Hopes that Brussels would rubber-stamp the Government's pounds 80m aid package to Jaguar were dealt another blow after the European Commission said it wanted to talk to the car company's suppliers.
Investigators from the Commission's fair trade office are due in the West Midlands over the next week in a move likely to widen the rift between the Government and Brussels.
Relations between London and Brussels have been tense after EU officials complained that the UK had dragged its feet over requests for information about the grants package.
The Department of Trade and Industry had indicated it considered the Commission's approval a formality and it is thought the DTI was irritated by Brussels' interference.
Ford, Jaguar's parent, negotiated the aid as the UK's contribution towards the luxury carmaker's new pounds 400m manufacturing plant in Birmingham, which will build a new small car.
The US car giant, which has just offered UK workers an inflation-busting pay rise, threatened to produce the model in America unless it got the money. Jaguar has said since it would not accept anything less than the full pounds 80m. Brussels has accepted the award of pounds 48m in regional selective assistance, but is concerned about the remainder of the package, from local authorities and agencies.
The Commission team is expected to meet executives from the company, but will also talk to suppliers it believes may be benefiting from local government grants.
One person involved in the negotiations said it was rare for Brussels to take such detailed interest in a relatively small sum. "Maybe it has something to do with politics as well as EC competition rule," he said. Such thorough investigations by the Commission are normally for bigger state aid issues.
But a Commission official defended the move. "We are required to do this if we think there is a problem with the aid. This is us doing our job properly." He denied that Britain was being singled out for special investigation.
The visit also suggests a final decision is some way away, though both sides say it may be possible to settle the issue before Christmas.
Last month a DTI official visited Brussels in an attempt to settle a simmering row over claims that the department had been slow to provide information requested by the Competition Commissioner, Karel van Miert.
Normally, tacit approval for such aid would be sought from Brussels before it was announced. In July, when Ian Lang, the Trade and Industry Secretary, announced that Ford was to build the new X200 sports saloon in Britain, the DTI said it did not expect any competition problems with the aid.
One critic of the DTI's handling of the affair told the Independent that the DTI had not fully thought through the terms of the aid, and was having difficulty answering the Commission's questions.
The award of the money have proved an embarrassment for the Government, and is likely to open the floodgates to other demands for money.Reuse content