First published: Prospectmagazine.co.uk, 24/05/2016
Companies—both here and abroad—have accumulated billions. How do we get them to spend it?
On 21st May, Shadow Chancellor John McDonnell spoke at a State of the Economy conference organised by the Labour Party. His talk was a wide-ranging pitch about “we can start to transform how capitalism in Britain works,” and how Labour could become a credible alternative government. He also stated, in a rather threatening way, that the UK’s “giant corporations are sitting on giant cash piles—perhaps up to £700bn.” He went on to note that “instead of investing money productively, creating new jobs and opportunities, our corporations are hoarding cash.”
McDonnell is certainly right that UK companies are sitting on a mountain of cash. According to Bank of England economists Katie Farrant and Magda Rutkowska, over the last decade, private non-financial companies in the UK have been accumulating a higher proportion of cash on their balance sheets than before, and the estimated total at the end of 2014 was about £500bn. As a share of GDP, corporate cash has risen from about 20 per cent in 1987 to about 30 per cent today….Read more: