Boris Johnson defends refusal to give £150 million bail out to big employer Thomas Cook

Prime Minister Boris Johnson.
Prime Minister Boris Johnson.
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Prime Minister Boris Johnson has defended his refusal to bail out major employer Thomas Cook.

The Prime Minister claims a state bailout of the 178-year-old travel operator, which employs 21,000 people worldwide including 1,000 at its offices in Westpoint, Peterborough, would have created a 'moral hazard'.

Thomas Cook went into liquidation early this morning after its core banks had demanded the cash-strapped firm stump up £200 million.

The demand came just days before the beleaguered firm, which in the summer declared a a £1.5 billion loss, was to secure agreement from its creditors for a £900 million rescue package, with much of the funding from its largest shareholder the Chinese investment firm Fosun.

The Prime Minister has come under fire from Labour and the unions for failing to step in to save the collapsed tour operator.

Mr Johnson said: "It is perfectly true that a request was made to the Government for a subvention of about £150 million.

"Clearly that's a lot of taxpayers' money and sets up, as people will appreciate, a moral hazard in the case of future such commercial difficulties that companies face."

Other ministers suggested the sum requested by Thomas Cook was up to £250 million.

Moral hazard is the concept that firms will take increased risks if they believe that they will be protected from the consequences, for example through a state bailout.

But shadow chancellor John McDonnell blamed the Tory Government's "ideological bias" against state intervention for the decision not to intervene.

"The Government's intervention could have enabled us to just stabilise the situation, give a breathing space so that there could be proper consultation with the workforce in particular about how to go forward," he told the BBC.

"To just stand to one side and watch this number of jobs go and so many holidaymakers have their holiday ruined, I just don't think that's wise government."

Union bosses also condemned the Government's refusal to act, claiming that the cost of the exercise to bring stranded holidaymakers' home would dwarf the amount of taxpayer support requested by the firm.

Manuel Cortes, leader of the Transport Salaried Staffs Association, said the Government had chosen "ideological dogma over saving thousands of jobs".

"There remains the question of repatriating 150,000 British holidaymakers and the cost to the public purse of doing so," he said.

"You don't have to be a mathematical genius to know it would have been cheaper and more cost effective to save what is a cornerstone of the British high street."

Unite general secretary Len McCluskey said: "The Government's 'do nothing' attitude has left workers and customers high and dry while landing taxpayers with a bill of hundreds of millions of pounds."

But Transport Secretary Grant Shapps said the repatriation operation would cost £100 million, less than the sum requested by Thomas Cook.

"The company were asking for up to £250 million, they needed about £900 million on top of that and they've got debts of £1.7 billion, so the idea of just spending taxpayers' money on that just wasn't really a goer," he told ITV's Good Morning Britain.

"I think the problem of putting money into it, apart from the fact governments don't usually go around investing in travel companies, is that it may have just stretched things out for a couple of weeks and we could have been exactly where we started."

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