Beyond COvid: The Digest

Bailout plans and equity stakes

June 29, 2020
SUMMARY
  • The government is in talks with six companies under its "Project Birch" plan for bailouts, including Jaguar Land Rover and two steelmakers. We take a look at government equity stakes, wealth funds and other proposals for how government can support businesses while ensuring these meet environmental and social commitments.
  • Major reports from the UK's Committee on Climate Change and IPPR underline the country's lack of preparedness for environmental breakdown and the need for major, rapid action to meet our legally-enshrined emissions targets. We look at prospective solutions, including a plan for £85bn of "shovel-ready investment" from the TUC, the protection of national habitats, cuts to fossil fuel subsidies and 'greening' trade deals in our In Brief section.
  • Our Reflections section this week features articles on the link between climate and racial justice, the employment boon of green recovery programmes and the Conservative case for a four-day week.

Focus: bailout plans and equity stakes

  • The government is in talks with six companies under its "Project Birch" plan for bailouts, including Welsh steelmaker Celsa and Jaguar Land Rover.
  • ~~Celsa is expected to become the first company receiving assistance, with a £50m loan announcement expected this week in return for "assurances" on its workforce, emissions reductions, and curbs on executive pay.
  • ~~Tata Steel also looks set to receive assistance from the UK government in the next week, in a loan reportedly worth £500m under Project Birch.The stated intention is to preserve Britain’s steelmaking capacity, increasingly seen as strategically essential, and protect up to 8,000 jobs, plus more in Tata’s supply chain.
  • British steel production was at risk even before the pandemic hit, with plants in the UK threatened by a glut of global steel production and moves towards protectionism across the globe.
  • ~~China, the world’s largest producer, has maintained production of steel throughout the crisis, even topping last year’s monthly production, and looks set to further dominate the global market. This is in contrast to an estimated one quarter of steelmaking capacity in Europe and North America currently standing idle.
  • The steel industry is both a heavy energy user, making it a major contributor to climate change in need of decarbonisation, but also a critical part of the supply chain for green investments - 36% of the lifetime costs of a windfarm are the steel foundation.
  • Project Birch loans will reportedly be available only after all other avenues have been exhausted, including the government’s other coronavirus funding. But despite calls from unions and opposition parties to apply strict conditions to any special assistance, particularly to preserve employment, the government has not yet clarified any potential conditions.
  • ~~The Treasury is reported to be like to offer convertible loans in some cases, in which, under certain conditions (such as the company being unable to meet repayments), the existing loan would convert to equity. But government sources have been keen to avoid taking direct ownership of any business, preferring to ensure the government became the preferred creditor for the company (meaning its loans would be repaid ahead of other claims).
  • The government has seen ownership stakes in bailed out companies as a last resort, but calls for equity stakes to be taken in bailed out companies have been growing. The Telegraph’s chief city commentator has urged the government to move rapidly to acquire shares as part of a rescue deal for this “strategic industry”.
  • ~~Think tank Common Wealth has urged the taking of equity stakes in bailed out companies, presenting plans for railways, aviation and higher education.
  • ~~IPPR has urged a general policy of 30% equity being taken as a condition of bailouts, to ensure the government’s own balance sheet was protected and to provide additional leverage over sectors in the event of a broader restructuring being necessary.
  • One option for government equity stakes, favoured by IPPR and Common Wealth, is to use them as the basis for a new national (or sovereign) wealth fund.  This would be a fund, under public control, containing the investments that the government owned and so paying a regular return to the taxpayer.
  • ~~IPPR proposed a “citizens’ wealth fund”, on the basis of some initial government asset sales and small regular payments, to cover the costs of a “citizens’ income”.
  • ~~Duncan McCann and Stewart Lansley, in a paper for the Friends Provident Foundation, proposed a suite of “social wealth funds”, operating at different levels of scale (from local to national), to provide for longer-term public expenditures like healthcare, social care, and pensions.
  • Boris Johnson is expected to speak on Tuesday this week, setting out the government's infrastructure plans for the recovery, including £1bn promised for new schools.
  • ~~Johnson and Downing Street have talked up the scale of the government's ambitions, but the Treasury is increasingly cautious and could delay the scheduled 9 July fiscal event depending on data from the releasing of lockdown restrictions.
  • ~~The Economic Change Unit have produced a short fiscal event expectations document, with the latest on the government's plans.

From recovery to reform: rebuilding local economies after Covid-19

Last week’s Beyond Covid webinar saw Greater Manchester Metro Mayor Andy Burnham, Sarah Longland from IPPR North, and Neil McInroy from the Centre for Local Economic Strategies discussing the critical role of local and regional governments in implementing strategies to build back better after the crisis.

In brief

  • The International Labour Organisation (ILO) has warned of a “crisis within a crisis” for 164 million migrant workers, who faced being forced to return home from recession-hit economies to countries without the resources to manage a large numbers of returnees.
  • The IPPR has warned that the government is “woefully unaware of and ill-prepared for” the growing destabilisation resulting from climate and ecological breakdown, in a new report on policymaking in the age of environmental breakdown.
  • The Committee on Climate Change has warned that rapid action is needed if the UK is not to miss its greenhouse gas emissions targets, with perhaps only months to act.
  • New research for the TUC by Transition Economics details £85bn worth of “shovel-ready” investment in clean technology and decarbonisation that could create 1.24m jobs by 2023.
  • Wildlife Trust’s new report argues that the protection of natural habitats is critical for Britain to meet its legally-binding climate change targets, with threatened peatlands, seagrass meadows and saltmarsh all important for natural carbon storage.
  • The IMF has slashed its forecasts for global economic growth from 3% contraction this year to 4.9%, marking an “unprecedented global crisis”. The “advanced economies” will be hardest hit, with a forecast contraction of 8% over this year, and far weaker recoveries subsequently.
  • In a new paper, the Brookings Institute have urged cuts to fossil fuel subsidies as a quick and environmentally-friendly means to help restore government finances.
  • Business alliance the Aldersgate Group have warned that free trade deals, post-Brexit, must be aligned with the UK’s climate and environmental goals to maintain the competitiveness of British businesses against potential dumping by low-standard competitors.
  • ~~This follows reports that British negotiators with the EU were refusing to include environmental and climate change commitments in a trade negotiations.

Reflections

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