Project Birch is the United Kingdom’s last resort bailout plan that aims to provide aid to large companies amidst the Coronavirus crisis. This plan will rescue companies that are critical to the UK economy, particularly those in critical sectors such as aviation, steel, and aerospace. The scheme would enable the Treasury to release bailouts based on their evaluation of the company’s impact on the country’s economy, operating on a case-to-case basis.
As the birch tree symbolizes new beginnings, hope, regeneration, and the promise of what’s to come, the Treasury named aptly so to speak hope as it provides help. It is a flexible plan that involves scrutinizing a company and its financial strategies in place. The priority is handing out loans, and only in extreme cases would it take an equity stake.
It calls for companies to exhaust all possible means of financial aid, such as the existing government loan schemes in response to Coronavirus. If after using all imaginable ways, the company remains unable to operate, that’s when they can apply for Project Birch. In a statement released last may 26, 2020, the Treasury maintained that “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. As the British public would expect, we are putting in place sensible contingency planning and any such support would be on terms that protect the taxpayer.”
First in line in this scheme is Jaguar Land Rover, which is seeking a £1 billion loan takeout that has the potential for the government and its taxpayers to convert their tax money into shares. So far, this is the most significant loan request that the government has received. As the UK’s biggest car manufacturer, Jaguar is taking a massive hit amidst the Coronavirus crisis, as it has already seen a 30% decline in the past months. Should the Treasury approve the bailout under Project Birch, over 38,000 employees would be able to retain their income.
The impact of such a huge company and its ability to retain employees is what pushed Chancellor of the Exchequer Rishi Sunak to launch the project. There has been much public clamour for more government efforts to prop up the economy, if not to make it move.
While project Birch is intended to provide relief during this immediate crisis, Sunak is being pushed to launch a more impactful mid-term government response that would allow the government to have shares in and be part owners of a company. It is said that such a more straightforward, more radical strategy would be more effective in preventing companies from drowning in debt when under a government loan.
Another concern about this scheme is how the Treasury will decide which companies are deserving of loans and stake-outs. If it provides substantial financial aid to a business that is not able to recover, the taxpayers’ money will go down the drain. How is the government evaluating which companies are crucial to the economy? What factors are they considering in making their decision? There are a lot of aspects to consider, such as a business’s employment, regional impact, and export capacity.
So far, the government has been supporting businesses through different financial schemes such as deferring tax payments, furlough pay, and loans. With more than £22 billion spent on government-backed loans, plus corporate financing amounting to more than £20 billion, the government needs to ensure Project Birch does more good than harm.
If you want to learn more about the discussion of the Project Birch and UK Business problems, you can get in touch with Annette & Co. for FREE business advice. Better yet, you can tune in to my Podcast – Uncover Wealth Radio – where I talk about the latest updates on UK Businesses and also COVID-19 every workday at 11 in the morning. You can also join my exclusive Facebook group that talks about a lot of business matters and UK businesses.
For more information about this matter, be sure to check out Episode 136 of Uncover Wealth Radio. If you’ve missed the LIVE broadcast, you can always revisit the episode here on our website, Annette & Co.