I was early in my demand that companies receiving bailouts must have conditions attached to them. On 22 March I said:
I am suggesting these for starters, which any company getting support must agree to:
- Zero-hours contracts must be abolished;
- Trade union rights must be recognised and supported;
- A true living wage must be paid in the future;
- Its gender pay differential must be published, and it must have a policy for reducing it;
- Put its full accounts on public record, whatever its size;
- It may not use any tax avoidance schemes of any sort whatsoever;
- It must never use a tax haven;
- If it is a large company it must publish country-by-country reports;
- No one must be paid more than ten times UK median earnings;
- Every large company involved must have a plan for becoming net-zero carbon and must include the cost of that plan in its accounts, and make annual reports about progress on this issue;
- Publish information annually of the type required by the Fair Tax Mark;
- Dividends must be based on group retained earnings;
- No dividends should be permitted if group retained earnings would as a result be less than the last three years (in smaller companies, with five years being required in larger ones) average net profit after tax to encourage balance sheet resilience.
To enforce these conditions it would be reasonable to require that every single company taking advantage of these tax holidays should by legal automatic obligation be deemed to have issued 25.1% of its share capital to the government in exchange for the package that guarantees its survival, which proportion guarantees the government the right to block many shareholder actions in these companies.
An automatic right to appoint a majority of the board of directors in the event that the conditions of the bailout, as noted, are not met should also be implicit in the tax holiday terms.
You can be sure that those wanting to simply take a tax holiday to exploit the situation would be more than deterred by these conditions, but those desperate for the survival of their companies would not be. That is precisely why these proposals are fair whilst there can be no corporate exploitation of them right now.
The topic is now discussed much more often. The demand has come to focus on the tax haven issue, which was in my list. But is that right? Is that the only demand that should be made or should the government, as all lenders of last resort do, and most especially so when supplying what really looks like capital and not much like loans, actually attach conditions like those noted above to the companies who are receiving bailouts?
They could do so for three reasons:
- To protect their in event, bu taking stakes fir example;
- To seek an improved return, by again taking stakes;
- To protect people from abuse in the future, by ending zero-hours contracts, for example;
- To change behaviour e.g. on tax abuse and tax havens;
- To promote change e,g. on environmental issues.
In that case the question of the day is, should the government impose such conditions, and what should they be?
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To add context to your question with regard to environmental issues, Kevin Anderson, @KevinClimate professor of energy and climate change – tweeted on 14 December: [before Covid-19 was news]
https://twitter.com/KevinClimate/status/1205849194101137408
Given the deep concern @BorisJohnson has expressed over climate change & how his government is going tackle UK emissions, attached are some of the actions he will no doubt be driving forward later next week. I look forward to his scientifically informed & coherent climate agenda.
The scale of action required if the UK is to deliver on its commitments enshrined in the Paris agreement.
All starting January 2020 if not before
1. A moratorium on all new fossil fuel.
2. An immediate phase out of old fossil fuel production to be complete by 2030 – 35 with detailed policies of a just transition for those working in these industries.
3. A rapidly rising frequent flyer levy to immediately slash how often the ‘frequent flyers’ fly.
4. No airport expansion.
5. No expansion of the road network.
6. A rapid move to a car-free cities and towns (including electric vehicles).
7. A minimum initial standard on all new cars with a maximum of 100 grams of CO2 per kilometre, tightening at 8 to 10% each year.
8. A tight emission standard on all power stations (a fleet level for all suppliers of 250 grams of CO2 per kilowatt hour reducing at 8 to 10% each year.
9. A minimum and very stringent efficiency standard for all rented properties and homes.
10. All new houses and buildings to be passive-house standard and include on-site renewables.
11. A fair carbon tax such as ‘fee and dividend’ or personal carbon allowance.
12. Major subsidies for electric bikes (perhaps paid for by the Frequent Flying Levy).
13. Stop all fossil fuel advertising.
14. Devolve responsibilities and powers to regions and cities to help deliver culturally appropriate policies.
The next day 15 Dec 2019 he added:
I suggested max 100gCO2/km from 2020, tightening at 8-10% pa, & no cars in cities. That means ~70gCO2 by 2023 & 30g by 2030. So sets a standard as good/better as EV (Electric Vehicle) without choosing the technology. We need a major rethink of transport, not just swap 1500kg of IC (internal-combustion-engined) car with 2000kg of EV. We must also consider how we significantly improve access to transport by the sizeable proportion of our communities marginalised by the ‘car dependent’ society. These marginalised communities are typically missed in discussions about the wonders of EV substitution.
Thanks
You could add all companies over a certain size (£!m turnover?) produce a carbon audit and produce within 6 months a transition plan to become carbon neutral or negativity by 2025.
Also the pay differentials of the highest and lowest paid employees published and if this is over 20:1 again produce a schedule within 6 months to reduce the ration to 20:1 or lower. by 2025.
Introduce worker participation at all levels in management decision making.
Produce a health and safety audit withing 6 months if this has not been done already.
The first could be summarised as ‘adopt sustainable cost accounting’
You’ve created a pretty comprehensive set of reasonable conditions Richard. I would be minded to add worker representation on the board as well.
I like that idea. I used to live in Germany, and it seemed to work pretty well there.
I agree with a lot of these as long terms aims and objectives, but worry that it’s imposition at this time is ethically open to question (using a natural disaster as the leverage). It is maybe too coercive – something that the libertarians/anti-Statists will have a field day with. The resentment could come back after this is all over.
I’d be happy to have restrictions on bonuses for example, ensuring that any assistance helped staff and to rule out redundancies and supported actual company income but also ask that the companies update their info at Companies House.
But I still see all these great principles that are being proposed as something that has to come out of the learning when we have Covid-19 under control and be introduced post lock down.
