The FT has reported that:
Rishi Sunak has authorised a bailout plan named “Project Birch” to save strategically important companies, as pressure mounts on the chancellor to inject state equity into companies drowning in debt.
The Treasury has revealed to the Financial Times the principles under which the government would rescue individual companies, saying it would act to save those whose failure would “disproportionately harm the economy”.
Aviation, aerospace and steel firms are among those facing acute problems, while carmaker Jaguar Land Rover is also talking to the government, although the company declined to provide details.
Under Project Birch, Mr Sunak has increased the capacity of the Treasury to handle bespoke bailouts of “viable companies which have exhausted all options”, including government loan schemes.
What is being talked about then are large companies, with poor credit records, and business models that look deeply unattractive post-Covid-19 and in the era of heightened climate awareness that the government wants to bail out. The FT says:
The chancellor’s allies said the Treasury would not initially look to take equity stakes in struggling companies, some of which do not have investment-grade credit ratings and cannot access a Bank of England commercial loan scheme.
The preferred option would be to extend loans that ensured that the taxpayer was at the top of the hierarchy of creditors. Other “bespoke” rescue schemes being examined could see state loans advanced which convert to equity.
Early companies for consideration include Virgin Atlantic, Loganair and Tata Steel. Jaguar is also being mentioned.
I have already said that I think the taking os takes in essential businesses is a way forward on Covid-19: increasing debt is not viable for many businesses. But the option being considered here is not the creation of a strategic National Wealth Service of the sort I have recommended, but a Thatcherite 'buy it and flog it' approach. As the FT says:
Jim O’Neill, former Treasury minister and ex-chief economist at Goldman Sachs, has discussed with government officials the creation of a public-sector-owned funding body – perhaps with an initial investment capacity of £25bn – to take stakes in “inherently stable” businesses.
This is the worst possible outcome: this is simply a sticking plaster for the status quo. And what every business needing this help will require is a radical transformation, including the transition to a green basis for working. Conditions have to be attached including:
- Going for zero carbon
- Accounting for doing so via sustainable cost accounting
- Paying living wages
- Recognising unions
- An end to tax abuse and all involvement with tax havens
- Real measures to address gender pay gaps
- Investment in and responsibility to all stakeholders
- Employees on the board
Then we begin to get value for this.
But a wheeler-dealer approach is 2009 all over again, and we cannot afford that this time.