Corporate Welfare Is Not the Exception – It’s the Rule

Government subsidies and bailouts of private companies aren't exceptional, they are part of the fabric of capitalism – it's time we used them to serve the public interest.

Although the Covid-19 crisis is one of the most serious health crises in living memory, it also threatens to create an even more serious economic crisis; deeper and more wide-ranging than the financial crisis of 2007-’08. Like then, the present crisis is making huge demands on government at all levels. If 2008 put paid to the idea that the largest and most profitable businesses are able to ‘go it alone’ without government support, the present crisis has surely laid it to rest.  

The projected cost of the announcements made so far by the UK government is around £99bn with £30bn of this targeted at business support, and £52bn in employment support measures. But this excludes the various business emergency loan schemes, the cost of deferring VAT payments, enhanced subsidies for statutory sick pay (worth around £1bn) and undisclosed support for the airlines. For comparison, that is almost the same as total education and housing expenditure combined. However, it is lower than the £342bn estimated by the IMF to have been the government’s bill of upfront costs (excluding bank ‘guarantees’) from the 2008 banking crisis.  

Capitalists propagate the idea that businesses do best when left alone. Those on top, keen to gain a market advantage, spin the line that governments should never bail out companies because they are eager to see their competitors fall. And because they deny receiving help and support from business, they can oppose big government, state regulations and taxes. Many even feel confident enough to boast about the fact that they dodge the taxes that they do owe to the government. 

Because these ideas have gained such traction, people are often shocked by the arrogance and double-standard of big business when they make the opposite arguments during moments of crisis. Two years prior to the bailout of Northern Rock Bank, one of the biggest state bailouts of any company ever, Matt Ridley, CEO of the bank at the time, wrote:

In all times and in all places there has been too much government … [T]he more we limit the growth of government, the better off we will all be.

The latest example to hit the news is Richard Branson. In 2009, British Airways asked for a government bailout as it teetered on the brink of collapse. BA is also one of Virgin’s main competitors and Richard Branson at the time argued that ‘[t]he government should not intervene to stop companies going bust.’ Today, Branson is pushing for a bailout for Virgin Atlantic.

The fact that businesses push the myth that they do not need government is not surprising. But neither is it true. Businesses have always depended heavily on the state. In fact, big business cannot survive nor thrive without big government. In a normal year, the value of business subsidies far outweighs the costs of unemployment benefits. 

Throughout the history of capitalism, including its neoliberal variants, governments have intervened heavily to support private businesses; indeed the primary function of the ‘neoliberal’ state is not to ‘get out of the way’, but to govern in ways that support markets. No major economy has ever left their businesses to truly go it alone. As Adam Smith put it:

After the public institutions and public works necessary for the defence of the society, and for the administration of justice… the other works and institutions of this kind are chiefly those for facilitating the commerce of the society, and those for promoting the instruction of the people.

Only governments could establish the financial, legal, social and physical infrastructure necessary to facilitate private ownership, production and private for-profit services. And as capitalism developed, so the need for more involved and effective government and governance has increased.  

The various forms of provision that service the needs of private businesses are what I have termed ‘corporate welfare.’ Such support is provided in various ways, directly and indirectly. Direct forms of corporate welfare include things like subsidies, grants, loans and the public buying of shares, which allow businesses to emerge, expand, invest and profit. Indirect forms of corporate welfare are more hidden, less obvious, more diverse and varied. A good example of the latter are employment tax-credits, paid to workers by government, but which operate as wage subsidies where employers do not pay enough for workers to live on.

At Corporate Welfare Watch we document, analyse and make public the various forms of corporate welfare claimed by private businesses.  Previous analysis has totted up the value of corporate grants, subsidies, tax breaks, procurement and wage subsidies which together amount to over £90bn per year. Our database, the only one of its kind in the UK, reveals that the biggest companies make the largest claims.

One of the largest recipients is the arms manufacturer BAE systems, which has received over £44 million over the past decade. But less obvious companies have received large subsidies too. Tesco, for instance, has received over £10m in direct support and Unilever over £8m. Amazon has received over £20m. This does not include indirect wage subsidies received by workers in any of these companies. 

Virgin is no different. Branson may be a tax exile and may be lauded as the business-person’s business person. but he relies heavily on the taxpayer. An increasingly large share of his business consists of contracts won from the state or delivered with assistance from the state. Virgin’s train companies are heavily subsidised. Its health division has won NHS contracts and, famously, sued the health service when it failed to win one contract.

Its purchase of Northern Rock was also heavily criticised by the National Audit Office because the government sold the bank off too cheaply. In all cases, the taxpayer boosts the income of Richard Branson. And in all cases, there is no evidence to suggest that Virgin delivers better, more efficient and cost-effective services than could be delivered by the state. 

The question is whether quick-footed, tax-evading and rent-seeking companies that conspire to undermine the capacity of the state should be able to make claims on it. Governments today regularly remind benefit claimants that there are no automatic rights to claim benefits, that there are no rights without responsibilities. Social welfare is conditional. Corporate welfare should be too. 

Returning to the 2008 crisis, one of the biggest questions at the time was what type of capitalism will emerge from it? The answer that came back from the ruling Conservatives was massive austerity, and tax breaks for corporations and the wealthy. The richest part of the population may have caused the financial meltdown, but the poorest paid with their incomes and their lives. 

The present crisis poses similar questions. Amazon, a company that has demonstrated the lengths to which it will go to secure billions from the US government, is emerging even stronger from the current crisis. For all its efficient brilliance in providing services to its customers, Amazon draws heavily on the societies in which it is embedded.

It depends on public infrastructure. It exploits workers, many of whom claim wage top-ups from the state. It has helped to rip the heart out of the high street, at huge costs to citizens. At the same time, it has claimed direct subsidies from governments and it has dodged taxes. 

The truth is that Amazon trades in countries like the UK having been given permission and support by its citizens. And the likes of Amazon need to be put on notice that such permission can be withdrawn. We must demand more. We need to level the playing field that provides unfair advantages to big business. We must force employers to pay decent wages so that they do not depend on subsidies. And ultimately, we have to say no benefits without responsibilities.