tutor2u | Supporting businesses during the crisis - an update

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Supporting businesses during the crisis - an update

Graham Watson

18th April 2020

The government's loan scheme has come in for criticism, with many arguing that it has failed to dispense funds quick enough, or to enough companies, in comparison with other schemes in Germany or Switzerland.

However, the new governor of the Bank of England, Andrew Bailey, and others - notably Ed Miliband and George Osborne - have come out in favour of the government guaranteeing 100% of loans made to firms under the Coronavirus Business Interruption Loan Scheme. Read more here

£400 billion paid in dividends by UK companies before coronavirus crisis

A left-leaning think tank, Common Wealth, raises an interesting point here about the government bailout. In the period 2011-18, UK companies paid out nearly £400bn in dividends, implying that had they not done this, they would have been better placed to weather the pandemic.

And there's something in this: share ownership comes with risk, as does entrepreneurship more generally, so some are concerned that the extent of government intervention is another example of moral hazard, whereby business is happy to profit in the good times, and abrogate the risk in the bad times. That said, these are remarkable times.

However, small businesses might also argue that there's a distributional issue here: might it not be that large firms who pay dividends to shareholders are unfairly advantaged, in that their collapse means that they have easier access to bailouts? There's certainly lots to ponder.

Polluter bailouts and lobbying during Covid-19 pandemic

More nuance here - and a lovely example of the fact that interventions more often than not result in net effects, rather than straightforward one-directional effects.

Yes, the lockdown and collapse of economic activity has reduced pollution levels, but at the same time a number of polluting sectors have looked to gain bailout funds and have sought a relaxation of environmental regulation during the lockdown. So perhaps the net effect of the pandemic on the environment will be less positive than we might imagine, if only at the margin.

Graham Watson

Graham Watson has taught Economics for over twenty years. He contributes to Tutor2U, reads voraciously and is interested in all aspects of Teaching and Learning.

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