The car industry, the bailout and the taxpayer


On Wednesday, UK Business Secretary Lord Mandelson went some way in bailing out the carmakers by giving them credit, though you might think that it was too much credit that got us all into this mess in the first place, but put that aside for one moment.

The real issue is where this cash is going to come from. Our leaders like to suggest that it's just some bookkeeping entry at the Bank, but every pound lent to a potential car customer has to come from somewhere. And indeed, it comes from taxpayers. Hairdressers in Harwich have to pay higher taxes so that Sloane Rangers can buy a new Jag or a new Lexus.

Yes, that could save lots of jobs, possibly thousands, in carmaking. But only by putting jobs under threat everywhere else. Shops, cafes, and other businesses that are struggling to pay their National Insurance or their Business Rates will have to pay even more. They will start retrenching and firing staff – or not filling vacancies. Every job saved in carmaking is a job destroyed somewhere else. They might only be lost in ones and twos, but it is thousands of ones and twos. The tragedy is that politicians only notice the big numbers.

UK carmaking has been reeling since the 1970s, largely because it's cheaper to make cars elsewhere, thanks to our high labour, tax, and regulation costs. The Brown boom has disguised the fact, because we've all felt rich enough to carry on buying. But now the reality is sinking in, and we've stopped.

The galling thing is that most UK carmaking is foreign-owned. Why should I pay higher taxes to help the Indian billionaire who owns Jaguar? And why risk taxpayers' money on an industry, when tomorrow Detroit or Tokyo could pull the plug on most of it?

First the banks, now this. Pretty soon the whole country will be bailing itself out, at its own expense. A better policy would be to make ourselves more competitive. Cut out government waste. Cut taxes. Reduce our social costs. Encourage entrepreneurs instead of blaming them. Then we – carmakers included – might just have a chance.