Bailing out businesses looks inevitable – but it’s not all bad

Should the government be prepared to take equity stakes in major companies that will struggle to survive the current crisis? That’s a question already on the table in relation to Jaguar Land Rover and Tata Steel, and likely to arise for British Airways, aero engine maker Rolls-Royce and others. We’re told Chancellor Rishi Sunak is working on a plan, called Project Birch, to bail out ‘viable companies which have exhausted all options’ and whose collapse would ‘disproportionately harm the economy’.

That means large-scale loan support first, with conversion to equity as a last resort — and to some pundits it smacks of the 1970s interventionism that left swathes of under-performing British industry addicted to state subsidy. If they’re really ‘viable’, surely these firms can find new shareholders or merger partners at home or abroad, better equipped than Whitehall to help them reshape their operations for the changed economy ahead? Well, yes, but…

When collapsing banks threatened disproportionate harm in 2008, no one argued that governments should not inject equity to prop them up.