In UK, close political connections result in more covid relief funds

February 14, 2022

British bank notes, in rolls

Story by Rob Rombouts

“There is a lot of concern about corruption in and around Boris Johnson’s government’” said Geoffrey Wood, chair of the DAN Department of Management & Organizational Studies at Western University. “There have been media stories about dubious corporate bailouts, but it is largely anecdotal.”

Wood, along with co-authors Enrico Onali, (University of Exeter), Anna Grosman (Loughborough University London), and Zulfiquer Haider (Western University), analyzed the numbers and found empirical evidence on political connections and bailouts in the United Kingdom.

“The government argued the issues were small and not widespread. This shows the arguments are not true,” said Wood.

The paper, “A very British state capitalism: Variegation, political connections and bailouts during the COVID-19 crisis” used a sample of 1,920 publicly listed firms, examining which firms received COVID-19 relief funds, and what factors impacted the successful applications.

“There have been calls for better transparency around the covid-related spending of taxpayer money in Canada and there have been reports in the mainstream media about covid-related corruption in emerging markets, though to the best of my knowledge ours is one of the few, if not the first, large-scale study on UK firms,” said Haider, assistant professor in DAN Management.

COVID-19 assistance was unevenly distributed across sectors, with transport, hospitality and support services receiving the most funds. Within the sectors, however, funds were not evenly distributed. The UK government favoured more labour-intensive firms, but did not get guarantees of saving jobs. Monies were also not necessarily provided to the largest employers in those sectors. The paper cites a business with only 11 employees which received £200 million in relief.

Larger business groups were more likely to receive funding, as well as firms owned by powerful majority shareholders, and, of the greatest concern, politically connected firms. This suggests firms leveraged political capital to gain a competitive advantage in getting aid. The paper measured political connections by finding politicians on the boards of the firms.

“There are systemic links between the lists of people who got contracts, and the Conservative government,” said Wood. “This is cronyism on a national scale.”

Finally, in investigating applications, the researchers found many firms that did not quality applications or connections to the purpose of grants, but did have strong political connections to the ruling Conservative party, were more likely to receive funds.

“The positive relationship between political connections and receipt of covid aid had a high degree of statistical significance at the 1% level” said Haider, who researches corporate ethics and social responsibility. “In fact, firms with political connections have a 48% probability of receiving COVID-19 aid from the government, which is a higher likelihood relative to firms without political connections at 42%.”

Many of the firms with liquidity or solvency issues were more likely to receive funds.

“This is evidence of state capture,” said Wood, with public funds being offered to the firms with more political connections, and not to those that could put the funds to best use, or have a better chance of success and survival after the pandemic.

“Ideally, one would want to see public funds spent on businesses that are socially responsible and have a culture of place-basedness in the workplace,” said Haider.

There is a lack of will on the part of the authorities to address the problem, said Wood. “By UK historical terms this seems particularly gregarious. It is blatant and overt; very visual and quite brazen,” he said. “When you start to get into that level of brazenness, there is an increased risk of contamination, rising criminality, as people begin to think they don’t need to adhere to rules.”

The research, Wood said, highlights the need for more public scrutiny to who received money, and what happened to it.

“We need more light of day on the matter,” Wood said .