David Green is Chief Executive of Civitas.

After the economic downturn of 2008, it took five years to get back to pre-recession GDP. The Coronavirus crisis is likely to produce a much sharper drop in output and the Government needs to be thinking actively about how best to encourage a resurgence of enterprise.

Its first thought will be to cut corporation tax and short-circuit a few regulations that impede enterprise. But there is a risk that such measures will not produce the well-paid employment throughout the land that the Government wants.

If we look around the economic landscape, not all economic activity leads to the output of goods and services, and the provision of well-paid jobs. Two activities have drawn criticism, not only from those who dislike markets as such, but also from the strongest supporters of markets.

The first is tax avoidance. The OECD has been concerned for several years by the growing tendency of international companies to reduce their tax liability by using sophisticated accounting devices. Its ‘base erosion and profit shifting’ (BEPS) project has tried to reduce the problem, so far with only modest success.

The second is business activity that is extractive rather than productive. For instance, the buying and selling of commodities, currencies, or shares for the sole purpose of making money from the transaction can hardly be called productive. It would not be feasible to prevent such arbitrage but there is no reason to treat it in the same way as enterprise that adds value by producing goods and services.

One approach would be to create a new legal framework for companies that would more effectively harness self-interest to service of the public good.

For most of the post-war period American companies have been able to register with the tax authorities as a ‘C’ corporation or an ‘S’ corporation. A ‘C’ corporation pays corporation tax, but an ‘S’ corporation does not. All profits and losses ‘pass through’ to the shareholders who must not exceed 100. If shareholders take profits in the form of dividends then ordinary income tax is due. This provides an incentive to keep profits invested in the company.

Our Government could adapt this model for the UK by creating a new corporate structure – an enterprise company. Such companies would be required to have their headquarters in the UK and would not be liable for corporation tax – so long as profits were retained in the business as reserves or reinvested in the production of goods and services.

Without corporation tax there would be no need for separate taxing of capital investment via the capital-allowances regime. Investment in plant and machinery would a business expense like any other. However, enterprise companies should still be eligible for research and development tax credits. Profits could only be distributed as dividends, in which case recipients would be liable for income tax as individuals. The use of tax havens would be prohibited and companies must be involved in producing goods and services.

Furthermore, no organisation that bought and sold shares, commodities, currencies, property, or derivatives merely to make money from the transaction would be eligible. Shareholders must all be individuals. No other corporation could hold shares in an enterprise company, which would severely reduce mergers and acquisitions revealed by numerous economic studies to be destructive of value.

Finally, as Hayek proposed, all shareholders should have an annual opportunity to decide whether their personal share of the profit is ploughed back or taken as income. This would not be a majority decision. It would be a personal choice exercised by each shareholder.

Knowing that they could take their share of the profits out once per year would have two effects. It would encourage individuals to invest, and it would incentivise executives to come up with better ideas for investment than buying back the company’s own shares or increasing their own remuneration.

HM Treasury will have to forgo some of the £50 billion raised in corporation tax, but with this new kind of corporate structure we can anticipate the emancipation of a new generation of entrepreneurs whose ingenuity and drive is more likely to spread well-paid, tax-paying, jobs throughout the land.