British finance minister Rishi Sunak has endorsed a rescue plan to rescue companies that are seen as strategically important, with the Treasury saying it will take steps to support key businesses based on “final choices” after other options are exhausted.
The Treasury told Reuters news agency late on Sunday that they might try to save companies whose failure would “disproportionately harm the economy”.
“In exceptional circumstances, where a viable company has exhausted all options and its failure will disproportionately endanger the economy, we can consider supporting on the basis of ‘last resort’,” a Finance Ministry spokesman said in an e-mail statement.
“We are implementing reasonable contingency planning and all forms of support will be carried out on conditions that protect taxpayers,” the statement said.
The British economy has been devastated by the coronavirus pandemic, even as it seeks to lift restrictions imposed against it. Bank of England interest rate setter Jan Vlieghe said: “Economic contraction is faster and deeper than anything we have seen in the last century, or maybe several centuries”.
Britain is currently the fourth most affected country in the world by COVID-19, with a number of cases exceeding 260,000.
Under the plan, called the “Birch Project”, the finance minister has increased the capacity of the UK Ministry of Finance to guarantee “decent companies” who have used up all the options “available to them, including government loan schemes, the Financial Times newspaper reported earlier on Sunday.
The newspaper also reports that the state can buy shares in important businesses facing acute financial problems.
However, he added the Ministry of Finance would not initially consider taking equity shares in companies that were struggling, with the preferred option being an extension of the loan.
Companies from various sectors – including steel, aviation and aerospace – are among those facing acute problems and the Ministry of Finance’s offer will apply in all sectors of the economy.
The Composite Purchasing Managers’ Index (IHS Markit / CIPS Flash IHS UK) fell to a new record low of 12.9 from 36.0 in March – not even close to the weakest estimate in a Reuters poll of economists who had pointed to a reading of 31.4, which was itself far below the level 50 which separates growth expectations from contractions.
Britain will issue 180 billion pounds ($ 222bn) in government debt between May and July, more than previously planned for the entire financial year.
The country’s debt mountain exceeds $ 2.5 trillion, and its net public sector loans can reach 14 percent of gross domestic product this year, the biggest one-year deficit since World War II.
A Reuters poll of economists on Thursday showed about 13 percent contraction in economic output in the current quarter, which will be the largest since records began after World War II.
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