UK state subsidies: we’re on the road to nowhere

State subsidies are like any vice: bad but terribly tempting, especially when everyone else has them. The UK, let loose from European rules, has ignored its own torrid record and is haring down the state aid path.

This is odd. British largesse has mostly failed to support sustainable business. Automaker British Leyland went down in a blaze of ignominy despite a state transfusion of £3.2bn, or £14bn in today’s money. Other titans of British industrial prowess, nurtured as state champions in the 1960s and 70s, similarly fell by the wayside. Who today remembers Marconi or International Computers Limited?

More recent clangers have occurred, too. Guaranteeing funds for metal tycoon Sanjeev Gupta to build plants in Scotland looks like a poor decision now that he is under investigation by the UK accountancy watchdog. Politicians, it transpires, do not pick winners well.

Do not expect that to stop them. De-globalisation, which shatters supply chains and encourages the erecting of protectionist barriers every which way, means more rather than fewer subsidies. Take semiconductor chips. European nations are committing €145bn to designing and producing local semiconductors. The US plans to stump up $37bn. Japan has identified chip making a national project.

Other sectors, particularly in tech, also receive state resources via government policy. Washington is irked at Beijing’s Made in China 2025 blueprint — derided as the Chinese government’s bid “to steal and subsidise and ultimately compete its way to the top of the global production value chain”. It has responded with a rather similar US version

Under the mammoth Innovation and Competition Act, Washington earmarks some $120bn for areas championed by Beijing, including AI and quantum computing.

Britain’s own bespoke subsidy system will be “simple, nimble and based on common sense principles”, according to business minister Paul Scully. Those words should raise yellow flags. Nimbleness and speed sound like badly suited attributes for a government which has already received accusations of cronyism during the pandemic. Common sense principles jibe with the tardy rollout of a homegrown track and trace app, six months after development of similar apps elsewhere using open-source technology.

Pre-pandemic, the world was already spending hundreds of billions of dollars propping up selected sectors and companies. Subsidies, like currency devaluations and tax breaks, inevitably entail a race to the bottom. The chase is on.

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