UK state aid still lags behind rest

The government likes to make much of its antagonism towards ‘bailing out ailing industries’, and the European Commission is always quick to mount lengthy investigations into any monetary assistance that might be proposed.

You could be forgiven for thinking that all state aid had been made illegal. The government likes to make much of its antagonism towards ‘bailing out ailing industries’, and the European Commission is always quick to mount lengthy investigations into any monetary assistance that might be proposed.

A good thing too, many would say – businesses won’t be strong if they come to depend on state aid. That is undoubtedly the case when it comes to individual companies but it doesn’t necessarily follow that business in general could not benefit from more aid channelled towards wider-scale projects. And although the commission has very tight guidelines on aid to ensure that governments don’t give their favourite companies an unfair competitive advantage, it doesn’t proscribe all forms of assistance.

Last week the government attempted to bolster its incredibly short manufacturing summit with the promise of £20m over the next two years to help promote best practice and productivity. The money was welcomed by business and the unions, but it isn’t a huge amount and will have to be spread across a number of projects.

Meanwhile, elsewhere in Europe, the picture is rather different. According to EC figures, UK state aid for the manufacturing sector between 1997 and 1999 stood at just 35% of the European Union average. Measured in euros spent per person employed in manufacturing, the UK offered the least amount of aid of any European country except Portugal. The UK spent just e322 per worker compared with 1,683 in Ireland; 1,453 in Denmark; 1,380 in Luxembourg; 1,235 in France; and 1,211 in Germany.

The comparisons are complicated somewhat due to exceptional circumstances such as Ireland’s generous corporate taxation, which counts as aid, and Germany’s reunification. But even after these considerations, the UK’s aid level is very low. For example, spending in the former West Germany alone is 32% higher than that in the UK.

There are also wide variations in the ways in which the packages are allocated. Although the UK spends quite heavily on support for small and medium-sized companies – 22% of its state aid total, compared with an average of 12% across Europe – its spending on research and development, at 9%, is below the 14% European average – and way below that of high spenders such as Finland, which devotes 37% of its aid to R&D.

The Trades Union Congress, which wants £1bn to be pumped into regional aid via the regional development agencies, is pressing the Department of Trade and Industry to review state aid in Europe. Given that all countries in the European Union are subject to the same rules, the TUC thinks it would be useful to know whether they are spending more creatively than the UK or just spending more.

Such an exercise could help clarify the government’s policies and put last week’s £20m into context.

Christine Buckley is industrial editor of The Times.