Government should take 30% stake in struggling sectors during pandemic, suggests think tank

The government should take equity stakes of 30% in struggling transport, retail and manufacturing companies to support them through the coronavirus pandemic, says 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 which ‘underscores the long-term benefit of intervention now.’

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.

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, 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.’