Bim Afolami MP has proposed a £15bn ($19bn) “Recovery Fund” for British businesses which would see the Treasury investing directly into firms in exchange for shares that would one day be sold to the public.
Afolami, the Conservative MP for Hitchen and Harpenden, said the government should make major investments in small and medium-sized UK companies (SMEs) to help them recover from the Coronavirus recession in a new Social Market Foundation report released on Wednesday.
The fund would take equity stakes in the firms that received government investment and then be floated on the stock exchange with discounted shares offered to lower-paid NHS workers and young people aged 18–30, in both respects targeted to those who earn less than £30,000 per year.
Afolami proposes that the government borrow the extra £15bn and invest it in SMEs via the government’s British Business Bank (BBB).
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 economic recovery was secure, the fund would then be sold to investors, with special incentives to encourage uptake from the general public.
Afolami is expected to propose the Recovery Fund plan to the House of Commons on Wednesday.
The Recovery Fund is one of 10 ideas to promote economic recovery post-COVID-19 set out in the report. These include scrapping district councils, streamlining infrastructure built in the UK, requiring private schools and universities to share their digital learning resources with state schools free of charge, and introducing a council of specialist advisers to assist town centres in restructuring.
The report also suggests that the government should make it easier for people to invest their savings into businesses by allowing ISA savers to invest directly in British companies, potentially injecting up to £6bn a year into small businesses in need of support.
Afolami 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, director of the Social Market Foundation, 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.”