State aid should not come for free. That is why the UK is right to try and extract its pound of flesh from Jaguar Land Rover for supporting a possible £800m bailout of the loss-making luxury carmaker. But the government should also be pragmatic.
JLR was acquired in a debt-funded deal last year by India’s Tata Group. The carmaker wants the UK to underwrite £340m loans from the European Investment Bank for developing green technology, according to a person familiar with the situation. The EIB won’t release the loans without the guarantee. JLR is also seeking a £450m loan from Royal Bank of Scotland and Lloyds Banking Group. But these loans appear to be tied into the conditions on EIB support.
The government is understandably wary of giving aid to JLR. Doing so would make it hard to say no to other struggling UK companies. But its latest offer looks especially tough. The proposal is to underwrite just half the EIB loan for six months, with an immediate one-off charge of 15%, according to a note by BCG Partners which the government has not denied. The government also allegedly wants Tata to cede effective management control by granting it the right to appoint the chairman, to run the day-to-day operations and veto redundancies among JLR’s 14,000 staff.
These demands don’t wholly stack up. JLR is best run as a commercial enterprise, so government involvement at board level would be undesirable. Restrictions on JLR cutting the workforce are hardly an efficient way of creating a long-term, sustainable business. Far better for the taxpayer to be compensated for the risks of any rescue by simply making the financial terms suitably expensive – as seems to be the case already.
Perhaps the government wants to look tough after providing a £5m bridging loan to struggling vanmaker LDV owned by Russian oligarch Oleg Deripaska earlier in the week. But it would be wrong to let politics obstruct a sensible support package for JLR financed by the EIB and two commercial banks, albeit both government controlled.
Of course, the UK’s strong-arm tactics may just be a way of forcing Tata to find the cash within its sprawling conglomerate to prop up JLR. If that succeeds, then that would be a winning move. But the UK should not overplay its hand.
