Poor sales and now, awkward questions
The government can hardly claim to have been surprised by yesterday’s confirmation of the European Commission’s investigation into plans to invest £152m of the taxpayers’ money into BMW’s projected Â£702m expansion in Birmingham. Labour has been outspoken about the need for the EU to operate as a level playing field in which unfair competition – especially through subsidies – is eliminated. This is not surprising, because the UK economy is much more open than those of most of its EU neighbours. Look no further than the ease with which German and French corporations can take over British companies – especially utilities – while making it difficult for foreigners to buy into their own industries.
Under EU rules governments can only give fresh aid to industry if it can be proved that the project would otherwise move outside the EU. (In global terms, this is itself a restrictive practice – but that is another matter.) At the time, BMW argued that it was investigating an alternative site for Rover production in Hungary – which is only an aspirant member of the EU and so counts as an outsider.
The EU now seems to suspect that BMW had no serious intention of going to Hungary in the first place. What is crucial, but so far unclear, is what BMW would have done if it had been refused the £152m. Would it really have have gone to Hungary, or to an EU country, would it have dropped the project altogether, or would it simply have expanded at Longbridge anyway? This is of more than passing interest to the taxpayer, because the subsidy is worth £7 per working person.
If BMW would have spent the money in the UK anyway, then this would be a clear case of old-style power politics: a multinational corporation playing governments off against each other in its own interest. But this is a dangerous situation for the UK to be involved in, because BMW may now be at the end of its tether. The company has invested many hundreds of millions in an attempt to rescue Rover from a seemingly relentless decline which a succession of takeovers by UK firms had failed to halt. When Leyland took over what was then the British Motor Corporation over 25 years ago it was aiming for 50% of the UK market.
This year Rover’s market share has dropped to 6.5% (from 8.7% in 1998). BMW recently warned that it would have to greatly increase its imports of components because of the effects of the strong pound and the lack of competitiveness of local companies (which a few years before it had warmly praised). If investing in Longbridge or scaling it down was a marginal decision for BMW, then the £150m offered by the UK may have been a small price to pay for the preservation of thousands of jobs in the British motor industry.
The EU will have to consider carefully what the alternative might have been. If BMW were to pull its investment out of Longbridge as a result of an EU decision to block subsidies, it would be seized on like manna from heaven by the anti-Europe lobby. The achievement of an efficient internal market in Europe – from standards in mobile phones to the encouragement of the highly successful Airbus consortium – is vital for the success of the European project and for making it valued by voters.
The EU must not move so doctrinally that it undermines the acquiescence on which European integration depends. One other thing. The investigation is expected to take up to a year and a half. This is ridiculous. Deadlines concentrate the mind. There is no reason at all why a decision of this kind should not be made within a month.