Thomas Cook, the world’s oldest travel company, has ceased trading, leaving 150,000 passengers stranded. Holidaymakers will be rescued at great government expense, but what about the 9000 employees now stranded without a job. Who will rescue them?
The Prime Minister has already said that commercial enterprises should not be bailed out by the government. He goes so far as to say that it would be a “moral hazard” to intervene and save the company as it would set a dangerous precedent for the future. This is short-sighted from a fiscal perspective and demonstrates, as John McDonnell, the Shadow Chancellor, puts it, “an ideological bias” on the part of this government.
Bailing out Thomas Cook is both the morally right thing to do and by far the least costly option for the Treasury. All employees who have been made redundant by a company can potentially claim a variety of termination payments: statutory redundancy pay; accrued but untaken holiday pay; pay for loss of notice; unpaid wages; and a protective award. Where a company has gone insolvent and is unable to pay this compensation, the debt is enforceable against the Insolvency Service who are obliged to pay every claim from the public purse. The amount the Insolvency Service can pay is capped at 8 weeks’ pay and a maximum of £525 per week.
The potential cost to the government if it does not step in with an offer to rescue the company will be anything from £50M to well over £100M in these guaranteed payments – and this is before the costs of repatriating stranded holidaymakers, at an estimated £100M, is taken into account. Moreover, the ongoing costs to the public pursue in benefits payments to those without work and consequent reduction in tax receipts inflate the possible liability even more.
In our view, it makes no sense on a political, fiscal, or moral level to abandon Thomas Cook and its employees at this time. A rescue package would not necessarily mean the government paying anything – they would merely be acting as guarantor if all else fails. Far from being the so-called fiscally responsible conservative government, a failure to act is the mark of a reckless administration which places a blind and rigid adherence to free-market ideology before everything else.
Blog by Paul Kissen, Trainee Solicitor