THE BLOG

The Nissan Deal - Driven By The Devil?

03/11/2016 11:35

It would be nice, of course, to be Jehovah but as vacancies do not often arise in the divine sector, perhaps it would be better to go for the rather more modest post of Business Secretary. Not quite as good in the thunderbolt division, admittedly, but still, not bad as far as persuading foreign investors is concerned. There was Nissan, worried about whether to build its new model in Sunderland with the siren voices of EU countries hissing in its ears." You can't trust Britain post Brexit." "You won't be able to make a profit against the tariff barrier." "Build a factory in our country and we will arrange bungabunga parties for your Board and selected clients." You can imagine the sort of thing.

Then in zaps Mr Clark, like a financial version of Batman. He arrives in Japan. He meets the Board. Pleasantries are exchanged. Tea is drunk. A letter is drafted. Its terms are agreed. The Board is reassured and the investment can continue.

At least at the time of writing, we don't know exactly what is in the letter but it is understood to contain an assurance that the government will keep the car sector competitive; that is presumably code for an undertaking that it will negotiate tariff-free access to the market or, if it cannot do that, that it will make up the difference with some sort of grant or subsidy.

Obviously the government would rather not have to pay out subsidies if it can be avoided, but the only situation in which it will have to do so is one where there are tariffs both ways between the UK and the EU. That would presumably result in financial shuffling on both sides of the divide with the UK using its tariff receipts to subsidise its exporters while the EU does exactly the same in the opposite direction. How could it be otherwise? German car manufacturers have a large market in the UK. Why would they not insist on their tariffs being covered to create a level playing field? What about French winemakers too, particularly if agreements are made for New World wines to be imported tariff free. What about British Steel?

What a complete muddle it would all be. Governments trying to pick the industries important enough to merit protection. Complicated mathematics about who was collecting the most tariffs replacing a system of free trade. A Conservative government running subsidies in defiance of its better instincts. A world where power over subsidies strengthens the state's grip on industry. A world which we all thought we had left behind in 1979.

It isn't a great prospect, but then the car industry employs 800,000 people. It is worth compromising a principle or two for that. After all, the practice of persuading businesses to set up in a country by offering financial inducements isn't exactly uncommon. Britain does it openly with a low rate of corporation tax. Luxembourg's financial sector is not based, as you might think, on the extraordinary financial perspicacity of the Luembougeois but rather on a network of double tax treaties and a history of state-sponsored tax avoidance. Everyone has a little subsidy here or there and it is basically a competitive game. In the case of Britain we will be able to pray in excuse that needs must when the Devil drives. In economic terms Brexit is a very big Devil indeed.

But there is a soft side to the car deal in addition to any assurances over tariffs. The references to making sure that the sector remains competitive must be read as predicating a general willingness by the government to solve its problems. No one knows exactly what will come out of the Brexit negotiations but no doubt there will be worries and opportunities which we haven't even thought of. A valuable supplement to the comfort on tariffs is the assurance that the industry is valued and that, as the UK goes through the rough water which currently awaits it, the interests of the industry will be consulted. Sushi and meso soup at number 10, perhaps?

Now all this is anathema to the purer Conservatives. They believe in a free market and an equal treatment for everyone. They don't like subsidies and special interest groups. For them the excellence of the British worker and the predictability of British law should be enough to make the UK an attractive place for overseas multinationals to manufacture their goods. Yes, you can read their words in the tabloids. There are possibly one or two of them in the Cabinet. Feeding on their own political rhetoric has left them (or at least most of them - there are obvious exceptions) with a lean and hungry look. They talk a lot about red lines and discuss negotiating strategy as if there was no other party involved. With a tendency to lecture they refer to themselves as "men of principle" and that indeed is exactly what they are. There are also men out of their time.

In prosperous times there is plenty of room for grandstanding, for a devotion to a set of simple principles, for an intolerance of backstairs deals. That isn't so now. The next two years are going to be a scramble, a period of practical solutions, of subsidies and exceptions from rules. The Nissan agreement is only the start of it. It will be a long and difficult scrap in which long-held principles will have to give way to practicalities. How we do in that scrap will depend upon the skills of those who fight for us. They will need to be clever, persuasive, determined, manipulative, cunning and perhaps sometimes even unscrupulous. They will have to be street fighters. They will have to follow the trail that has been blazed by Mr Clark.

First published in the Shaw Sheet.

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