We don’t like disaster capitalism: Is ‘disaster progressive-ism’ any better?
I’m really not sure. You reap what you sow.
My problem therefore is not ‘what’, but ‘how’ and I can see all sorts of problems arising out of using Covid-19 as leverage.
I don’t think its unrealistic for the Government to ask for a ‘Golden Share’ in businesses.
I’ve seen this previously used in the Defence industry and could be used (in extremis) should there be any excessive profiteering after Covid, prevent mergers or IP transfer which could be considered abusive or derogative to the UK and could also allow the Government to utilise the business resources in the time of an emergency.
I see PSR’s point that taking advantage of the covid crisis may rebound on progressives. However, if the iron is not struck now, when? If and when c19 is dealt with we will have lost at least another year in planning and executing measures to deal with the even more planet destroying disaster of climate heating. The government has shown that the state can make dramatic changes at relatively short notice so why not apply the same energy and urgency towards coping with the other ecological, social and economic crisis? PSR seems to have a touching faith in Boris Johnson’s pledges but whatever happened to his “off the shelf” solution to the social care crisis?
Now, now Bill I will have to correct you I’m afraid:
I’m not saying that any of these ideas should be shelved; what I’m saying is that it is a matter of ‘when’.
So this means by implication (obviously) that planning for these measures for them to be introduced at a later date is ON the table – that way you are initiating the changes rather than working through them again. I’d be helping these companies out but making sure that they knew what was coming. Trying to organise themselves and their operations during Covid-19 is a big enough job for now – hence the delay I am suggesting.
Further:
‘PSR seems to have a touching faith in Boris Johnson’s pledges’
No – I do not. I am ‘touchy’ rather than ‘touched’ Bill – one of the factors favouring a more drawn out approach is that the Government does not seem to be looking after business at all – I know of folk already laid off – and we’ve picked over the bones of the Government’s response here and it has been slow and unhelpful. To start adding progressive caveats now might be counter-productive, since what is on offer does not really help.
The first thing to have done was to protect jobs. That has already failed as far as I can see. And already, we have people talking about how we can’t afford to help (although printing £365 billion + into the banking sector in 2008 was OK).
For the record, Johnson is a reckless opportunist and a one trick pony (‘BREXIT BOY’) – there is no more depth to him than that.
And what is worse is that he is surrounded by people who do not believe in the State and its potential.
This Government a perfect storm of stupidity.
All good things to have companies do and not do…… but as the list gets ever longer there are risks.
There are three cases to consider.
(1) firms that take the money and behave badly
(2) firms that take the money and behave well
(3) firms that don’t take the money and fail. These fall into two categories (a) ones who we are happy to see fail and (b) good firms that we would want to survive.
Get too detailed (in order to minimise (1)s) and you lose a lot of (3b)s. This, I believe a serious risk.
Taking 25.1% equity is the key. It gives a high degree of control but I think it fair that current owners get the right to buy back the equity at a premium (10% p.a. return to government??). This buyback option also eliminates the “Dragons Den” debate “what is the right price for 25% of my company”. (Yes, you and I might say “zero! because without me you are going bust” but owners will never see it that way and the essence of this scheme has to be speed and simplicity).
As far as conditionality is concerned I would keep it simple. “Money is invested in firms on the understanding that they behave fairly towards the environment, their workers, their suppliers, their customers, HMRC and operate sustainable finances”.
A simple sentence that no ethical business could argue with. Of course, there will be subsequent arguments what “fair” means but a 25.1% stake gives the state a pretty good hand in those discussions.
Devise a simple scheme and do not let the best be the enemy of the good.
Fair does not work. We have that wooliness already in company law
Absolute rules have to apply
And 10% is a mighty low risk premium
I also happen to think almost all in 3b would accept the conditions
Indeed, I see them as synonymous
Fair does not work. We have that wooliness already in company law
….fair has not worked in the past – that is agreed. But we have never owned 25.1% or firms before – that, I believe changes the game.
Absolute rules have to apply
…..see above. Ownership rights properly exercised allows for developments we can’t forsee. Rules made today might look foolish tomorrow.
And 10% is a mighty low risk premium
…… yes, happy for this to be a higher number but it is, perhaps, worth thinking about what this option is worth to the owner. If we assume the amount advanced was equal to the value of the stake (a big if) then looking at equity options markets we see 1 year, 10% Out-The-Money calls on the S+P index trade at about 3%. (Calculating option values beyond that with rising strikes and prior exercise opportunities gets fiercely complicated but I would guess the buy back option at a ever rising strike of 10% per annum is probably worth 5% of the value of the stake)…. or that order of magnitude. I am happy to give that away.
I also happen to think almost all in 3b would accept the conditions
Indeed, I see them as synonymous
…… but will they still be in business by the time we have compiled the rules and they have read them?
I think they’d just ‘tick the box’
And 25.1 is a fall back
The government couldn’t actively manage these stakes, hence the need for rules…..
Another look at maximum working hours and retirement ages, quality of life issues as well as spreading around employment availability, but perhaps a discussion for another day.
Not much we can do about some of this as EU members, apparently https://euobserver.com/coronavirus/148220 “Firms in EU tax havens cannot be denied Covid bailouts” Sad to see as it only lends strength to the arguments of Brexiteers. However, I suppose we could always respond wide-eyed to accusations from the EU by saying ‘Oh but we aren’t DENYING them bailouts, just making those bailouts conditional’.
While seeking the FT piece ‘Corporate bailouts should come with strings’ (sometimes Google will find a way round their paywall), I came across https://www.japantimes.co.jp/opinion/2020/03/22/commentary/world-commentary/corporate-bailouts-need-strings-attached/#.XqvQt_l7nIU (same title – an American perspective for Japan) – which leads – succinctly – to two options.