Why Virgin Atlantic should be Bailed Out | Laveen Ladharam
The entire political spectrum – from Darren Grimes to Diane Abbott – has expressed revulsion at Virgin Atlantic seeking a government bailout.
I’m really sorry for all of those employed by the airline, but there is no way in hell that the taxpayer should be bailing out an island-owning billionaire that isn’t even domiciled in this country. https://t.co/g5XhhcYDQh
— Darren Grimes (@darrengrimes_) April 20, 2020
The opposition to bailing out Virgin is on the basis that Richard Branson, it’s main proprietor, is resident in the British Virgin Islands and for the reason that he is a “tax exile”. This antipathy is also coloured by the fact that (from the Right) Richard Branson was a strong opponent of Brexit and (from the Left) other Virgin companies have, in the course of their business as external providers to the NHS, sued the NHS. These considerations are irrelevant.
— Diane Abbott MP (@HackneyAbbott) April 20, 2020
Virgin is a major British success story. It started in 1984 to compete with the then-state owned British Airways with an aim to make flying an enjoyable rather than a mundane experience. Since its inception in the early 1980s, Virgin Atlantic has gone leaps and bounds to becoming a leading airline for long haul flights, reaching destinations all over the world. As a business and as a brand, Virgin is a success. It employs around 9,000 staff and contributes to the UK economy.
Coronavirus has badly affected the airline industry with international air travel from the UK down 81% and with an entire airline, Flybe, going into administration. Given that Virgin employs large numbers of staff and also brings people and goods to the UK, it is an important business.
To deal with the issue of reduced cashflow by UK companies, the Government has provided a scheme for big businesses called the Covid Corporate Financing Facility (CCFF) which allows large companies to borrow money from the Bank of England through the sale of commercial paper (unsecured debt owed to the Bank of England which lasts for up to twelve months, although it may be renewed). These will be on terms that would have applied to those companies as though it had borrowed the money immediately before the Coronavirus outbreak. That is, these are slightly more favourable than commercial terms. In addition to that, Richard Branson has offered to go beyond the above terms and has even offered to provide his own property (Necker Island) as security.
Further, not anyone can apply for the CCFF. It is eligible only for companies which “make a material contribution to the UK economy” which Virgin Atlantic obviously does.
So what are the objections to bailing out Virgin? From the wings of the political spectrum – the Darren Grimes’ and Diane Abbotts of the world – it boils down to the fact that Branson is rich, deemed to be a tax exile and has sued the NHS. From a libertarian perspective, it is also a question of not wanting to provide corporate welfare.
From a commercial perspective, Virgin would be applying for the loans like any other company and, if anything, is unusual in publicising the fact that it is applying for these loans. It would be done to keep Virgin Atlantic trading as a going concern having fallen on completely unpredictable hard times entirely outside of its control. From the government’s perspective, these loans to Virgin Atlantic constitute an asset rather than a liability.
In addition to the above, as we have seen, Richard Branson has even offered to put up Necker Island as collateral and has generally been a good citizen in the UK, so this is not even a case of money for billionaires to pay themselves huge bonuses. It is a loan to a fairly successful business in order to keep it alive and save 9,000 jobs. This is not corporate welfare.
Branson’s status as a “tax exile” is another objection to extending loans to Virgin Atlantic. Frankly, why does this matter? These loans are going to Virgin Atlantic rather than to Branson himself and as a loan, rather than buying its shares or a handout. The fact that Branson lives on the British Virgin Islands (which, after all, is a British territory) is irrelevant. Virgin pays all of its tax in the countries it operates in, a claim that Virgin’s detractors are yet to disprove.
If anything, Virgin in general and Richard Branson are good corporate citizens of the UK. Richard Branson regularly mentors young entrepreneurs and his venture, Virgin Start Up Loans started in 2012 to plug the gap in startup funding (2 years before the British government founded the British Business Bank). Even in the present crisis, Branson has asked 4,000 of his UK based staff to volunteer with the NHS whilst his staff have been furloughed. This is not a case of some fat-cat billionaire leeching off British taxpayers.
The final objection to Virgin getting assistance is the fact that Virgin Care (which provides services to the NHS) took legal action against the NHS. Should this be the reason for Virgin Atlantic not to get a loan? No. For two reasons. First, this is a loan to Virgin Atlantic, not Virgin Care, which has nothing to do with the NHS.
Second, Virgin Care took action against the NHS and several Clinical Commissioning Groups in Surrey because of perceived flaws in the tendering process. Businesses and indeed individuals are entitled to take action against the NHS or indeed any government body through judicial review due to perceived flaws in a decision-making process – judicial review is something that is important for the rule of law. To hold as a sin against Branson a perfectly legitimate legal action by Virgin Care against the NHS implies that any government organisation should be allowed to do as it pleases which, I am sure, is not what should happen in a free society.
As such, Virgin should be entitled to borrow this money since it is a successful company which contributes to the British economy and is a good corporate citizen. It is not asking for anything more than is offered to other companies and, frankly, is a business worth saving.
Photo by Wayne Copley on Flickr.