Rishi Sunak has authorized a bailout called “Project Birch” to save strategically important companies, while pressure is mounting on the chancellor to inject public capital into companies buried in debt.
The Treasury revealed to the Financial Times the principles that the government would save individual businesses, saying it would act to save those whose failure “would disproportionately harm the economy.”
Aviation, aerospace and steel companies are among the serious problems, while automaker Jaguar Land Rover is also meeting with the government, although the company declined to provide details.
As part of the Birch project, Mr. Sunak increased the Treasury’s ability to manage tailor-made bailouts of “viable companies that have exhausted all options,” including government loan programs.
The offer would apply to all sectors of the economy; the chancellor had not previously indicated in a private letter to the aviation industry that he was ready to be a lender of last resort.
The Chancellor’s allies have declared that the Treasury will not initially seek to acquire stakes in distressed companies, some of which do not have good credit ratings and do not have access to a commercial lending program from the Bank of England.
The preferred option would be to make loans that guarantee that the taxpayer is at the top of the creditors hierarchy. Other “tailor-made” bailout programs reviewed may see advanced government loans converting into equity.
Virgin Atlantic and Loganair are already in talks with the government, while Tata Steel also said it is discussing what support may be available.
“In exceptional circumstances, when a viable business has exhausted all options and its failure would disproportionately harm the economy, we can consider support as a” last resort “,” said the Treasury.
“As the British public might expect, we are putting in place reasonable emergency planning and any such support would be on terms that protect the taxpayer. “
While the Birch project is intended to deal with the immediate crisis, Mr. Sunak is invited to consider a more radical medium-term plan for the State to become co-owner of businesses to prevent them from collapsing under a mountain of debts.
TheCityUK, the financial sector trading group, has estimated that the value of public business loans could exceed £ 100 billion. It had already reached £ 40 billion in the first two months of the bailout.
Bankers say troubled businesses will not be able to pay off much of this debt and have started talks with the Treasury on ways to prevent the collapse of thousands of businesses after the blockage.
The Treasury says it is working on how to tackle the “debt burden” accumulated by businesses, but is unlikely to reach any conclusion before the fall.
Sunak’s allies play down the idea that a conservative government could embark on a massive wave of nationalization or partial nationalization, but the Chancellor is faced with calls to take this route and some see it as inevitable.
“I don’t think we can say at this point that we don’t care whether there is a transport sector or a construction sector,” said Alistair Darling, chancellor during the 2008 financial crash. ” Taking equity could be good for the taxpayer. If you lend money, for example to an airline, it is normal for the taxpayer to get his fair share of success in the end. “
Jim O’Neill, former Minister of the Treasury and former chief economist at Goldman Sachs, discussed with government officials the creation of a public sector finance agency – perhaps with an initial investment capacity of £ 25 billion – to take equity “intrinsically”. stable ”.
“You convert into preferred shares assuming that some of these companies have a good future, and then whip them – Margaret Thatcher style – over time,” he said.
Such an organization could be compared to the Industrial and Commercial Financing Company created after the Second World War. It was then launched and became the 3i group.
Aerospace industry leaders have also argued for a long-term investment facility – possibly through the British Business Bank – in meetings with Minister of Business Nadhim Zahawi and Treasury officials, with the aim of “support and promote supply chains” and accelerate the development of green technology.
Andrew Bailey, Governor of the Bank of England, told MEPs last week that some companies would conclude that more debt was not the answer to their problems and that they needed more equity.