The Guardian view on business bailouts: give the state a stake
During his four months in post, the chancellor, Rishi Sunak, has shown a commendable willingness to jettison old orthodoxies regarding state intervention in the economy. The job retention scheme, introduced as Britain locked down in late March, made the government the employer of last resort of an estimated 8.4 million workers at a cost of £14bn a month. The intention is that this financial burden will gradually be shared with employers over the next months, with business picking up the tab. But Tory MPs who hope this will signal a gradual retreat of the state from the economic frontline will be sorely disappointed. For the foreseeable future, the pertinent issue in any job-preserving UK recovery will not be whether the government is involved, but how.
As part of a proposed scheme known as Project Birch, Mr Sunak is reportedly planning to bail out strategically important British companies, whose failure would have a disproportionately harmful impact on the economy. In pre-Covid-19 times, this kind of thinking might have been roundly condemned by free marketeers as a form of “picking winners”. But as Rolls-Royce announces more than 1,500 job losses in Derby, and Jaguar Land Rover, which employs 38,000 people in the UK, seeks a £1bn-plus emergency state loan, it is clear that if British manufacturing is to survive this crisis, a new economic settlement may be necessary. Make UK, an industry group which represents 20,000 British companies, warned this week that without direct government support, huge numbers of businesses will fall off a cliff edge once the furlough scheme is removed.
In the midst of the sharpest downturn for 300 years, the case for Project Birch is overwhelming. As the shadow chancellor, Anneliese Dodds, has pointed out, firms such as Jaguar Land Rover in Coventry are vital anchors of local economies. But if Tata, its owner, is eventually to be helped out by the taxpayer, it is fair for the state to require something in return. The Treasury is apparently weighing up the merits of taking equity in stricken companies, just as the German government has done with Lufthansa, in which it now owns a 20% stake.
For a Tory chancellor, this would be a bold move. But taking an equity stake – or at least preserving that as an option – would carry distinct advantages, compared with simply handing huge loans to the private sector. Instead of functioning as a giant ATM, the government would be able to better pursue its green objectives in industries such as aviation and car manufacturing. It could also follow the example of the Lufthansa deal by building in protections against hostile takeovers affecting vulnerable communities. Economic security, a new priority in an age of possible pandemics, would be enhanced.
For far too long, the idea that governments should actively pursue strategic economic objectives became deeply unfashionable in Britain. The damaging social consequences of the withdrawal of the state played a part in the political upheavals of recent years. But traditional public/private arguments have an almost antique quality in the current context. Post-pandemic, the government will be a protagonist in any recovery. It should use that role, and the leverage it affords, to help shape the post-Covid-19 economy in the wider public interest.
