Businesses should curb profit margins as payback for Covid support: Ros Altmann

Businesses should act now to curb price rises and margin expansion, rather than waiting to be forced by recession.

Before the Bank of England is forced to keep raising interest rates and tips the economy into full-blown recession to curb demand, it makes sense for the Government to ask businesses to play their part in addressing this crisis.

Taxpayers spent billions of pounds supporting businesses through the Covid emergency.

During the pandemic, there was massive business support in the form of temporary tax cuts, grants, loans and government guarantees.

The Chancellor provided liquidity to businesses across the economy to prevent insolvencies, with both partial and full underwriting of financial support, while the economic emergency deterred financial institutions from business lending as demand collapsed and businesses had to close.

The Coronavirus Business Interruption Loans, Bounce Bank Loans, the Future Fund, furlough, free testing kits, PPE, tax cuts – businesses were showered with support courtesy of taxpayers and central bank money creation, for two years at huge cost.

It is now payback time.

Businesses should show more restraint with their pricing decisions, rather than taking excessive commercial advantage of post-pandemic adjustments and inflation expectation pressures from excessively long QE central bank money creation, plus the Ukraine War.

The rise in ‘core’ inflation is a serious concern and reflects across the board pricing pressures, in goods and services, which cannot just be explained by raw material costs.

Many firms are reporting record profits and have clearly taken the chance to expand margins, as customer demand has not slowed enough to impact sales significantly.

Rather than waiting for the Bank of England to keep tightening policy to curb inflation, potentially causing a recession, I hope businesses might recognise they have a duty to society to show restraint – which is no doubt what the Chancellor is trying to explain.

Responsible capitalism and Corporate Social Responsibility are important for future prosperity. So far, Corporate Social Responsibility has failed to focus on this basic idea.

It is time for businesses to play their part and behave more responsibly as the country grapples with the most serious inflationary crisis for decades.

Shareholder interests are of course important, but ignoring the wider economic interest, especially after so much taxpayer money was spent propping up business and market performance in recent years, would not fit well with responsible capitalism in my view.

Baroness Ros Altmann is a Tory peer and former Pensions Minister