IPPR - Take a 30 per cent stake in virus-hit airlines, and hold shares in a new UK wealth fund, Chancellor urged
Price of ‘bailing out’ any companies should be equity which will generate long-term returns, say economists in IPPR discussion paper
The Chancellor should take equity stakes of 30 per cent in each of the major airlines as the price of supporting them through the coronavirus crisis, according to a discussion paper commissioned by the IPPR think tank.
Economists Eric Lonergan and Mark Blyth argue that the government is likely to recoup up to three times its investment in struggling UK companies as they bounce back over the next decade, underscoring the long-term benefit of intervention now. They propose a model that could immediately be applied to airlines, but also other sectors in the economy such as retail and manufacturing.
Shares should eventually be used to begin building a new National Wealth Fund, they say, for the benefit of citizens with few assets of their own. The fund would also be used to drive higher social, environmental and governance standards within the companies in which it holds a stake.
But for now the government should insist only that any businesses it helps with major cash injections retain all their current staff, to preserve jobs and support the wider UK economy.
The paper comes as the Chancellor, Rishi Sunak, and other government ministers wrestle over how best to intervene in the aviation industry, which has seen passenger numbers plunge and both revenues and share prices plummet as a result of the crisis.
Eric Lonergan, a leading economist and writer, and Mark Blyth, professor of political economy at Brown University, call for the government to step in by:
- Refinancing existing credit facilities at zero interest for six months
- Offering new credit facilities up to a maximum equivalent to three months’ revenue, if necessary. These would also be priced at zero interest rates, also for six months.
- Taking equity stakes of 30 per cent in each major airline, priced using the average share price over the prior 30 days.
- Requiring that companies supported maintain all current employees, regardless of their contract type.
They argue that it is a misnomer to call such intervention ‘bailouts’, as it is in everyone’s interest to sustain the operations of good business and support jobs. Meanwhile shareholders have already suffered large losses, while low interest rates make this is an ideal moment for such intervention.
Lonergan and Blyth write:
“The state will emerge from this crisis with a stronger, not a weaker, balance sheet. This is a very different calculus to the government issuing debt to finance current expenditure.
“By issuing debt when interest rates are so low and... buying assets at very cheap prices, in the medium term, the state will simultaneously ensure businesses survive, workers keep their jobs and the state emerges an owner of significant assets.”
Carys Roberts, Executive Director of IPPR, who commissioned the discussion document, said:
“We are delighted to publish this important paper by Eric Lonergan and Mark Blyth, part of an exploration by IPPR of how interventions to shield the economy during this crisis can be designed to generate a more prosperous and just society when the crisis has passed.
“It’s particularly significant that they are calling for this to be the starting point for a new UK National Wealth Fund, like that established in other countries. Establishing such a fund, to be managed in the public interest and for social and environmental benefit, was a key recommendation of IPPR’s Commission on Economic Justice.”
- David Wastell, Head of News and Communications: email@example.com
- Robin Harvey, Digital and Media Officer: firstname.lastname@example.org
NOTES TO EDITORS
- The IPPR-hosted discussion paper, Beyond bailouts, by Eric Lonergan and Mark Blyth, will be published at 0001 on Thursday March 26. It will be available at: http://www.ippr.org/research/publications/beyond-bailouts
- Advance copies of the paper are available under embargo on request
- The IPPR’s Commission on Economic Justice reported in 2018. Commissioners included Archbishop of Canterbury Justin Welby and Frances O’Grady, general secretary of the Trades Union Congress. It recommended far-reaching reforms to the UK economy, including establishing a Citizens’ Wealth Fund. The report, Prosperity and Justice, can be read at: https://www.ippr.org/research/publications/prosperity-and-justice
- IPPR is the UK’s pre-eminent progressive think tank. With more than 40 staff in offices in London, Manchester, Newcastle and Edinburgh, IPPR is Britain’s only national think tank with a truly national presence. www.ippr.org
Latest News from
IEA - Most workers confined to home unable to work productively, report reveals31/03/2020 11:35:00
No more than 15% of healthy workers confined to their homes will work productively, argues new research from the Institute of Economic Affairs.
Covid-19: Emergency support package needed to save ‘children of the pandemic’ from becoming its unseen victims - IPPR31/03/2020 10:35:00
Right to paid parental leave, extra family cash, help accessing online learning and priority use of parks ‘essential’ to protect children from widening poverty, education and health gaps
IEA - Steps to help self-employed “unlikely to be the last” Chancellor has to take27/03/2020 15:15:00
Julian Jessop, Economics Fellow at the Institute of Economic Affairs, commented on Chancellor Rishi Sunak’s plans to support the self-employed during the Covid-19 pandemic
JRF - Government must go further to protect people on low incomes from impact of coronavirus27/03/2020 13:15:00
New JRF briefing briefing urges the Government to go further to protect people on low incomes from the impact of coronavirus.
IEA - Gender pay gap figures “never fit for purpose”26/03/2020 10:35:00
IEA responds to government decision to suspend enforcement of gender pay gap reporting in light of the Covid-19 pandemic
Lift restrictions on migrants’ rights to help limit the spread of Covid-19, says IPPR26/03/2020 09:35:00
New IPPR analysis reveals migrants are more vulnerable to economic and health fallout of the virus outbreak
Civitas - Human rights laws should be decided democratically in Britain – the constitution needs rebalancing24/03/2020 11:35:00
The Human Rights Act should be abolished as Britain seeks to regain the ability to decide its own human rights laws within its own democratic public sphere, a new Civitas publication argues.
IPPR - Think tanks call for bailout conditions for airlines to secure jobs and deliver climate justice24/03/2020 10:35:00
New analysis shows that two major airlines have paid out dividends in excess of £2.6 billion since 2014, while the sector is underpaying corporation tax