In March last year, when announcing the first wave of measures to support jobs and businesses through the lockdown, Chancellor Rishi Sunak promised Britons six times that he’d do “whatever it takes”. An initial £330bn in loans was announced, equivalent to 15 per cent of GDP. The Office for Budget Responsibility forecast a budget deficit just shy of £300bn for the financial year 2020-21. Put in context, that’s more than a third of last year’s £842bn total government spend.
This is a far cry from the more austere chancellorships of Sunak’s predecessors, Philip Hammond and George Osborne, who committed the country to a period of fiscal retrenchment for almost a decade. But for the moment, with the country in lockdown, the cash taps remain firmly on. What’s more, for the first time since the initial phases of the 2008 financial crisis, the Treasury is working in tandem with the central bank to provide a stimulus to the economy.
The abandonment of Conservative orthodoxy – particularly the free spending on the Job Retention Scheme – has likely saved many millions of jobs, staving off the threat of near-total economic collapse and long-term, mass unemployment. But other aspects of the spending spree have proved more controversial, raising questions about responsible business conduct during the Covid-19 economic crisis. Much of the recovery stimulus has gone to companies that have announced mass redundancies and paid dividends.
The Bank of England’s coronavirus bailout scheme – the Coronavirus Corporate Financing Facility (CCFF) – has seen more than £18bn handed out to some of the largest companies operating in the UK, much of it with few or no strings attached. At a time when the government is touting its green credentials, much of the fund has been used to prop up high-carbon sectors of the economy, with £1bn lent to the German multinational BASF, the world’s largest chemical producer. EasyJet and RyanAir both accessed cash from the scheme. The former has announced job losses and in March awarded multi-million pound dividend payments to shareholders and its founder.
Similarly, British Airways accessed £300m as lockdowns grounded flights across the globe. In April, the company announced it was planning to make 12,000 redundancies. In June, BA told its longest-serving cabin crew they would have to take a 20 per cent pay cut if they wanted to retain their jobs.
At the time, a BA spokeswoman stated: “We are acting now to protect as many jobs possible. The airline industry is facing the deepest structural change in its history, as well as facing a severely weakened global economy.”
Positive Money, a not-for-profit think tank and pressure group, has campaigned hard for transparency around where the CCFF and other bailout funds have ended up. “The most recent estimate is that there have been around 50,000 job cuts from companies that have received the CCFF,” says Anna Pick, a Positive Money spokesperson. “With British Airways, they received £300m and there has been a worker-led campaign highlighting the poor treatment of staff throughout the whole Covid crisis. BA is laying off 12,000 workers and threatening to lay off an additional 19,000 unless they accept worse pay and working conditions.”
The Bank of England initially asked recipients of the CCFF to show restraint in the payment of dividends, but not everyone has heeded its request. The US oil company Baker Hughes, along with Japanese manufacturing multinationals Honda and Mitsubishi, together received just over £1bn in CCFF payments from the bank, but this year have also reportedly awarded their shareholders almost £2bn.
In addition, TaxWatchUK has calculated that £4.7bn of CCFF money has gone to companies registered in tax havens. The Danish and Polish governments were quick to announce that their business support packages would not be awarded to tax-avoiding companies. France and Belgium followed, but the UK has made no such commitment. In fact, conditions originally imposed on government and BoE support are now being lifted. From March, banks that were responsible for distributing business support loans and grants were told not to pay out dividends to shareholders. That provision has now been cancelled after what Pick describes as “intensive lobbying by the commercial banks”.
Positive Money has campaigned for more stringent conditions to be attached to CCFF loans from the beginning, and campaigning think tanks such as the New Economics Foundation have called for bailouts to “reflect the wider need for a system shift” that “lays the foundations for a more equal, more sustainable post-coronavirus economy”. Governments could use bailouts to drive improvements in employment standards and environmental sustainability, and ensure corporate recipients didn’t make mass redundancies while upping executive pay. The Institute for Public Policy Research, in its Beyond Bailouts report, proposes the establishment of a national wealth fund to hold equity stakes in bailed-out companies, massively expanding public ownership and enforcing “the highest standards of corporate governance and environmental, social and governance compliance”.
The government has made much of its promises to “build back better”, to usher in a “green industrial revolution” and to “level up” the economy. Even before the coronavirus, after winning his 80-seat majority last year, the prime minister told Conservative MPs that “in delivering change, we must change too”. But while promising to do “whatever it takes”, much of the government and the Bank of England’s stimulus measures show less of a desire for genuine change or enthusiasm for a new economy, and more of an effort to prop up and paper over the cracks of the old one.