Hamish McRae: The Government should remember Leyland – and beware

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The Independent Online

If the Government is prepared to rescue Royal Bank of Scotland and Lloyds HBOS, why should it not also help Jaguar and Land Rover?

They are all huge employers; all produce services and products we need; all are inherently successful enterprises, even if they have had a few rough patches. But there was no question about helping the banks, and in the case of Lloyds and HBOS, choreographing a merger between them that would normally have been blocked on competition grounds. Tata, the new owners of Jaguar and Land Rover, are having a tougher time extracting funds from the public purse.

There is a simple answer and a more subtle one. The simple point is that had the Government not rescued and re-capitalised the banks they might have gone under. A collapse of any large bank would be so catastrophic to the whole economy that it could not be risked. Cars matter but banks matter more. By contrast Land Rover and Jaguar have the backing of a powerful Indian industrial group; they have only been acquired a few months ago; and while Tata is under pressure right now, its survival is not in question.

The more subtle answer is that the Government has created a financial lifeboat for banks that should also be a good deal for taxpayers, whereas it is terrified of being sucked into ongoing support for the car industry. The optional part-nationalisation plan, whereby banks could get funds from the state but were not obliged to if they could find other investors, is a triumph. Not only does it save the banks but the funds don't come cheap. Call them clever investments, for the Government is always banging on about the need for investment. These part-nationalisations are therefore different from Northern Rock, where the underlying business was in real trouble and taxpayers may end up out of pocket.

In the case of the car companies there is a different background, more like Northern Rock and less like the Royal Bank and Lloyds HBOS. Looking back there was the nightmare of the nationalisation of British Leyland, then its denationalisation – and the collapse of the car part of Rover. The Government absolutely does not want to be drawn into open-ended support for car companies. In any case as far as Land Rover and Jaguar are concerned the production of both types of vehicle in the UK is not in question. The success depends on the ability of Tata to make a better fist of running them than their previous owner, Ford, and there is nothing the Government can do to help it there. So while some short-term funding may make sense, the Government absolutely does not want to be sucked into the quagmire from which it thought it had escaped.