All private companies employing more than 250 people would have to set up “ownership funds” giving workers financial stakes in their companies and increasing powers to influence how they are run, under radical plans announced by Labour as it prepares for a possible general election within months.

The far-reaching proposals, which would empower millions of workers across the private sector, were unveiled by the shadow chancellor, John McDonnell, in an interview with the Observer. McDonnell– who has been working throughout the summer on election planning, with little break– says the ideas will be at the heart of Labour’s drive to deliver greater equality by forcing an “irreversible shift in wealth and power in favour of working people”.

McDonnell intends to introduce the necessary legislation in his first year as chancellor. He will outline the proposals, which could mean workers receiving dividends to boost their incomes, in a speech to the TUC conference in Manchester on Tuesday.

He will be speaking ahead of what he believes will be a tumultuous six months in British politics, with the Tory government tearing itself apart and imploding over Brexit, probably triggering another general election. If and when that happens, he says Labour will be ready with the most leftwing manifesto in decades, building on the radical platform set out at the 2017 snap election. New ideas will be put forward to boost equality, strengthen communities and improve public services.

“The opportunity is there for us. I think the government will fall apart in the next six months almost certainly,” he says. “When they come back in the autumn with whatever they think will be their Brexit deal, they will rip themselves apart, and my argument is that they should move on and let us get on with the negotiations, and if not, call a general election. They might try to stagger on but by the spring of next year they will fall apart.”

The shadow chancellor managed only a few days away with his family on the Norfolk broads over the summer, a sign that the party machine has spent the break getting itself on to election high alert. Unsurprisingly, McDonnell is dismissive of Labour moderates, including Tony Blair, who argued on Friday that the electorate would recoil in horror if the choice at the ballot box were between a leftwing prospectus from Jeremy Corbyn and McDonnell and a rightwing, pro-Brexit Tory alternative fronted up by the likes of Boris Johnson. Instead, McDonnell argues that not only working people but many “middle-class people, and people with degrees” are yearning for radicalism and real change because they dislike the direction in which the country is going.

“What we are getting back on the doorsteps and in some of our polling is that the basic fabric of society is falling apart from lack of investment … from eight years of hard austerity but no light at the end of the tunnel,” he says. Even the better-off see “grotesque unfairness within our society” and want that tackled with radical solutions, he adds.

“Even if you are the wealthiest person in the country, you don’t want to be stepping over homeless people in your city. You want to feel secure, and if there are not police on your street you don’t feel secure. People, I think, are saying, ‘We want change’, and so they are willing to look at radical solutions, and that gives us the opening. “All Labour needs to win outright, he says, is another 5-6% of the vote above its tally last year.

Extending dramatically employees’ ownership of firms is precisely the kind of idea that McDonnell believes will appeal widely, if not to company bosses. “What this will ensure is that in large companies, in addition to rewarding workers with wages, they will reward them with shares that will go into a pool that will allow them to have an ownership role.”

He cites a report by the Institute for Public Policy Research, published last week, that floated ideas for giving millions of people “a greater stake and voice in their workplaces”, boosting productivity, morale and incentives. The IPPR said “the aim would be to give more people a share of capital and to spread economic power and control in the economy by expanding the decision rights of employees in the management of companies”.

Among the models being examined are ones under which firms would have to put a percentage of profits into an employee fund that would build up over time, giving the workforce, through its rising share ownership, an increasing say in key decisions on how the companies were run and managed. While workers would not be able to cash in shares, they could be offered dividends from the fund to boost their pay.

It was Tony Benn in the early 1980s, McDonnell points out, who first talked about the need for an “irreversible shift” of power and wealth towards working people that Labour’s modern-day standard bearers of the left now hope to deliver.

Facebook Twitter Pinterest McDonnell cited an IPPR report that floated ideas for giving workers ‘a greater stake and voice in their workplaces’. Photograph: David Davies/PA

McDonnell accepts that the antisemitism row, which has raged throughout the summer, has damaged Labour. “Of course it has, yes. In terms of morale as well. Of course it has. But we will come through it,” he says. “It has been distressing, absolutely distressing. Over the last three months it has been really heartbreaking. The reason it has been distressing is because you always felt we were an anti-racist party, and that is what we stand for, and when you have the accusation thrown at you, it is really disheartening … But when you find there is some substance to that, it is even more disheartening, and we have to address that.”

He says he hopes the decision by the national executive committee last week to adopt the full International Holocaust Remembrance Alliance definition of antisemitism, along with all its examples, will help to rebuild trust with the Jewish community.

That is not the only argument within the party that has soured the summer mood. As Labour prepares for its conference in Liverpool, a series of proposed rule changes backed by local party groups, including moves that would make it easier to deselect MPs, are causing renewed tension between the parliamentary party and pro-Corbyn, leftwing elements of the membership. Here, McDonnell seems to sense danger and clearly wants to avoid more bad feeling. He says the existing rules on how MPs are reselected are fine as they are, and suggests he would not back any change that would stoke arguments further.

Then there is the party’s stance on Brexit, as pressure builds this weekend from union members for Labour to back a stronger pro-EU, pro-single market line, and also a “people’s vote” (another referendum). At last year’s conference, a major row was avoided because no vote of any substance was held. This year, McDonnell says, there will have to be debates on Brexit policy and on Labour’s attitude to another referendum.

“There is bound to be a debate, and I would think a vote,” he says, on both issues.

The people’s vote campaign, he notes, has been “constructive”. McDonnell is careful neither to rule in nor rule out another referendum. He wants to keep the party’s mind focused on the prize of winning power, delivering mass renationalisation, higher taxes for the better-off and now the empowerment of workers in the private sector.

“What I have been arguing for is a general election,” he says. “The Tories have made a complete mess of Brexit negotiations. They are ripping themselves apart. They should move aside and let us get on with this, but if they don’t want to move aside, and if we can’t get a general election, I am saying keep all options open.”

Workers’ power

The roots of Labour’s plan to give workers a say in how their employer makes decisions lie in an idea put forward by the party’s 37 Co-operative party MPs.

In essence, the scheme forces - or provides strong incentives for - all major employers to put some of their profits into an employee fund. This money would be allocated to staff in the form of shares and would build up over time.

Unlike with the share schemes promoted by Margaret Thatcher in the 1980s, employees would not be able to cash them in or trade them. Instead, the shares would be held in a trust, and elected trustees would sit on important committees in the business.

Their purpose would be like that of any shares: to allow shareholders to influence the direction of the organisation and its day-to-day behaviour.

Ultimately, the Inclusive Ownership Fund would turn every business into a John Lewis-style workplace, with internal democratic structures giving employees greater influence.

It’s unclear whether Labour would favour employees becoming board members in line with the shareholding they have accumulated, but that appears to be the direction of travel.

Phillip Inman