Should the UK create a post-Covid Sovereign Wealth Fund?

Soon, the short-term credit being lent abundantly to Britain’s small and medium firms to stave off bankruptcy during the shutdown will be due to be repaid. The prospect of this forcing many businesses to shed jobs by the thousands is rightly ringing alarm bells. The can could be kicked down the road for a few months by postponing repayment. But the people who kicked the can would still have to confront the problem. They would find that firms saddled with accumulated short-term debt, and revenues that remain reduced, will want to shed workers.

The latest proposed solution, initially proposed in the Financial Times, is that these short-term liabilities should be converted into state-owned equity and handed to a new national Sovereign Wealth Fund, like those of Norway, Singapore and Saudi Arabia. Momentarily it sounds like a masterstroke: in the teeth of despair, not only are firms liberated from the new debts, but in the process we create wealth.