It has been revealed that strategically important companies may receive government bailouts as a “last resort”.
The Treasury has said it would intervene when the bankruptcy of a business “would disproportionately harm the economy” – but only after all other options have been exhausted.
A spokesperson said, “We are putting in place sound contingency planning and any support of this type would have conditions protecting the taxpayer.”
As part of the new plan – named Project Birch – Chancellor Rishi Sunak has increased the Treasury’s ability to manage tailor-made rescue operations for viable businesses.
This means that the government is ready to be a lender of last resort in all sectors of the economy, not just the aviation sector, as Mr. Sunak suggested earlier in a private letter.
Although the Treasury may end up buying stakes in crucial companies facing acute financial problems exacerbated by the coronavirus pandemic, it is believed that the government’s preferred option is to provide loans.
Steel, aviation and aerospace companies are among those in dire straits, with FT reporting that Virgin Atlantic and Tata Steel are already in talks with government – or are exploring their options .
Alistair Darling, who was chancellor during the 2008 financial crisis, told the newspaper: “Taking equity could be good for the taxpayer.
“If you lend money, for example to an airline, it is fair that the taxpayer gets his fair share of success in the end. “
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Chancellor last week warned against “A severe recession like we have not seen before” after official figures showed a record increase in unemployment claims.
He told a parliamentary committee that there were “more difficulties ahead” after the data showed that 856,500 people had applied for unemployment benefits in April.
Sunak said that despite the government’s “unprecedented” efforts to prevent mass unemployment, it “will not be able to protect all jobs and all businesses.”
The Treasury already finances 80% of the wages of eight million workers temporarily laid off as part of its job retention program.
So far, it has cost £ 11 billion, and the latest official estimates suggest it could reach £ 50 billion.
The scheme is designed to dissuade companies paralyzed by the foreclosure from permanently dismissing employees, their wages being subsidized by the taxpayer until they can return to work.