As a result of the Coronavirus pandemic and subsequent lockdown the UK Government is working on a plan, called Project Birch, to provide short term bail-outs to those companies “considered strategically important” to the national economy.
However, how to define strategically important? Is it in terms of their contribution to UK GDP (Gross Domestic Product), or to the number of jobs they account for, or to their ability to be viable and profitable businesses that can operate in more normal times without state aid?
It would be reasonable for a Government to consider a business to be strategically important in terms of employment during a crisis, such as now, especially given that some of the above-mentioned Key Industries are in parts of the UK where there is traditionally high unemployment with few alternative job sources, especially when whole communities are dependent on a major manufacturer.
This would apply to the car industry in the North East and to the Steel Industry in South Wales.
However, given that many are foreign-owned, there is little certainty that their owners will invest in them for the future benefit of UK, and often their commitment to keeping them open is in doubt, as previous negotiations for Government help have already demonstrated. It is therefore questionable whether they should be regarded as UK Key Industries in the medium and longer term.
According to the ONS (Office of National Statistics) the UK Key Industries today are in the services sector, including banking and finance, steel, transport equipment, oil and gas, and tourism: “the services sector is the largest sector in the U.K., accounting for more than three-quarters of the GDP”.
So, as former Treasury minister and architect of the Northern Powerhouse project Jim O’Neill has warned, any short-term bail-out of the UK Key industries identified in Project Birch as strategically important must be linked to strict conditions: “If the lion’s share of the equity is simply going to preserve jobs at any cost, that’ll ultimately just add to our weak productivity problem,” he said, in an article in CityAM.
It is a point echoed in an article in the Financial Times about the UK’s “age-old” problem of identifying winners and losers. In my view there are still far too many zombie and borderline insolvent businesses in the UK; most of them have been propped up by lenders not wanting to write off their debt, not because they will contribute to the future of UK PLC.
My blog on Tuesday focused on the opportunities for business innovation that are likely to come post-Coronavirus as a result of changed priorities for consumers and investors towards a greener and more sustainable economy rather than a largely consumer-oriented one.
Perhaps in orchestrating an economic recovery it would be wiser to focus on stimulating and investing in new and innovative businesses and in re-educating and training the workforce for the future and not leaving them untrained and propping up the past.
Identifying new potential UK Key industries, such as pharmaceuticals, innovative technology and the manufacture of sustainable new products is imperative for our future prosperity instead of propping up ailing industries simply because they employ large numbers of voters.