The government's corporate bailout plan will have to shift
from loans and debt-guarantees to equity and direct grants, if it
is to carry corporate Britain through the coronavirus recession,
says a new Institute for Government paper.
Published today, Bailout for Business after
Coronavirus, written by former No.10 adviser , argues that the cost of
supporting business through the crisis is easily affordable if it
helps return the recession-scarred economy to growth. But the
Treasury must avoid burdening companies with unpayable debts or
propping up those with no prospects in the post-coronavirus
economy.
Immediate, unconditional liquidity support may have been
sufficient had the crisis been short and sharp. But with recovery
no longer assumed to be just around the corner, ever-increasing
loans may cause more harm than good. The Treasury will need a
broader range of instruments, such as equity and direct grants,
deployed strategically where they make the greatest difference to
growth.
The report argues that what began as an act of national
solidarity needs to turn into a considered programme for
preserving the health of the economy. The government cannot help
each and every company, nor can it endlessly rely upon loan
financing in the hope that a quick recovery can float corporate
Britain off the debts. Work needs to start immediately on the
long-term task of recapitalising the corporate
sector.
The report recommends that the government should:
· develop
a more radical economic package that moves beyond debt guarantees
to forgivable loans, direct equity and further grants
· work
with existing investors to keep companies alive while avoiding an
unquestioning investor bailout
· resist
the siren voices calling for ever more debts to be 100%
guaranteed
· ignore
calls to throw every other agenda into its bailout package
· start
work on the new institutions to recapitalise Britain, such as a
state redevelopment bank and a wholesale look at tax incentives
for equity.
, the report’s author,
said:
“The chancellor won widespread applause for his prompt and
lavish response to the coronavirus shutdown, and rightly so: an
economy thrown into hibernation risks losing all ability to
rebound. But "whatever it takes" cannot become "free money, no
questions asked". Rishi Sunak's next move may need to see him
becoming both more generous and yet more demanding: grant and
equity support on the one hand, but only for those businesses
that look likely to survive and thrive on the other."
