Recommendation 19

We asked the witnesses how they manage the risks of moral hazard (where support for one company creates an incentive for other companies to take risks with the expectation they will also be supported) and free riders (where the company’s incumbent lenders or shareholders may benefit from government support without having to contribute themselves) when deciding if and how to intervene in a company.50 The Treasury explained how it sets “the bar very high” and conducts very detailed due diligence on the companies, 42 C&AG’s Report, para 1.4, Figure 4 43 Q15 44 C&AG’s Report, paras 3.3, 3.5 45 Q22 46 C&AG’s Report, Lessons learned: tackling fraud and protecting propriety in government spending during an emergency, Session 2023–24, HC 444, 8 February 2024, Lesson 2, para 19 47 C&AG’s Report, para 3.6 48 Qq18–19 49 Q28 50 Qq61–64 ; C&AG’s Report, para 3.2 Monitoring and responding to companies in distress 15 such that the cases where it does intervene “are very few and far between”. UKGI told us how it is very mindful of the free rider problem and, if other financial stakeholders did not play their part, government would take assets as security to protect the taxpayer’s position.51 For example, when providing a £30 million loan to Celsa Steel, the government set the conditions of the support so that public money would be protected if the company became insolvent and it would get a greater return if the company did well. UKGI agreed that this would be a model it would intend to follow in the future.52