The Guardian has reported this morning that:
Rishi Sunak has been warned by the leaders of Britain's most influential business groups and the trade union movement that he risks plunging Britain into a period of mass unemployment unless he extends the furlough scheme.
Before the budget on 3 March, both sides of industry told the chancellor that the economy was too fragile to end the wage subsidy scheme at the end of April and that he risked undoing the efforts to protect jobs over the past year if he did so.
There is, of course, truth in this. Unemployment will sky-rocket if furlough ends. But there really should be more depth to this demand.
The assumptions behind furlough are severalfold.
First, it is assumed that the economy can pick up where it left off in March 2020.
Second, it assumes that employers will be able to resume what they were doing in March 2020.
Third, it assumes that we should resume where we were in March 2020.
Fourth, it assumes that those employees who are furloughed still are the special cases amongst those on benefit deserving of better treatment.
There is an injustice in the last assumption clearly needing to be addressed, but having noted that I will leave it aside.
Instead I will note the other assumptions, none of which now definitely hold true. In particular, there will be many employers who will not be able to pick up where they were in March 2020: their capital will have been lost in the meantime. Without further support for business furlough will, in that case, be of little consequence.
And that support needs to be based upon two principles. One is that the business supported is something that is designed for the long term, which could, of course, include much of the hospitality sector. The other is that the support is used to create a National Wealth Service for the UK as a whole, with stakes being taken in the businesses that receive support from now on. I note that on a very small scale this is now happening.
My point is a very simple one: We are not now in March 2020, and we never will be again. To pretend that we are going back there is simply wrong. What is true is that this is the time for the UK to have an industrial strategy, based around a Green New Deal, that delivers the economy that we want for the future, and the well-paid, well trained, and sustainable jobs that our economy and everyone in this country needs. Simply demanding more furlough is not enough: we need an industrial strategy for the post-Covid era.
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I clicked on the link to find it is to an FT article but cannot access it. However I did note the headline which said that the UK government has taken a stake in a toilet manufacturer. As it is not April 1st I concluded that this is not a joke but nevertheless it struck me as perfectly apt – since the UK is going down the toilet and not exactly flushed with success.
The claim is literally true
@ Jim Osborne
You are not that far from reality. In the United States the Republican Party “The Democrats Stole The Vote!” mantra is rapidly turning into a farcical situation (Ted Cruz back-pedalling, Majorie Taylor Greene under threat of expulsion, etc.), particularly in the pandemic induced practice of hoarding, whereby they may as well have started out saying “The Democrats Stole Our Toilet Rolls!”
Yes, strategy is required…. and this government has none. This is due to the combination of incompetence AND ideology so don’t hold your breath for any serious action.
That said, you note that the UK Government is taking stakes in small companies. I believe the mechanism is is a term loan carrying 8% (minimum) interest with the option (for the company) to covert to equity at a discount at the end of the term… (although the FT, in an article other than the one you reference, is a bit vague).
In effect, this is a “reverse convertible” (owned by the government) – a product that has at various times been popular with investors. You earn a very high rate of interest but carry the risk of owning the company if things go badly. Not normally a product I would recommend to investors but it seems the right idea here for the government who can and should shoulder this risk. I assume that the bright sparks at HM Treasury can price this correctly…. whether it can be effectively administered remains to be seen.
My default is to be extremely suspicious of ANYTHING that comes out of this government but at first glance this is a good idea. Of course, as you observe, it is tiny….. but it might the right mechanism to act more broadly.
The problem is that the Tories have arrived here against their instincts and only out of necessity – nevertheless, the tool has been created and, in the right hands, could become important.
I used such a tool in my venture capital days (yes, I had them) and it worked
It could still, as you say
Thankyou for bringing attention to the British Business Bank,
https://en.wikipedia.org/wiki/British_Business_Bank
Its a remarkable body , a bank that is not a bank , and which purports not to be in competition with other providers of finance.
Plus I love the idea of the creation of a national wealth service. I had missed the debate you created in May 2020.
https://www.taxresearch.org.uk/Blog/2020/05/13/we-need-a-national-wealth-service/
Actually it should be very easy to set up a national wealth service.
The analogy is vaccines. The UK had a large base of scientists , companies and research bodies- all that was required was mission, resources and the right leadership.
The Uk has a very large and sophisticated financial services industry who know how to assess whether a company is a going concern or not.
No one would be forcing any company to co-operate as they will be free to proceed to trade normally if they wanted to.
The scheme would be designed to support those companies unable to refinance themselves otherwise and who would be forced to liquidate otherwise.
1. Firms would apply to go into administration https://companieshouse.blog.gov.uk/2019/02/27/what-does-going-into-administration-mean/
and a government appointed administrator be put in place. The task of the administrator would be to maintain the business as a going concern while a business plan and financial support package was negotiated with the NWS.
2. Only firms that qualify for NWS stakeholder status would be accepted . The qualification criteria could be as suggested by Richard (see the 20 May blog as linked above) or otherwise agreed.
3. Directors would be legally bound to act in good faith and threatened that merely dumping liabilities and escaping with assets would be heavily penalised; directors would be barred from office by fiat of the administrator pending judicial process.
4. Governance would be a major issue and local authorities should be asked to approve plans. This may help avoid obvious scams and the risk of the rogue administrator.
5. Auditors would be obliged to review and authenticate plans.
6. The Quantity of capital made available to the NWS would be in the first place be unlimited but proportionate to the business history , business needs and the risks faced by the company or firm.
There is an obvious risk of swamping in the first place but the alternative is worse; and the period granted the administrator could be stretched in extremis.
The biggest problem is political will. Not administrative capability.
Thanks
Say large companies were using the furlough scheme, not just to cover areas when business is lost due to the pandemic, but to save money during normal quiet spells in areas of business less affected – by, say putting some employees on part-time furlough during a (known and anticipated and regular and temporary) less busy period – could this be viewed as the government, yet again, using government money to give hand outs to their pals?
That is, is the furlough scheme being continued without any effort for long term planning because the government doesn’t really care about the businesses that really need it, and who it is really designed to help, because they’ve found yet another scam to funnel government money to the already-wealthy (although, in a minor way I’d think). In one way, if it’s kept the furlough scheme going at all, we should be thankful for small mercies.
All the conflicts exist, and need to be resolved