Britain’s Brexit airbag can’t cushion everyone

October 28, 2016

The author is a Reuters Breakingviews columnist.  The opinions expressed are his own.

Britain has an enchanted airbag that will cushion the impact of leaving the European Union. How it works is a mystery. But Japanese carmaker Nissan, which just agreed to increase production in its Sunderland factory because of unspecified reassurances from Prime Minister Theresa May, has had a glimpse. Not everyone affected by Brexit will be so lucky.

Carmakers in Britain exported vehicles worth 12 billion pounds to the EU in the 12 months up to the end of August, according to HM Revenue & Customs. Perhaps a quarter of that was Nissan, based on a Reuters analysis of the company’s filings. Maintaining access to the single market will be part of the horse-trading over Brexit. But assume that Britain is kicked out from 2019 and that all automotive exports to the continent are subject to the standard 10 percent tariff. In that worst-case scenario, May’s government would need to find 1.2 billion pounds a year to ensure the auto industry is protected.

Dishing out those kinds of subsidies would be a change of direction for the UK government. But they are doable. The narrow cost of offsetting car tariffs isn’t huge when compared with the 240 billion pounds the government plans to spend this year on social welfare. An equal levy on the 30 billion pounds of cars that Britain currently imports from the EU would more than cover the cost. A bung could be structured as a regional tax break, or a reward for creating new employment, to avoid trade partners slapping down punitive tariffs for perceived subsidies.

The question isn’t whether Britain can help Nissan, but whether it should. Helping out carmakers alone isn’t a terrible decision. While the northeast of England creates less value per job than the national average, the transport manufacturing sector creates far more – 76,100 pounds per person in 2013, compared with just under 50,000 pounds for the average UK worker, according to the Office for National Statistics.

By that measure the City of London ought to rest easy. The average financial services worker produces more than 100,000 pounds of output each year. The truth, though, is that saving banking jobs is less politically appealing. Use of the airbag is likely to be not for who produces most but who shouts loudest – and who gets in first. Picking winners means picking losers too.

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