JOHN COLLINGRIDGE
State aid is Johnson’s silver bullet — but can any PM be trusted to spend it wisely?
Few phrases have more capacity to divide businesses leaders than state aid. But it is one that we will hear a lot more about in the brave new post-EU world. Boris Johnson swept to victory last December by promising to “get Brexit done” and put British industry first. He would change public procurement rules to “buy British”: “We’ll back British industry by making sure we can intervene when great British businesses are struggling.”
It was this vision of a land of milk and honey, freed from the shackles of European influence, that was so enticing for voters, particularly in post-industrial areas. Many of those former Labour “red wall” seats had suffered decades of decline, leaving people increasingly reliant on unstable and low-paying jobs.
So it is easy to understand why they lapped up the promises of injections of taxpayer cash combined with muscular protectionism. But this is alien territory for a Conservative government, supposedly the party of free markets — and is a policy with a chequered history.
Now comes the hard part: repaying that faith. We have seen the early evidence of this policy in action already, with the £400m acquisition of a 45% stake in OneWeb, the bust satellite operator. That deal was the brainchild of Dominic Cummings, the prime minister’s now former senior adviser. The hope is that OneWeb’s satellites can be used to connect fibre-optic broadband blackspots in rural England, and develop Britain’s own satellite navigation system to rival the European Galileo system and America’s GPS.
Yet to some experts, this looks like a costly gamble doomed to failure. So concerned was Whitehall with that deal that it insisted on a rare ministerial direction from business secretary Alok Sharma — the equivalent of the civil service washing its hands of it.
If you want a salutary reminder of the pitfalls of a state-sponsored technology arms race, a trip to south Wales is not a bad place to start. In the 1990s, Britain was desperate to attract Asian companies to these shores. The government persuaded South Korean giant LG to open a plant in Newport in 1996, promising to create 6,100 jobs; in return it was handed a grant of £200m. Japan’s Fujitsu was lured to open a factory in Newton Aycliffe in Co Durham in 1991. But both collided with economic realities: the crashing price of electronics, from LCD screens to semiconductors. Fujitsu closed its factory in 1998 and LG quit Newport in 2006. Westminster bet against globalisation and was found wanting.
Yet just a few miles away from the failed Fujitsu plant is an example where state aid can go right. The Nissan factory in Sunderland opened in 1986 with a generous helping of regional aid, and has been one of the great industrial success stories, as I report elsewhere.
Airbus’s factories in Filton and Broughton are also examples of how state aid can work. The government was a reluctant investor in the Airbus consortium at its formation in 1969; scarred by its involvement in — and the taxpayer cash thrown at — Concorde, it initially refused to join. Eventually it did — and its subsequent investments in Airbus, via “repayable launch aid” for specific planes, have paid dividends. The initial investment in the A320 proved so lucrative that Airbus eventually had to persuade the government to take a haircut on its holding in return for more work on future projects.
That question of state aid is likely to be posed again soon, as Covid-19 scythes through once-healthy businesses of strategic significance, especially as lockdowns spread. The green book, the Treasury bible on how to invest, has been amended so that more weight is placed on supporting neglected areas.
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When it comes to a business such as Rolls-Royce, the Derby jet engine-maker whose crashing shares and swollen debt pile leave it in a perilous position — or a target for a cash-rich US predator — there should be no hesitation in intervening.
When a cash-strapped Airbus comes calling for support to develop the next generation of low-emission aircraft and wings, a similar decision should be made. Getting back around the table as a shareholder is wishful thinking in a post-EU world, but would give the government crucial influence just as the aerospace giant faces huge decisions on future tech, and Hamburg tries again to grab work from its Welsh wing factory.
And if Boris Johnson is serious about sustaining an automotive industry that can survive beyond the combustion engine, he could do worse than inject funds into battery factories and target aid to attract electric car parts suppliers.
But where do you draw the line? Taxpayer funds are under a pressure never seen before, and the government has a patchy record when it comes to picking winners.
The deal agreed with Europe will not allow ministers a completely free hand when it comes to doling out state cash to support private enterprise. France, fond of state aid itself, wants checks on Britain’s use of the stimulus. The UK will still be subject to common binding principles that will prevent it from giving distorting bungs, and recourse for the EU to recover illegal subsidies.
Another problem, as evidenced by OneWeb, is with the prime minister himself. He is so keen to be popular, and so open to special pleading, that he risks throwing away taxpayer cash on pet projects, rather than supporting viable and promising causes where there is a serious strategic case.
The biggest role of government here should be as a helping hand for business, providing an initial boost if needed, or helping it get over big investment hurdles such as a completely new technology, but then stepping back to let innovation and enterprise take over.
Picking winners is fiendishly hard, but a good place to start is where we have a technological edge to begin with. Part of the problem is that you only find out if you’ve backed a winner years later.
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