There was some good news last week. Oxford University’s Jenner Institute announced it was teaming up with AstraZeneca to take a promising prototype of coronavirus vaccine into volume production by the autumn. Of course there are caveats – the institute’s confidence in its vaccine may not be validated by the trials that began last week.
Still it was heartening, after so much tragic incompetence, that a British university and a British company could forge a relationship of such potential national importance.
AstraZeneca’s recent history also tells a cautionary tale – pointing to how our financial, ownership and banking ecosystem is fundamentally decadent. But it also points to a story of promise: if we can be as fast as we’ve been in developing a potential vaccine, in building Nightingale hospitals and in learning to live online, perhaps we can repurpose the British financial system just in time.
The cautionary tale: Britain very nearly did not have AstraZeneca. If six years ago the company had not had some lucky breaks it would not now exist, taken over by the US drug company Pfizer that had no parallel commitment to sustaining drug research in Britain. It was and is run by a Frenchman, Pascal Soriot, passionate about medicine (his three brothers are doctors), who knew the long-term value of the company, did not accept that the share price was all and was backed by an unexpectedly determined board. What’s more, the company being half Swedish – the result of an EU-driven merger between the Swedish Astra and the best of the old ICI – it had the unwavering support of long-term shareholders, notably the Wallenberg family holding. They, together with some unfashionably long-term British shareholders, held the line.
It was a close-run thing. David Cameron’s government won some worthless promises from Pfizer, but it said it would not stand in the way of “market forces”, whatever the company’s strategic importance. No thanks to it, but rather those long-term shareholders, Britain now has one of the world’s great drug companies, beginning to flourish while Pfizer is in the doldrums. Its value is crystal clear.
Sadly, the same cannot be said of Britain’s capacity to manufacture a range of medical equipment – witness the ongoing debacle over PPE, ventilators, face masks and the rest. The same decadent financial and ownership system is in part to blame. One statistic reveals its priorities: of the £1.7tn stock of British bank lending, £1.45tn is on real estate while a tiny £10bn has been advanced to small- and medium-sized manufacturers.
But as economic disaster looms, British banks could, and should, become conduits for finance to flow to our crippled business sector, and in particular manufacturing – as urgently as the Jenner Institute is trying to develop a vaccine. Unless that happens, Britain is going to have the deepest and most prolonged recession in its history.
In fairness, the Treasury and Bank of England have been quick in creating some genuinely innovative financial support packages. There is the coronavirus business interruption loan scheme and the generous term funding scheme for small and medium-sized enterprises, which banks can access to finance up to £190bn of new lending over the next 12 months. As the Bank of England dryly observes, that is 13 times more than the banks managed themselves over the entirety of 2019. On top, the banks were told not to pay any dividends to help conserve capital, better to support the impending scale of lending to distressed companies.
British banks are trying – £1.3bn was lent last week and 25,000 applications processed – but the degree of cultural and organisational change required is dramatic. To avert a disastrous wave of closures, bankruptcies and redundancies by the summer, the weekly rate of lending has to rise to between £12bn an £15bn. That’s lending in a week what banks used to lend in a year. It is telling that Britain’s 10,000 bank branches have been closed or are working greatly reduced hours during lockdown. They do not have the economic function of supermarkets, which have had to stay open.
British banks have a longstanding aversion to business lending: it is regarded as too risky and costly. With the same ruthlessly short-term shareholders owning them as those prepared to sell AstraZeneca to the highest bidder, banks know that they must deploy their capital to where profits are high and reliable – real estate lending. This means that the piping through which emergency credit must flow is atrophied and weak.
The chancellor should chair an emergency financial task force with the purpose of driving lending up by the day, to be monitored with the same intensity as we monitor Covid testing. The British Business Bank, embarrassingly minuscule compared with its foreign counterparts, needs immediately to be given the mandate and capital to increase its own lending 10 times – across the country. Bank shareholders need to declare much more publicly and vocally than they have that they understand the demands being made.
Nor can the insurance industry, with funds under management of £1.9tn, stand on the sidelines. The loans the banks make, some with government guarantees, could be packaged in “cover bonds” that the insurance industry commits to buying – relieving pressure on bank balance sheets and recycling vital cash.
Some companies will not need loans but equity investment: the venture capital and private equity industries must transmute themselves from their default role as predators and asset-sweaters to long-term, patient investors – working with the newly created Future Fund to take generous equity stakes in companies in need. Supporting intellectual capital rather than seeking property collateral should become the new north star of British finance. If there is not to be a terrifying slump, the British financial and ownership system needs a revolution – and it has to take place in mere weeks.
Good people abound, marginalised until now by the predominant culture of wealth extraction. They need to be unleashed. And once we get to the other side, the new systems of engagement and support need to be retained. Good, perhaps, might yet come from all this pain.
• Will Hutton is an Observer columnist
