The UK requires that any outfit selling flights where you pay them and they promise to sort everything out, rather than they just execute and you get a bunch of tickets, passes etcetera in exchange for your money - joins ATOL and pays a small fee for every such holiday sold.
That fee is held by a central organisation that spends the money to fix things when one of these companies collapses, in particular to make sure all the random Brits abroad get put on a plane home.
It exists because the seasonal nature of the business means it's very common (routine in fact: https://www.caa.co.uk/ATOL-protection/Make-an-ATOL-claim/Lat...) for small outfits to go bankrupt, and otherwise their customers get stuck and then the government has to either suffer terrible headlines about why didn't they do anything, or spend money flying home idiots who took a bad gamble.
The account is certainly too small to cover Thomas Cook. But on the other hand, even just having the mechanism in place means the government has a pre-existing organisation to say "OK, fix this, but we understand you don't have the money so we'll pay" rather than trying to cobble something together only now.
/Maybe/ this experience will mean the fee is subsequently increased for new holidays. But my guess would be that's unpalatable and the argument will be made that a failure of this scale is not something the rest of the industry should anticipate and fund, whereas the constant drip of smaller failed travel companies is predictable.
Compare the 2008 financial crisis. There's a much stronger protection for banks in the UK called "Last man standing". In principle the government can allow banks to fail, and remaining licensed banks pick up the entire cost. This is indeed what happens for small banks. However in practice of course allowing even a single very large bank to collapse might be so disruptive that it's intolerable regardless of whether you believe the other banks can afford to pay for the aftermath.