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Flybe fallout: clear frameworks ‘vital’ if more intervention is on the cards

23 January 2020: the idea of a government stepping in to provide assistance to cash-strapped companies with significant regional importance has been much debated following the recent Flybe intervention. While such a policy shift should be welcomed, a clear framework and strong legislation is crucial to any new strategy’s success, explains ICAEW Director for Business and Industrial Strategy Iain Wright.

For many businesses across the country – some of which will be run or managed by chartered accountants – the government’s actions to assist troubled regional carrier Flybe were a welcome step.

If the new government is to carry out its pledge to rebalance the UK’s regions, then transportation firms such as Flybe are key to regional development and connectivity.

Iain Wright, ICAEW Director for Business and Industrial Strategy, commended the government on its intervention. However, he also called for a clear set of guidelines around such moves in the future, or risk confusion and criticism.

“In a post-Brexit environment, it’s important that regional considerations are taken into account, so this seems like a good move to keep vital transport infrastructure afloat,” said Wright, a former MP and chair of the business select committee.

But while he believes interventions such as the Flybe bailout can work in certain circumstances, Wright called on the government to set out a clear framework for how it will make decisions.

“It is also important that trade-offs of various and competing priorities are considered as part of the framework,” said Wright. “The Flybe example is a good illustration of this: while of huge importance to regional connectivity and rebalancing of the economy across the country, does it sufficiently address environmental and sustainability arising from aircraft emissions?

“Obviously, the government can’t save every business, but what are its priorities? Is it regional connectivity, as with Flybe? Security? Wider economic importance?

“Some sort of framework spelling out when the government will intervene is key,” continued Wright. “It doesn’t have to name individual companies but laying out the criteria for when it will step in and what action it is likely to take is crucial.

“For example, if a company is important to the wider economy, the government might choose to intervene in the short term until a private sector buyer is found”.

By way of example, Wright pointed to government’s backing of banks during the 2008 financial crisis. “[The government] could not have allowed the banking system to fail,” he said. “It took action to ensure people had money. If that dried up and people couldn’t access cash, then the social consequences would have been immense.”

Wright also highlights other areas that are important for other parts of the economy: the steel industry being a prime example as the foundation on which other parts of the economy are literally built.

According to Wright, it is also important for any policy to have to have “teeth” in the form of government legislation. This is not only to ensure its robustness if faced with a challenge in the courts, but also to subject it to parliamentary scrutiny and debate.

While the Treasury will more than likely have a view on decisions of this nature, cross-departmental communication and cooperation is likely to be required. In the case of Flybe, it is understood that while the Department for Business, Energy and Industrial Strategy and the Treasury were involved, the person who made the final decision to assist the airline was Transport Minister Grant Schapps. However, ultimately this will depend on the nature of the company in need of assistance.