Rachel Reeves has been cautioned against rescuing the struggling shipyard responsible for building the Titanic due to concerns that taxpayer money might end up with Wall Street financiers.
The Chancellor is considering whether to approve support for Harland & Wolff, a Belfast-based company at risk of being unable to fulfil a £1.6bn Navy contract.
Harland & Wolff, which operates four UK yards and employs over 1,000 workers, is seeking a £200m loan guarantee to help restructure its significant debt.
However, in a new setback for the company, Whitehall sources have confirmed that Treasury officials have advised Ms. Reeves against a bailout, citing significant risks for the Government.
Officials have warned that such support might violate post-Brexit state aid rules, potentially causing conflict with the European Union. There are also concerns about taxpayer funds being used to pay off the company’s Wall Street creditors.
Harland & Wolff is based in Northern Ireland, where businesses are subject to the Windsor Framework. This means ministers might need to seek approval from Brussels for any subsidy.
Experts have also pointed out that the rules become stricter when dealing with a struggling company, potentially complicating intervention efforts.
As a result, Ms. Reeves would have to overrule civil servants to push through the rescue of Harland & Wolff, which could leave the decision open to legal challenges.
Harland & Wolff’s capacity to deliver a substantial support ship for the Royal Navy is uncertain, as executives have warned they might struggle with large contracts without a rescue package.
This warning to Ms. Reeves surfaced on Friday, coinciding with the crisis-hit company missing its own deadline to publish its accounts.
Harland’s shares, listed on London’s junior stock exchange, have been suspended since July 1 after the company’s auditors declined to sign off its books.
Company leaders had previously reassured shareholders that they anticipated resolving the dispute and publishing the accounts last week.
However, on Friday, a source close to the company admitted that this target would not be met, with ongoing discussions with auditors. The audited accounts are now expected to be published this week.
In their advice to Ms. Reeves, civil servants reiterated concerns previously presented to her predecessor, Jeremy Hunt, in the lead-up to the general election, when cross-government talks aimed to find a way to assist the company.
Officials have repeatedly highlighted concerns about state aid rules and the moral hazard of assuming financial risks that would typically be borne by the company’s private sector creditors.
As revealed by The Telegraph in May, the Isle of Scilly Steamship Group (ISSG) has already threatened legal action, opposing any rescue package on the grounds that it would unfairly benefit a rival ferry service Harland is attempting to launch in the Scilly Isles.
John Wood, Harland’s chief executive, has asserted that the ferry venture is separate from the rest of the business. He also expressed to The Telegraph his “100%” confidence that the shipbuilder would survive, even without taxpayer support.
According to unaudited accounts, Harland’s losses reduced from £71m to £43m in 2023, but the company’s debt interest payments increased from £12m to £18m, which is equivalent to a fifth of its total sales.
Since last year, the company has extended a borrowing facility with its primary lender, New York-based private equity fund Riverstone, from $35m to $115m. Its net debt now exceeds £92m.
Harland must repay the Riverstone facility by the end of this year.
