A test for New Labour: an old-fashioned crisis over car manufacturing

Tony Blair cannot have imagined that, as he approached his last big electoral test before next year's likely general election, his New Labour Government would be facing an old-fashioned industrial crisis. With the collapse of the Alchemy bid for Rover last week, the situation at Longbridge now looks truly grim. The trade unions' glee at the departure of Jon Moulton, the alleged asset-stripper, was misplaced and shortsighted.

It would not be too generous to Mr Moulton to say that, if he cannot save something from the end of Rover, then no one can. The workers at Longbridge may not have liked the Alchemy plan, but it made sense and it had finance behind it. The rival Phoenix consortium, which Stephen Byers, the luckless Trade and Industry Secretary, has now been forced to support, lacks both credibility and credit. How can a single-plant car maker survive, producing 500,000 units a year of a model with, at most, five years' life in it? Fiat, Honda and Renault are all too small to survive on their own in the world car market. Even BMW is only protected by the Quandt family's private shareholding.

The parallels with the situation 25 years ago are uncanny and disturbing. It was in the spring of 1975 that the threat of huge job losses in the Midlands persuaded Harold Wilson to nationalise the then British Leyland. That threat was enough to prise billions from Margaret Thatcher's Treasury when Michael Edwardes asked for more in the early Eighties.

Much has changed since then, of course, not least in the widespread acceptance of the argument that governments should not prop up loss-making private-sector industries. That argument, however, gathers no votes when the redundancy notices start to be handed out, and the temptation for a shallow politician is to use taxpayers' money to postpone the harsh verdict of the competitive market.

For Mr Blair, then, this is a big test. Is he base metal or gold? To be fair, he has shown no sign of wanting to bail out Rover even if, under European competition law, that were possible. But this is not really about withholding state aid, it is about the story the Government has to tell. The Prime Minister has hung Mr Byers out to dry in a disgraceful way. The plan seems to be to let the minister get it in the neck for handling a tricky brief with no support from No 10, then, once the exit strategy is clear, to dump Mr Byers and let Mr Blair take credit for sorting out the mess.

That would be to fail the test. It is essential that the Prime Minister use his unrivalled communication skills to make clear that the role of government is to try to create the conditions in which new jobs are created, rather than to try to "save" jobs threatened by economic change. Of course it is important to speak to Jac Nasser, the boss of Ford world-wide, about Dagenham, or to encourage bidders for Longbridge, but government should not present itself as the broker of the car industry's future. Equally, it is important that generous but temporary state aid is made available to help soften the blow of shutting down some or all of the Longbridge plant.

But the test for Mr Blair is not the sugar-coating but the bitterness of the pill itself. If he wants his place in history, he is going to have to tell the truth about how jobs are created and protected in a competitive market economy to the voters in Midlands marginal seats.