Car firm bailouts could leave Government owning swathes of British industry

JLR is not eligible for help under existing schemes because they require big businesses to have an investment grade credit rating, which the car maker lacks. Much of the car industry has weak ratings due to its low margins.

Business groups and economists warned of practical difficulties and risks around the idea of equity stakes.

“Firms have their backs up against the wall right now, so it’s welcome to see the Treasury considering innovative ideas to boost the economy,” said Tej Parikh, chief economist at the Institute of Directors. “The debt that businesses have taken on during the pandemic will drag on investment in the months ahead, holding back our recovery.

“An equity-based approach, such as a sovereign wealth fund, could help deal with this problem, but it does raise its own challenges. Working out which businesses to fund won’t be easy, and many firms may balk at the idea of the Government holding sway over their decision-making.”

Prof Philip Booth at the Institute of Economic Affairs said: “By taking an equity stake, the government has the lowest level of security for the investment it makes. It might get back more than it invested, but if the company goes bust it will be paid back nothing.

“Secondly, if we put this in the context of the government’s debt, this is like somebody with a huge mortgage taking a punt into the equity market. If it simply makes loans, the government ends up with some assets because it is a prior creditor unless the companies go bust. The repayment of that lending should be used to repay the debt that has been incurred to lend the money in the first place.”

He added that it would lead to Government control of increasing chunks of the economy, as well as poor corporate governance as businesses end up being run by a mix of bureaucrats and politicians without clear rules and guidelines on how to operate. No large-scale equity package is expected imminently.

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