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Bailing out Thomas Cook would have been a mistake

23 September 2019

11:51 AM

23 September 2019

11:51 AM

The biggest victim of the failure of Thomas Cook is the worldly reputation of its eponymous creator – a sober cabinet-maker from Leicestershire whose pioneering and fantastically successful package tours used a network of temperance hotels. 

His name is now synonymous with a company whose senior executives paid themselves millions while it crashed and burned. That there is something rotten with aspects of company law is obvious from the fact that taxpayers are going to be stung for up to £600 million to fly 150,000 stranded British holidaymakers home. Why is there no mechanism to claw back those millions paid in bonuses over the past decade while the business was developing the deep structural issues which led to today’s denouement? Why is the bill for repatriation being met by taxpayers rather than the company’s creditors? That is what would happen in many countries – a travel company would be allowed to continue trading until everyone was home.

But no, John McDonnell is wrong to call for Thomas Cook to be bailed out by the government. If a company has run itself into the ground through a defective business model over a number of years, a few million from the government is no solution – it would merely prolong the inevitable for a few more months.   

Thomas Cook’s employees might still have a job today, but still they would be facing redundancy shortly. Meanwhile, more agile competitors would face unfair competition from a company which was underwritten by taxpayers’ cash. The moral hazard is clear: bailing travel companies is pretty much the same as bailing out banks – it encourages recklessness.   

If you are running a package holiday business you would be left with the decision: do we try and build a business the honest way, at a rate we know we can sustain? Or do we gear up, try and smother all opposition, knowing if we are lucky we will make billions for ourselves, and if we are unlucky we will be bailed out by the taxpayer?

McDonnell absurdly accused the government for ‘ideological bias’ for refusing the prop up Thomas Cook. No, it isn’t an ideology, allowing good businesses to succeed and bad businesses to go bust. It is what happens when you refuse to let ideology rule your management of the economy. 

Thomas Cook’s bankruptcy is messy, to be sure, both for staff and holidaymakers, but the consolation for those who have lost their jobs is that our light-touch economy – which McDonnell and other Labour figures seem to think is little removed from a giant nineteenth century workhouse – has created record employment combined with real wages growing at nearly two per cent a year.  We certainly won’t have that if McDonnell is allowed anywhere near Number 11.   


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