The government is drafting wide-ranging plans to rescue large British firms at risk of collapse due to the coronavirus outbreak.
The Treasury has said support could be made as a “last resort” if a business’s failure could “disproportionately harm the UK economy”.
There are concerns that some large firms could be at risk of folding despite various measures put in place to support business, such as the furloughed worker scheme and deferring of tax payments.
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What is Project Birch?
Project Birch is the name given to the bailout plan under which government funding would be used to protect big companies from the financial impact of the pandemic.
It could involve the UK government buying a stake in companies, says the BBC, though the Treasury would initially seek to offer support in the form of loans.
Under Project Birch, Chancellor Rishi Sunak has given approval for the Treasury to handle tailored bailouts of “viable companies which have exhausted all options”, including other government loan schemes.
Aviation, aerospace and steel firms are among those in dire straits, and Jaguar Land Rover has also asked the government for significant financial help, says the Financial Times. Virgin Atlantic and Loganair are also in talks with the government, while Tata Steel is seeking information about what support might be available, adds the paper.
Energy suppliers are among those calling for a state bailout, as businesses have needed less power and unemployed workers are more likely to be unable to pay their bills, reports The Telegraph.
“In exceptional circumstances, where a viable company has exhausted all options and its failure would disproportionately harm the economy, we may consider support on a ‘last resort’ basis,” the Treasury said. “As the British public would expect, we are putting in place sensible contingency planning and any such support would be on terms that protect the taxpayer.”
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What has the reaction been?
Unions have welcomed the news, but urged the government that it must act quickly to save jobs.
“There is no more time to lose if we are to prevent a tsunami of job losses from sweeping through communities this summer,” said Unite assistant general secretary for manufacturing, Steve Turner. “We still need to ensure that proposed changes to the job retention scheme do not undermine a plan to recover and rebuild and that workers continue to get their wages.”
Business leaders have signalled support for the plan, says The Guardian, but only “if they were confined to being a ‘last resort’ for companies for whom borrowing more was not an option”.
Labour’s shadow chancellor, Anneliese Dodds, said support “must be focused on retaining and increasing employment. It must also build value for our country – with companies receiving support prevented from engaging in share buybacks and dividend payments”.
Tej Parikh, chief economist at the Institute of Directors, which represents company bosses, told The Guardian: “If key firms do fail it could have a knock-on impact on businesses throughout the supply chain, so its important for the government to consider plans to support them, based on economic impact.”
Any plan would inevitably prove complex, he added. “Deciding who receives investment won’t be straightforward, while many firms will be less than keen to cede decision-making to a state body.”
The Daily Mail’s business editor Ruth Sunderland said Sunak “probably has no choice but to help them out” and he will “need commercial astuteness as well as compassion to make this call”.
Not all companies will be guaranteed support, however. “There is a difference between being approached for support and agreeing to it,” a source close to the Treasury told MarketWatch.
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