Bailout Britain: Rescue plan for ‘strategically important’ firms

British finance minister Rishi Sunak has authorised a bailout plan to rescue companies that are seen as strategically important, with the Treasury saying it may step in to support crucial businesses on a “last resort” basis after other options run out.

The Treasury told Reuters news agency late on Sunday it may try to save those companies whose failure would “disproportionately harm the economy”.

“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,” a spokeswoman for the Treasury said in an emailed statement.

“We are putting in place sensible contingency planning and any such support would be on terms that protect the taxpayer,” the statement added.

The United Kingdom’s economy has been severely battered by the coronavirus pandemic, even as it looks to lift restrictions imposed to fight it. Bank of England interest-rate setter Jan Vlieghe said: “The economic contraction was faster and deeper than anything we have seen in the past century, or possibly several centuries”.

The UK currently is the fourth-most affected country in the world by COVID-19, with cases surpassing 260,000.

Under the plan, which is named “Project Birch”, the finance minister has enhanced the UK Treasury’s capacity to bail out “viable companies which have exhausted all options” available to them, including government loan schemes, the Financial Times newspaper reported earlier on Sunday.

The newspaper also reported that the state could buy stakes in crucial businesses that are facing acute financial problems.

However, it added the Treasury would not initially look at taking equity stakes in companies that are struggling, with the preferred option being an extension of loans.

Companies from across sectors – including steel, aviation and aerospace – are among those facing acute problems and the offer of the Treasury will apply across all sectors of the economy.

The IHS Markit/CIPS Flash UK Composite Purchasing Managers’ Index (PMI) fell to a new record low of 12.9 from 36.0 in March – not even close to the weakest forecast in a Reuters poll of economists that had pointed to a reading of 31.4, which was itself far below the 50 level which separates expectations of growth from contraction.

The UK will issue 180 billion pounds ($222bn) of government debt between May and July, more than it had previously planned for the entire financial year.

The country’s debt mountain exceeds $2.5 trillion, and its public sector net borrowing could reach 14 percent of gross domestic product this year, the biggest single-year deficit since World War II.

A Reuters poll of economists on Thursday pointed to a roughly 13-percent contraction in economic output in the current quarter, which would be the largest since records began after World War II.