:48 GMT | Updated 28/01/2014 05:59 GMT

A Real 'Worker's Bonus' Is Needed in Next Week's Autumn Statement

"Think of it as a worker's bonus", said Nick Clegg, introducing the Liberal Democrats latest political campaign, a pledge to further increase the personal tax allowance to £10,500 at the next Budget. As a planned tax cut, this was unlikely to go down badly. But it is a costly one, which helps the better off more than the low paid and will add to financial pressures on schools and the NHS, particularly if extended to cover those on the minimum wage.

Clegg is right to try to recognise the contribution workers are making to the fragile recovery. With average real wages falling, top earners are the only ones benefiting so far. But he could do this at a fraction of the cost and in a way that would boost the economy, not add to the deficit, by reflecting the true meaning of the word 'bonus', as a reward for effort.

In many other European countries and in the US, more workers at all levels of a company receive a bonus when it creates a profit, not just a few at the top, because more companies have 'profit-sharing' schemes. Under these schemes, a small share of company profit is distributed to employees in addition to their wages, once a firm achieves a certain level of profitability (for example over 5% of a company's equity).

Not only does this recognise the part that all employees play in creating success in a company - from the receptionist to the CEO - but it improves staff commitment, which in turn leads to higher productivity. The government's own research has found that companies with profit sharing and other similar schemes typically see productivity rates increase by 2.5% over the long run.

Results are better still where a financial stake is combined with employees having a say in the working life of the company. With the UK's productivity rates at their lowest levels for twenty years, 16% lower than the G7 average, this would provide just the kind of boost the economy needs if adopted by more companies.

Around a third of UK companies already have profit-sharing schemes. The most famous example is John Lewis, where almost 85,000 staff recently received a profit share equivalent to nearly nine weeks' pay. Offering a financial incentive so more companies introduced profit-sharing would be the ideal way of realising the 'John Lewis-style economy', Nick Clegg has said he wants to see.

This has obvious appeal for Clegg's coalition partners as a symbol of the Tory maxim that you 'get out what you put in'. So in next week's Autumn statement the coalition should introduce new tax reliefs to stimulate greater take-up of profit sharing schemes. This should be done on the basis that they are open to all employees as, unlike the John Lewis scheme, most profit-shares are still reserved for top execs.

Politicians can expect public frustration to mount if they only see those at the top reap the rewards of the recovery. A fairer way would be to acknowledge the role of workers at all levels of firms that are contributing to the task of getting growth back in the economy. So go on Mr Clegg, propose a 'worker's bonus' in the real sense - as a just reward for effort.