The Treasury should spend £15 billion investing directly into British firms in exchange for shares that would one day be sold to the public, a new Social Market Foundation report by Bim Afolami MP says today.
Afolami, the Conservative MP for Hitchin and Harpenden, has drawn up plans for the Government to make major investments in small and medium-sized UK companies to help them recover from the Coronavirus recession.
His proposed “Recovery Fund” would take equity stakes in the companies that received government investment. The fund would be floated on the Stock Exchange with discounted shares offered to lower-paid NHS workers and young people.
Afolami, a member of the SMF’s cross-party advisory board, is expected to raise the Recovery Fund plan in the House of Commons on Wednesday.
The Recovery Fund proposal is one of ten ideas to accelerate economic recovery set out in Afolami’s report. Others include abolishing district councils and pressing private schools to make online learning available to state school children.
The report also says that ISA savers should be able to invest directly in British companies, potentially putting up at £6 billion a year into businesses in need of support.
(A full list of recommendations can be found below.)
Afolami said in his SMF report – titled “Unlocking Britain” – that ministers should borrow an extra £15 billion and invest the money in small and medium-sized companies via the Government’s British Business Bank.
The BBB would invest the money via commercial fund managers, meaning there was no political control over which companies received investment. In exchange for state financing, the Recovery Fund would get a stake in the firms it supported.
Once the economic recovery is secure, the Fund should then be sold to investors, with special incentives to encourage the widest uptake from the general public.
Bim Afolami MP said:
“We should use the financial power of the state to provide short-term support for small and medium-sized British companies, then in the long term to widen ownership of British business and give more people a stake in the economy. This plan would deliver a strong recovery and a fair economy.
“The Recovery Fund wouldn’t involve politicians picking winners, it would use professional fund managers to invest the money where it would do the most good, in exchange for the Treasury getting a share of the firms that are supported.
“Then when the recovery is secure, the government would get its money back by selling shares in the Recovery Fund with young people and NHS staff at the front of the queue.”
James Kirkup, SMF Director, said:
“We will need new economic thinking to get us out of the Coronavirus recession and the idea of governments investing in companies to support the recovery should be studied carefully.
“A sensible economic partnership between the state and the private sector is something people of all parties should embrace. So too is a stakeholder economy where ownership is spread more widely.”
“This report’s ideas on what more private schools can do to support children from state schools whose learning has been disrupted also deserve attention. The long shutdown of schools will widen educational inequality, and much more should be done to address that.”
About the project and the SMF:
Bim Afolami’s report, Unlocking Britain, was written with the support of a commission of independent advisers including Gerard Lyons, a former economic adviser to Boris Johnson, and Nick Beighton, CEO of ASOS plc. The views expressed in the report are those of the author alone.
The SMF is a cross-party think tank overseen by a Board of Trustees that includes parliamentarians from the Conservative, Labour and Liberal Democrat parties. Our advisory board also contains parliamentarians from all three parties.
The report is published at https://www.smf.co.uk/publications/unlocking-britain at 00:01 on Wednesday 17 June.
Linus Pardoe, SMF Impact Officer, firstname.lastname@example.org
Full list of Bim Afolami’s recommendations:
- Create a Recovery Fund to provide capital to British SMEs – and once recovery is complete, the fund should be floated on the London Stock Exchange. We should issue shares in the Fund, at a heavy discount, to frontline NHS workers and people aged 18–30, in both respects targeted to those who earn less than £30,000.
- Make it easier for people to invest their savings into businesses – this can inject £6 billion into British SMEs without raising new money from public or private sector.
- The Bank of England should set a nominal GDP level target.
- Remove one tier from local government, and rank local authorities according to key metrics – if a local authority consistently fails, MHCLG may put the local authority into special measures.
- Use a streamlined planning process for a much greater range, and size, of infrastructure. This will make the majority of infrastructure built in the UK much faster, cheaper and easier to build. This will help the “levelling up” agenda be delivered quickly.
- High Streets and urban housing: introduce a “Future Town Centre” council of specialist advisers to assist any town centres in their restructuring, introduce transparency on market rents in town centres, and align business rates to those on a yearly basis. On urban housing, allow “street votes” – proposal to allow individual streets to vote to change planning controls.
- Opportunity Zones for manufacturing centred around our research hubs, building on the freeport agenda already being developed by government.
- Opening up the economy by reducing barriers to innovation and industry presented by anti-competitive legislation. This would mean embedding a pro-competitive agenda into the regulatory framework by requiring a competition review by the Competition and Markets Authority (CMA) into key industries in the UK economy.
- Student debt on high-quality STEM degrees should be written off if graduates spend five years working in STEM occupations (i) of high demand or (ii) in new Freeports or Opportunity Zones. STEM apprentices to be better funded and further financial incentives given to employers to take on more apprentices into full employment.
- Digital skills: private schools and universities should provide all their digital courses to state schools free of charge, which would enable us to equalise opportunities and widen digital skillsets in young people before they enter higher education and the workplace.