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.
This report, written by former No.10 adviser Giles Wilkes, 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.