Reeves warned by civil servants against bailing out Titanic shipbuilder

Rachel Reeves has been warned against rescuing the struggling shipyard that built the Titanic amid concerns that taxpayer cash risks ending up in the hands of Wall Street financiers.

The Chancellor is weighing up whether to approve support for Belfast-based Harland & Wolff, which otherwise risks being unable to deliver a £1.6bn Navy contract.

Harland, which operates four UK yards and employs more than 1,000 workers, is seeking a £200m loan guarantee that would allow it to restructure a crippling debt pile.

But in a fresh blow to the company, Whitehall sources confirmed Treasury officials have advised Ms Reeves that a bailout would be fraught with risk for the Government.

They have warned the support risks falling foul of post-Brexit state aid rules, risking a clash with the European Union, while there are also concerns about taxpayer cash being used to pay off the company’s Wall Street lenders.

Harland & Wolff is based in Northern Ireland where businesses fall under the Windsor Framework, meaning ministers could be forced to seek permission from Brussels for a subsidy deal.

Experts have also warned that such rules become stricter when dealing with a struggling company, potentially making attempts to intervene even more sensitive.

It means Ms Reeves will be forced to overrule civil servants if she wants to push through the rescue of Harland & Wolff, leaving the decision vulnerable to a legal challenge.

At the same time, Harland’s ability to deliver a massive support ship for the Royal Navy is also in doubt after bosses warned it may struggle to carry out large contracts without a rescue deal.

The warning to Ms Reeves emerged on Friday as the crisis-hit company also missed a self-imposed deadline to publish its accounts.

Harland’s shares, which are listed on London’s junior stock exchange, have been suspended since July 1 after the company’s auditors refused to sign off its books.

Bosses previously reassured shareholders that they expected the dispute to be resolved and the accounts to be published last week.

But on Friday a person close to the company admitted that target would not be met, with discussions still ongoing with auditors. The audited accounts are now expected to be published this week, they added.

In their advice to Ms Reeves, civil servants reiterated concerns previously laid out to her predecessor, Jeremy Hunt, in the weeks and months before the general election, when cross-government talks took place to find a way to help the company.

Officials have repeatedly stressed concerns about state aid rules, while warning of the moral hazard of accepting financial risk that would normally be borne by the company’s private sector creditors.

As revealed by The Telegraph in May, the threat of a legal challenge has already been made clear by the Isle of Scilly Steamship Group (ISSG), which has warned it will oppose any rescue package on the grounds that it would unfairly benefit a rival ferry service Harland is trying to launch in the Scilly Isles.

John Wood, Harland’s chief executive, has insisted that the ferry venture is separate from the rest of the business. He also told The Telegraph he was “100pc” confident the shipbuilder would survive, even without taxpayer help.

According to unaudited accounts, Harland’s losses narrowed from £71m to £43m in 2023, but the company’s debt interest payments soared from £12m to £18m, equivalent to a fifth of its total sales.

Since last year, the company has extended a borrowing facility with New York-based private equity fund Riverstone, its main lender, from $35m to $115m. Its net debt stands at more than £92m.

Harland must repay the Riverstone facility by the end of this year.

A spokesman for Harland & Wolff declined to comment. The Treasury declined to comment.