The Facebook files: regulating digital platforms

Rising gas prices and heavy industry. The FT reports that Chancellor Rishi Sunak is now considering a rescue plan for energy-intensive sectors to ameliorate the impact of extremely high gas prices. The Business Secretary, Kwasi Kwarteng, is believed to have proposed “loans and other support worth in the low hundreds of millions of pounds” to firms in the steel, ceramics, glass and paper industries.

• Rationales. The energy intensive industries argue that firms could rapidly go out of business without support. The Independent reports that ”defence-critical” products are at risk in such a scenario. This could break new departmental procurement rules, through which the government aims to strengthen the resilience of the UK’s critical supply chains and compete with China. Industry leaders have also warned that rising gas prices could hamper their decarbonisation efforts.
• Bailout conditionality. The government gave its first bailout to Celsa Steel last summer under the ‘Project Birch’ scheme. Responding to calls from NGOs and others, government support came with conditionalities such as “a commitment to protect jobs, tackling global heating and restraints on executive pay and bonuses, as well as tax obligations”. TaxWatch UK tracked the handouts made to companies under the UK government’s various bailout schemes.
• Equity stakes. Rather than loans, the government could offer business bailouts by taking equity stakes. IPPR last year urged a general policy of 30% equity being taken as a condition of bailouts, to ensure the government’s own balance sheet was protected and to provide additional leverage over sectors in the event of a broader restructuring being necessary. The Government already takes public equity stakes through the British Business Bank’s Future Fund, when struggling startups fail to repay loans. UCL IIPP’s policy brief on public wealth funds explains how taking public equity stakes in threatened, strategically important firms can support economic recovery.

Energy markets and ownership. Brooke Masters in the FT explained how the “natural gas crisis highlights the limits of free markets in decarbonisation”. We Own It’s Johnbosco Nwogbo explained why greater public ownership in the energy sector will allow for better security for the industries affected by fluctuations in commodity prices.

Learning from past mistakes and other countries. The Cambridge Bennett Institute published a report exploring the deficiencies of industrial policy in the UK since the 1970s and contrasts them with the experiences of other advanced economies. The authors, Cambridge economist Professor Diana Coyle and Adam Muhtar, recommend “embedding a more systematic mechanism of policy updating” than frequent policy reversals driven by political cycles.

PM’s vision of a new economy. Boris Johnson’s keynote speech to the Conservative Party conference pledged to “turn Britain away from the political and economic orthodoxy of the past 40 years”, characterised by “an old broken model with low wages, low growth, low skills and low productivity, all of it enabled and assisted by uncontrolled immigration.” Minus the point about immigration, the passage echoed criticism more familiar from the left: see for example the final report of the IPPR Commission on Economic Justice. 

• Criticism from the right. The speech attracted strong criticism from right-wing free market think tanks such as the Adam Smith Institute - which called it an “agenda for levelling down to a centrally-planned, high-tax, low-productivity economy” - and the Institute for Economic Affairs, who similarly criticised a strategy based on “unnecessarily restricting the supply of labour to lead to wage increases”.
• Analysis. Goldsmiths political economist William Davies noted that “Johnson’s newfound interest in economic models tells us something about how this weird new Conservative party is operating. It is equally significant that Keir Starmer – in contrast to his two predecessors – shied well away from discussing the state of British capitalism. The terms of political debate appear to have flipped.”
• Public attitudes. NEON polled Conservative voters and found majority support for a variety of progressive policies. These included a minimum income sufficient to meet living costs, banning zero hours contracts, moving to a 32 hour work week with no loss of pay, rent controls, a pandemic profits windfall tax, wealth tax and more. 
• A new paradigm? The Berlin-based Forum for a New Economy are running a workshop at the end of the month to evaluate the idea of a new economic paradigm. Register here.

International corporation tax deal signed but watered down. A historic deal to impose a global minimum corporate tax of 15% by 136 countries was agreed at the OECD. But tax Justice Network’s (TJN) Alex Cobham explains how the deal was watered down during the negotiations:

• Pillar 1. Pillar 1 aims to reduce profit shifting by allowing countries to tax multinationals based on a company’s sales in that country, rather than registered profits (as these can be shifted to lower tax jurisdictions). This was originally intended to be universal, but now only applies to a small part of the profits of just 100 multinationals. TaxWatch’s George Turner explains that Big Tech companies will end up paying less under Pillar 1 than they do under current Digital Services Taxes so “the new plan represents a tax cut for big tech in the UK and many other European countries”. (More analysis from TaxWatch here)

• Pillar 2. Pillar 2 sets a global minimum rate of corporation tax of 15% to prevent incentives for an international “race to the bottom” in domestic levels of corporation tax. But all tax revenues will go to countries where the headquarters of multinationals are registered, leaving poorer countries unable to claim tax revenues. Oxfam calculates that, for example, Nigeria will stand to receive only 0.02% (48¢ per citizen) of its GDP in additional revenue each year.

An inflation hawk? Huw Pill, the Bank of England’s new chief economist, gave his first public remarks, indicating his “great concern about the inflation outlook”, which “looks set to prove more long-lasting than originally anticipated”. This was widely interpreted to mean that he would vote in favour of an early rise in interest rates. 

• Limiting inflation more safely. IPPR’s Carys Roberts, OpenDemocracy’s Laurie MacFarlane and economist Adam Tooze joined Owen Jones’s Youtube channel to discuss how to address the underlying causes of inflation in ways that won’t worsen the cost of living crisis, for example  through an industrial strategy to reduce bottlenecks rather than tightening monetary policy and contracting demand further. 

Post-Brexit deregulation of financial services. Chancellor Rishi Sunak suggested a move towards more regulatory divergence with EU rules on financial services to help the City of London “boost its global competitiveness”. 

• Learn lessons of the 2008 GFC. Finance Innovation Lab’s Marloes Nicholls explains why the ‘competitiveness’ agenda driving the government’s financial sector reform could lead to financial instability (e.g. through rolling back safeguards on bets made by banks with consumer deposits), regulatory capture and limit spaces for ethical finance innovation.

Conservative MPs call for community power. A group of Conservative MPs from the 2019 intake have published a report calling for a ‘double devolution’ to councils and communities. The report, Trusting the People, includes recommendations to “remodel our economic institutions to put the values of ordinary people, rather than the abstract forces of finance, at the centre of decision making”.

Local government funding struggles. The IFS’s Green Budget chapter on local government funding examines the impact of the pandemic on councils’ ability to maintain services, finding that “English councils will likely face large funding gaps over the next two years under current spending plans, even with large council tax rises”. The IFS said that keeping services running at pre-pandemic levels and funding the government’s social care reforms could require raising council tax by as much as £220 per year by 2024/2025. 

• Alternatives. IPPR’s Shreya Nanda outlined the case for a proportional property tax to replace council tax and stamp duty and raise money for local authorities more equitably. 

Reducing health inequality through local economic development. Professor Sir Michael Marmot’s Institute of Health Equity and Public Policy Projects have published a report outlining place-based problems and solutions to UK health inequality, arguing that “when the private, public and voluntary, community and social enterprise (VCSE) sectors and communities work together, it is possible to create more equitable and healthy societies.”