The Tories’ handling of the forthcoming economic crisis is as shambolic as its behaviour over the Covid virus the caused it, writes Prof Prem Sikka.
From the delayed lockdown, to personal protect equipment failures, botched care home admissions, and the test and trace app disaster – the government is responsible for thousands of avoidable deaths.
And the management of the financial side of the crisis is just as bad. The latest mismanagement is the government loan to Celsa Steel, a South Wales-based steel producer with around 1,000 employees.
The government’s press release does not disclose how much the loan was for but reports suggest the loan is around £30 million, which is expected to be repaid in full.
The company must also meet several conditions, including: “Commitments to protect jobs, a net zero effect on climate change, restraints on executive pay and bonuses and tax obligations.”
At first glance, the loan conditions look good. But how many jobs will be protected is not known, nor for how long, nor what emission targets have been agreed, what limits to executive pay have been agreed, and what tax payment/avoidance guarantees have been agreed.
No mechanism for monitoring and enforcement has been specified and the loan is unsecured. The government’s statement seems to be part of an impression management exercise. But it’s also a sign of the Government’s inconsistency.
In April, EasyJet secured a £600m loan from the government even though its parent company is based in the tax haven Cayman Islands. There is no public record of any of the above conditions being imposed. EasyJet plans to shed 4,500 jobs.
Germany provided just over £8 million to bail out Lufthansa, its national carrier. It did this by buying a fifth of the company’s shares.
A loan would have meant the company had to pay annual interest and a large sum upon redemption, both of which would have made its cash flow worse. Buying shares avoided all these drawbacks.
The German government also gained two seats on the company’s Supervisory Board. That has an equal number of shareholder and employee representatives and oversees the Executive Board. The government’s presence on the Board gives it leverage in directing the company.
The management of Lufthansa and trade unions have announced an agreement to generate £4.5m of savings by freezing wages, this avoids the possibility of 22,000 redundancies. In time, the German government can sell its shareholding and recoup its investment.
In contrast, the UK government gave British Airways (BA) a business rates holiday for a year, a £35m a month wage subsidy for its employees and a £300m loan. Interest payments and loan redemption will hit its cash flow.
The government did not specify any obligations for the company, or at least, none have been made public. It did not acquire an equity stake or seats on the board which has no employees or government representatives on it. The company plans 12,000 job losses, and a further 30,000 may be rehired on inferior terms. Many staff face a 40% cut in pay.
The behaviour of British Airways and its parent company towards its employees is a national disgrace.House of Commons Transport Committee
The responsibility for the ‘disgrace’ must also fall upon the government for showering money upon companies without any reciprocal obligations.
The government has mishandled other financial issues too. The wage subsidy for furloughed staff was fixed at 80% of their wage, with a ceiling of £2,500 a month – but no minimum level was established. As a result many low-paid staff on minimum wage have been receiving less than the minimum.
This has plunged millions into hardship. The House of Commons Treasury Committee concluded: “More than half a million people starting a new job every month” were excluded from the poorly designed scheme. In addition, hundreds of thousands of self-employed people received no help.
“These Tory policies lack consistency, fairness or accountability. The government clamours for headlines but pays no attention to details, said Prem Sikka who is Professor of Accounting at University of Sheffield and Emeritus Professor of Accounting at University of Essex.
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