Bailing out business is just building an economy on the sand

BRITAIN has spent decades weaning business off the expectation that if something goes wrong the taxpayer will always be there to save the day.

So it is deeply disconcerting that, at the first signs of trouble from rocketing energy prices postpandemic, swathes of British manufacturing have turned up in Whitehall with their begging bowls out.

No one wants a return to the preThatcherite days of old Labour when failing firms, with poor management, were propped up indefinitely by subsidies which destroyed enterprise and drained the Exchequer dry.

There is no doubt we face a difficult winter and that the world’s economic sages, who predicted a smooth transition from the Covid-induced recession of last year to a booming 2021, were too upbeat.

Kinks and blockages in the supply of energy as well as basic raw materials and other components such as timber, steel, copper and semi-conductors have sent manufacturers’ costs sky-high.

‘This is a critical time,’ warned Gareth Stace, the director general of UK Steel, one of many bosses of high-energy using companies — including steel-makers, ceramics manufacturers, paper and glass producers — who are demanding help.

‘The Business Secretary has also said it’s a critical situation,’ he added, ‘and therefore why is government just sitting on its hands and doing absolutely nothing at the moment?’

We know there has been dissent in governnment over what to do. Not surprisingly, Chancellor Rishi Sunak, who opened the nation’s coffers to business during the worst of the pandemic, is reluctant to entertain the idea of bailouts.

In contrast, Business Secretary Kwasi Kwarteng is in favour, and despite an initial rebuff from the Chancellor, has now been backed by a Number 10 anxious to hose down a very public spat between two Cabinet ministers.

As yet, details of the Government’s plans are unclear — although state loans are likely to be on offer.

But surely Mr Sunak and his officials are right to be sceptical. They remain determined to make sure rescue hand-outs do not become a feature of commercial life as the country adjusts to a new normal.

Pleading

Businesses must be made to understand that the current administration is not some free-spending socialist regime but a Conservative government with what we hope is an instinctive aversion to state spending.

As that great free-marketeer President Reagan used to say: ‘Don’t just do something, stand there!’

Whatever the special pleading from business, at a time when UK borrowing is forecast to be £234billion in 2021-22 and the nation is seeking to pay down a national debt of £2.2trillion, the Government must resist the urge to throw money at the problem.

Harsh though it may seem, in a global capitalist economy, businesses have to be encouraged to stand on their own.

The problem is that, thanks to the measures understandably taken to alleviate the impact of the pandemic, we have become addicted to the soft option of state aid.

Billions have been spent on furlough and on bounce-back loans to help small businesses; millions more on encouraging people to ‘eat out to help out’ and even on offering free travel on public transport.

But now we are coming out the other side of the Covid nightmare, the answer cannot be to spend yet more taxpayers’ money to shield business from yo-yoing costs. The priority must be to start rebalancing the economy and addressing our burgeoning deficit.

It is understandable that the Prime Minister doesn’t want to put the UK’s industrial base at risk. Understandable, too, that politics is playing its part — many of the companies most concerned are in the North where so-called Red Wall votes are considered paramount.

And it has to be said that, in certain limited circumstances, temporary measures can help.

Mr Kwarteng will no doubt have been swayed by Whitehall’s intervention last month to help fertiliser producer CF Industries, which had stopped production after spiralling gas prices made its operation unprofitable.

Without fertiliser being produced, there was none of its by-product, CO2, which is vital to the food and drink industries — carbonating drinks, being used in the slaughter of animals and keeping produce fresh while in transit.

And since CF industries produces 60 per cent of the country’s food-grade CO2, intervention was needed to avert serious shortages.

Within weeks, the government brokered a deal under which the U.S.-owned company’s customers agreed to pay a higher price for the carbon dioxide until next January. And this should avert a crisis in the food-processing industry in the run-up to Christmas.

But such government interventions should be extremely sparing. The moral case for bailing out companies such as Sanjeev Gupta’s Liberty Steel, for example, which operates plants in Rotherham and Scunthorpe, is questionable at best.

Gupta and his company GFG Global Alliance, are currently under investigation by the Serious Fraud Office following the collapse of its principal financier Greensill.

Despite this, Gupta was pictured late last month hosting a luxury party for guests on the Greek island of Mykonos.

Bailouts of poorly run businesses simply punish consumers and ordinary taxpayers and protect sometimes unscrupulous owners and their workforces.

The great irony in all this, of course, is that, if this country had any semblance of a viable long-term energy plan, there would be no need even to consider government help for businesses.

Slavish

It is true that the UK, like most of the developed world, remains in a terrible fix, with shortages of HGV drivers and skilled labour.

But our situation is made worse by the Government’s slavish devotion to the green agenda ahead of the landmark Cop26 climate conference in Glasgow in a fortnight.

Instead of securing the nation’s energy future by exploiting untapped resources in the North Sea, for instance, it has delayed or turned down licence approvals.

Fracking for shale gas, hailed by ministers just a few years ago as the answer to our future energy needs, has also been abandoned for the green cause, despite huge reserves under the North of England.

Meanwhile, Number 10’s conversion to the development of a new generation of small modular nuclear reactors, based on the sort of turbines used to drive submarines, has come far too late to help consumers and business weather the present energy storm.

Spike

So, yes, we face a tough winter — but we do not face a cataclysm. Whitehall is confident that the UK’s main sources of gas supply are secure. In normal times the North Sea provides 50 per cent of our gas needs, pipelines from Norway some 30 per cent and liquid national gas (LNG) supplies — from Qatar and the U.S. — most of the rest.

If contracts are fulfilled, homes should be kept warm and the wheels of industry will keep turning.

The prayer in Whitehall is that the spike in the price of gas is just that and, as global economies adjust to the post-Covid world, normality will return.

Ministers also argue that the ‘cap’ on the domestic gas price, first put in place by former premier Theresa May, will protect consumers from the worst this winter even if it has to be raised.

There is certainly no sign of energy prices easing.

The wholesale price of Brent crude oil has been rising exponentially and, as gas prices usually shadow oil, this is bad news. Meanwhile, the market cost of coal is also at record levels.

The solution, however, is not to subsidise business and place further burdens on already hard-pressed taxpayers. For an economy built on bailouts is an economy built on sand.