Leading Article: No case for more aid for Longbridge

WE DO not have to look very far for an example of the worst way to spend taxpayers' money, one that has yielded the poorest return in the history of public expenditure. It is a long-running drama, set in an old factory haunted by the accumulated spirits of past motor magnates, defunct politicians and ugly cars. It has claimed many. It may be about to claim another. The spirit of Labour governments past is stalking Stephen Byers, the Secretary of State for Trade and Industry.

He is thinking of paying BMW, the owner of Rover, a subsidy of perhaps pounds 100m to keep the Longbridge works in Birmingham open and "save" jobs. In return, BMW will revamp the facility and develop new models, and productivity will improve.

It sounds plausible enough. But only for those with memories as short as a Mini. Those with a better sense of economic history will recall the formation in 1968 of the proud British Leyland Motor Corporation (ancestor of today's Rover Group), a combine that was designed to take on the world's car giants. A modest subsidy was provided, to assist the reconstruction. Seven years later the firm was bust and in state ownership. In the Seventies and Eighties managements blackmailed governments of both parties into paying huge amounts of aid. Sir Michael Edwardes even managed to squeeze a billion or two out of Mrs Thatcher.

The same arguments were used over and over again: vast damage to the regional economy and a devastating effect on the balance of trade. Ministers always caved in and asked for "improvements in productivity" in return, as Mr Byers, ominously, did in Parliament last week. A rough estimate of the total cost of the state's operating subsidies plus regional aid grants plus the "sweeteners" paid to offload the firm into the private sector would top pounds 20bn at today's prices - funds that could have been put into education or left in the pockets of more successful firms.

And what did the taxpayers get for their money? Generation after generation of "make-or-break" models that were, mostly, indifferently designed and made, and commanded a smaller and smaller share of the market at home and abroad. British Leyland started with 40 per cent of the home market; today Rover has about 6 per cent. Co-operation with Honda and BMW failed to solve the group's fundamental problems and, in particular, the volume side of the business, centred on Longbridge.

When so much effort and so much money have been poured in over three decades, and with so little success, it is time to think more radically.

The hard truth is that the world is awash with car plants. The entire US auto industry could be shut down and there would still be too much capacity. It is a hard truth and it implies the hardest of choices for Mr Byers.

He should be the first minister in decades to say "no" to the threats. He may find that the ghosts haunting Longbridge are not so frightening. He may find that calling BMW's bluff will not, in fact, result in total closure. He may even find that a stronger declaration in favour of joining the euro might have as powerful an effect as a large cheque signed by the Paymaster General.

However, if Longbridge does shrink or close, there are many small British firms involved in components and design which are growing. These firms don't seek or need subsidies. They have the surest chance of survival. Mr Byers should design New Labour's policies for them, and exorcise those ghosts.