Radix are a think tank of which I thoroughly approve. Existing to service the intellectual processes of the radical centre it continually produces thought promoting stuff.
This is a guest blog that they have written to start us thinking about how we recoup the vasts sums of money that the government is rightly putting out to both public and private sectors. We need to learn the lessons of past bail outs where the Government stood the losses and the private sector moved on to enhanced profits. I can be contacted as usual at email@example.com. Radix can be contacted via the buttons given at the end of the Blog.
|Once again, vast amounts of taxpayer money are to be made available to bail out companies struck by the effects of the COVID-19 pandemic.|
It is right that governments step in to mitigate the economic meltdown effects of the crisis. The nature and scale of the economic support being provided is to be commended. As is the action by a number of businesses to mobilise their resources to help combat the pandemic.
The government also has a duty to ensure that taxpayers are treated fairly; that we do not have a repeat of the 2008 crisis where taxpayers carry the downside while others benefit from any eventual upside.
Yet, unlike others, the UK government has, so far, not attached much conditionality to any bailouts.
Here we put forward five suggestions:
1. Stock ownership not debt
The UK government has already hinted that any bailout will likely be in the form of taking equity positions in bailed out companies rather than debt. We believe that this, or similar alternatives such as convertible bonds, is crucial.
2. Employment Conditionalities
Some governments have already announced that support for companies will be conditional on companies not letting any workers go during this period. We believe that similar conditionalities should be applied in the UK.
3. Tax Avoidance
A number of larger companies that are now hoping to be bailed out by taxpayers have, for years, built tax avoidance structures to minimize their UK tax liabilities. It is time to have real conversations about dismantling such tax structures and ensuring that bailed out companies have a meaningful effective UK tax rate.
Solidarity has to be a two-way street
|4. Blocking Takeovers|
The meltdown in equity markets has the potential to drive a surge in wealth inequality.
As private equity firms and those with private wealth leverage that wealth at near zero interest rates, they have the potential to scoop up many companies at bargain basement prices with large subsequent gains.
In Europe, governments have already indicated that they will not let their industrial base be taken over.
“I say to all those people in hedge funds and elsewhere who are looking forward to acquiring one or the other [German firms] on the cheap — make no mistake, we are determined to stand by our companies.”
German Minister for Economic
Affairs and Energy
|We believe the UK government should be committed to doing the same?|
5. Stock Buybacks
At RADIX, we have long argued that large scale stock buybacks should be banned – as they were in the US until the 1980s.
Many corporations are in the poor financial state they are in today because they have blown all financial reserves on stock buy backs. The US airline industry spent an astounding 115 per cent of their free cash flow on share buybacks since 2014 (apart from their regular dividends). Many corporations are now left financially naked and dependent on taxpayers to make up for their lack of financial resilience.
The European Central Bank has already instructed European corporations to stop all dividends and stock buybacks until October. We believe it is time to stop large scale stock buybacks permanently.
|RADIX is a think tank for the radical centre of contemporary politics. We exist to challenge conventional wisdom; to be provocative enough to shake institutions out of their complacency; to translate the dynamism, creativity and human potential of our age into practical policy solutions.|
We are not affiliated to any particular political party and welcome independent-minded people from all parties and none.
We are a UK registered educational charity
(Registration Number 1167393)
Contact us by email or visit our web site