Journal Column – State Aid to Businesses

MP's in house of commons
Journal Column – We need “worldly wise” politicians
18th January 2019
Show all
state aid cash

This week, Nissan announced it was no longer going to build the new X-trail model at its plant in Sunderland. Predictably, those against leaving the EU tried to blame this on Brexit.  Sure enough, yesterday the CBI again warned that a no deal Brexit will be catastrophic for UK trade and put thousands of jobs at risk, citing the automotive industry as an example.

New Nissan X trail

The reality is, across the world, the automotive industry has been suffering for years and Brexit is just a red-herring.  However, what was more interesting was the revelation that Nissan had been offered around £60m of state aid to keep car production in the UK.

motor city

This may come as a surprise to some, but not me.  Historically, big businesses have used their size to lobby and influence government for their own ends, such as favourable legislation, big government contracts, or receipt of grants and public money. It is easy to see why. Big companies employ large numbers of people and so threats of leaving, collapsing or restricting investment makes it easier to intimidate politicians, who fear the public relation disasters that come from large scale job losses when a big company fails or moves production abroad.

This is wrong. In a capitalist system, businesses small, medium and large must compete in a market economy.  They all have to balance and risk their investments and strategies then reap the rewards of success or the consequences of failure.

However, the balance of power is shifted when big organisations are given a leg up by the government. This is bad enough; but, more often than not, there are few caveats and when things go bad, it’s always the taxpayer that loses out. Who can forget the Siemens debacle?  Back in the late 1980’s the German tech giant was given millions of pounds of state aid to build a huge factory in Tyneside. Within a year it closed with the loss of around 1,100 jobs and none of the aid money was repaid.

Siemens

Contrast this with small and medium sizes enterprises (SMEs), these are companies employing fewer than 250 staff, with most well below that figure. This means they have little political clout, are disadvantaged by over regulation and often bullied by big companies.  If that’s not bad enough, they tend to be paid late, given little mercy from the authorities and easy targets for the HMRC.

Yet, according to the Department for Business, Enterprise & Regulatory Reform (BERR), 99% of the 4.8million UK businesses are SMEs, employing over 60% of the UK workforce. The fact is, most SMEs are at a great disadvantage when competing with the big players.  This is further compounded by the misguided view, by local and national government, that biggest is best.  It is misguided, because it has led to huge corporations to price out the SMEs sending many to the wall.  Yet, when they get into commercial difficulties, they are deemed too big to fail and often end up being bailed out by the taxpayer.

Any large scale job losses are regrettable, but it is wrong for a select number of business and their senior management to be given state funded protection while other companies are not.  Why are some organisations and the people employed by them, considered more valuable than others?  The simple answer is, they’re not.

In contrast, despite warnings that high street retailers are suffering, the government has done little to address this issue, despite almost 150,000 retail job losses in 2018 alone.  Furthermore, according to the Centre for Retail Research, the difficulties facing the high street are set to get worse in 2019, with store closures expected to be 22,100 with around 165,000 more job losses. That’s 24 times the number of people employed by Nissan in Sunderland, yet it’s the car factory that gets the government’s attention.

high street closures

The reality is, all businesses face challenges and threats come in many forms and impacted by many differing things, such as technology, consumer behaviour, competition, market trends and advances in transport and communications. In the case of Nissan, it’s a declining market for big diesel 4×4’s, with high street retailers its competition with on-line stores and soaring business rates.

I think with the £60m tax funded sweetener to Nissan, once again, the government got its priorities wrong.  If business secretary, Greg Clarke, wants to use this money to help create jobs then, rather than waste it on the likes of Nissan, he invests it helping numerous smaller businesses gear up and expand. Companies like ‘The Estate Tea Co.’; established in 2014 this, Gateshead based business, is a high end tea merchant. Their delicious tea is served in many cafes and tea shops around the county and is also available to buy in the likes of Fenwick’s food hall.

Estate-Tea-Co-final

Currently, the company has to blend the more complex, scented, teas that have become so popular, in Germany because there are no modern, high capacity blending facilities in the UK.

For a fraction of the government money frittered away bribing big businesses, propping up ailing industries or bailing out inept company bosses, some of it would be far better invested helping businesses, like The Estate Tea Co., build a thriving, state of the art blending house that will create scores of jobs and bring quality tea blending back to the UK from abroad.

Yes indeed, I’ll drink to that.

paper

This article was first published in the Newcastle Journal on the 7th February 2019