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Row breaks out over government's refusal to rescue Thomas Cook

<span>Photograph: Ben Birchall/PA</span>
Photograph: Ben Birchall/PA

A row has broken out over what could have been done to prevent the collapse of Thomas Cook, as Boris Johnson defended his refusal to order a bailout of the travel company while Labour said there should have been a state-backed rescue package.

Warning that state intervention risked creating a “moral hazard” in future cases of companies on the brink, the prime minister hinted at possible government action against directors of travel firms who oversaw bankruptcies.

In the wake of the collapse of the budget airline Monarch, and now of Thomas Cook, he said it was time to “reflect on whether the directors of these companies are properly incentivised to sort such matters out”.

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But despite coming under fire from Labour and the unions for failing to step in to save the collapsed tour operator, he said it did not seem the government could have done more to help, for example by agreeing to Thomas Cook’s request for a £150m bailout.

On the request for government funding, he told reporters on his plane while en route to the UN general assembly in New York: “Clearly, that’s a lot of taxpayers’ money and sets up, as people will appreciate, a moral hazard in the case of future such commercial difficulties that companies face.”

Thomas Cook owes its name to a humble and deeply religious 32-year-old cabinet-maker who, one June morning in 1841, hiked the 15 miles from his home in Market Harborough to Leicester, to attend a temperance meeting.

The former Baptist preacher believed that the ills of Victorian society stemmed largely from alcohol and, presumably fatigued from his walk, realised he could deploy the power of Britain’s flourishing rail network to help spread the word.

Addressing the temperance meeting, he suggested that a train be hired to carry the movement’s supporters to the next meeting in Loughborough.

Thus, on 5 July 1841, some 500 passengers travelled by a special train for the 24-mile round trip, paying a shilling apiece.

Over the next few years, Cook laid on ever more trains, introducing thousands of Britons to train travel for the first time. The first such outing to be run for commercial purposes was a trip to Liverpool in 1845.

Over the next decade or so, the business expanded to offer overseas trips, to France, Switzerland, Italy and beyond, to the US, Egypt and India.

His more business-minded son John expanded the tour operator and its reach was such that the government enlisted its expertise in an effort, ultimately in vain, to relieve General Gordon at the siege of Khartoum in 1885.

John’s three sons inherited the business, which incorporated as Thos Cook & Son Ltd in 1924 and benefited from the increasing ease of international travel.

Its first flirtation with collapse came during the second world war, when the government requisitioned some of its assets and it was sold to Britain’s railway companies, effectively a nationalisation.

But it boomed in the postwar years as growing prosperity fuelled the appetite for holidays and it returned to private ownership in 1972.

Since then, it has changed hands and changed shape via a series of mergers and takeovers. It nearly collapsed in 2011 but averted its demise with a bailout deal funded by banks.

Now, after 178 years of operation, it has ceased trading.  

The affair has laid bare differences in approaches between the Tories and Labour towards state intervention, with the shadow chancellor, John McDonnell, blaming the government’s “ideological bias” for its decision not to intervene.

“The government’s intervention could have enabled us to just stabilise the situation, give a breathing space so that there could be proper consultation with the workforce in particular about how to go forward,” he told the BBC.

“To just stand to one side and watch this number of jobs go and so many holidaymakers have their holiday ruined, I just don’t think that’s wise government.”

Rebecca Long-Bailey, the shadow business secretary, described the government’s position as “reckless” and said it should have stepped in to take an equity stake.

The refusal to intervene was also condemned by trade unions, who insisted the cost of bringing stranded Thomas Cook customers home from holidays abroad would dwarf the amount of taxpayer support requested by the firm.

“You don’t have to be a mathematical genius to know it would have been cheaper and more cost-effective to save what is a cornerstone of the British high street,” said Manuel Cortes, the general secretary of the Transport Salaried Staffs’ Association.

The Unite general secretary, Len McCluskey, said the government’s “do nothing” attitude “had left workers and customers high and dry while landing taxpayers with a bill of hundreds of millions of pounds”.

In a round of morning media interviews, the transport secretary, Grant Shapps, said the operation to repatriate customers would cost £100m, less than the sum requested by Thomas Cook.

“The company were asking for up to £250m, they needed about £900m on top of that and they have got debts of £1.7bn, so the idea of just spending taxpayers’ money on that just wasn’t really a goer,” he told ITV’s Good Morning Britain.

“I think the problem of putting money into it, apart from the fact governments don’t usually go around investing in travel companies, is that it may have just stretched things out for a couple of weeks and we could have been exactly where we started.”