Co-op Policy Blog #26: Co-ops to the rescue?

A wave of business failures would exasperate already unacceptable levels of hardship, weaken local economies and leave the Exchequer on the hook for billions in unpaid Covid loans. Its time policymakers across the UK got serious about enabling co-operative buyouts and rescues, which can save thousands of at-risk jobs and businesses.

The power of co-operation

The latest ONS data shows business liquidations running at 34% above pre-pandemic levels. Back in November 2021, the Bank of England reckoned one third of indebted SMEs could be in trouble. Government has estimated that between 31% and 48% of Covid Bounce Back Loans will not be repaid and the state, as loan guarantor, is ultimately on the hook.

Some of these businesses would have failed regardless of Covid. Many could be successful but have been badly run. In some cases, a successful, socially beneficial business is in there somewhere, but needs new purpose, ownership and capital to bring it to life.

This is what co-operative buyouts and rescues can do. Groups of entrepreneurial workers, customers or people in the community, band together to buy a business or its assets, creating a co-operative that continues trade, provide work and meet needs. Usually, the co-operative runs better, sustains better-quality jobs and makes a bigger economic and social contribution to the community, compared to what came before.

This is not about eking out the life of businesses predisposed to fail, subsided by well-meaning communities (or governments for that matter!). These buyouts and rescues require specialist investment, advice and support, provided only when rigorous assessment suggests there is a good chance that a viable co-operative business will result.

There is a mountain of evidence that these co-operatives are, on average, high performing and very resilient. Not because the co-operative model is a magic wand, but because in some circumstances the model brings together and empowers the right actors, with the right capital, for the right reasons, to achieve things that could not happen otherwise.

No time for complacency

While some appear confident that the UK’s dynamic labour market will see us through, we should not be complacent. Workers and communities often lose out when businesses go bust. For example, in the UK, workers displaced by firm closure tend to be 18 – 35 % worse off after five years.

Job Centres are also reporting growing numbers of job seekers struggling with mental ill-health, lost confidence and mismatches of personal skills and needs with the work available. There are concerns about that UK’s long term unemployment rate, which rose from 20% to 30% of unemployed people in the year to October 2021.

We need progressive, enterprise-focused alternatives that secure and sustain good, viable livelihoods wherever possible.

Untapped potential

Worker and community buyouts in the UK are becoming more common, with 148 worker buyouts in 2020 alone. But this is a tiny fraction of the businesses and jobs that are lost each year because of failed or unfavourable succession, divestment or closure. Recent strong growth in worker buyouts in the UK has been driven by the planned exit of owners. This route is growing but is still under-utilised.

But where the UK is really missing out is in the types of worker-led restarts and rescues we see in other developed economies, wherein workers form a ‘newco’ co-operative to acquire viable parts of a business or its productive assets, sometimes as part of the insolvency processes. Notwithstanding the inspirational example of Enabled Works in Leeds, this route is basically non-existent in the UK. If a wave of business failures is coming, we’ll pay the price for this.

Limited awareness of options, unfavourable laws and gaps in information, support and finance are the major causes of all this untapped potential.  

Policy options

For the last three years, Co-operatives UK and the Employee Ownership Association have submitted proposals to government for expanding local support for worker co-ops and employee ownership. Since Covid, we’ve set out how with more funding, our Ownership Hubs could help save thousands of businesses and jobs every year. While ministers and officials have expressed ‘interest’ they have not done anything. We were told that the Department for Business was too preoccupied with SME debt…

Today we are not the only ones with credible proposals in this area. In Westminster, Labour and Co-operative MP Christina Rees is determinedly pressing for Marcora-like legislation, now with a Private Members Bill. Christina has our full support. Legislation that gives workers the time and support they need to explore, organize and undertake a co-operative buyout or rescue, when a business is going up for sale or under threat, could be a gamechanger.

Meanwhile Social Investment Business has a great 'Debt for Equity' proposal, which we have contributed to.  

Away from Westminster, we are getting on and expanding our Ownership Hub programme (local support for worker co-ops and employee ownership) to more cities.

It’s high time national and local policy makers got serious about supporting these initiatives, with better-tailored advice, investment and changes in the law where necessary. Our communities need all the help they can get.