The case for bailing out Tata Steel in the UK, via a £500m bespoke loan from the government, is simple: the cost of not rescuing the country’s largest steel maker would be steeper in the end.
Rishi Sunak, the chancellor, has been justifiably strict so far in deflecting “special case” pleas from companies that were too over-indebted before the crisis to qualify for Covid-19 loans. Virgin Atlantic was told, in effect, to ask its billionaire controlling shareholder for a few quid before troubling HM Treasury – quite right, too.
Tata Steel UK, though, has a decent claim to specialness, meaning importance to the UK economy, a key condition of access to the Treasury’s “last resort” Project Birch scheme. Steel is a foundation industry, in the jargon. Aside from thousands of direct job losses, a large failure would have severe knock-on effects in the bigger UK sectors of automotive, aerospace and defence.
That wider financial disruption may be tricky to measure, but no other major European economy would dare to leave itself so exposed to steel imports as the UK already is. If the government has any pretence to running a meaningful industrial strategy, it cannot allow the steel sector to buckle under Covid-19 pressures. We’re meant to be a nation of builders once the pandemic passes, remember.
The Treasury’s other Project Birch demands relate to corporate viability and the exhaustion of other borrowing options. The latter is hard to judge from outside, but viability is probably the trickier hurdle since Tata’s steel operations have been loss-making in the UK for the past two years. Take the long view: Tata is in the midst of a modernisation programme and the Treasury, from the commanding position as lender of last resort, would be free to insist the pace accelerates.
Indeed, the conditions attached to a £500m loan would be the important part. A few should be obvious: none of the cash should leak to Tata’s operations overseas; carbon-reduction targets should be set; and the public purse must be protected by ensuring the Treasury is top of the tree of creditors, even if that opens the door to partial nationalisation in a future crisis.
Sunak, who is definitely not an interventionist by instinct, will hate the notion that the state could end up owning stake in a large steel producer. He seems, though, to have opted for pragmatism because a loan looks likely to be granted. Or perhaps he’s been reminded by number 10 of the importance of the “levelling up” agenda. Either way, a loan is the right move. Don’t take risks with a strategic industry in the midst of a temporary crisis.
Persimmon tries an outsider
Smart move by Roger Devlin, chairman of Persimmon, the housebuilder trying to demolish its reputation paying zillions to its bosses to build shoddy homes: hire an outsider as chief executive.
Cultural reform, which is what Persimmon says it’s pursuing, should be easier if fresh eyes are looking for defects. Stephanie Barwise QC, in a damning report to the board last year, compiled a long list. Rough summary: Persimmon didn’t have the first idea about customer service and saw itself as a “land assembler and house-seller rather than a housebuilder”.
All that, remember, was on top of a £75m bonus for tone-deaf chief executive Jeff Fairburn, who was replaced by his £45m deputy, David Jenkinson, who was a calmer presence but not convincing in the role of agent of change.
The new recruit is Dean Finch, who has had 10 successful years on the buses at National Express and will arrive on a merely conventionally generous pay packet (£725,000 salary plus 400% incentive paraphernalia). He is said to be blunt and direct. After Fairburn, let’s hope so.
Will Stelios join in easyJet’s reverse thrust?
In March, easyJet paid a £174m dividend to shareholders, including a £60m slug for founder Sir Stelios Haji-Ioannou and his siblings. Now the airline wants £400m-£450m to flow in the other direction via a share placing with investors.
We wait to see if Sir Stelios participates, or whether he’s still in a blind rage over the Airbus contract. He cannot, though, be surprised by the fundraising.
Flights have returned in limited form, but big uncertainties remain – like a second wave of infections, and even consumer appetite for flying this summer. The board’s job is to take advantage of an improved (since May) share price by strengthening the balance sheet – £400m-ish roughly delivers for now.
