Friday, 13 February 2009

British jobs for British taxpayers' money?

You want to build or make something and there are two rival bidders for the job, one a British based company and the other based overseas. Engage the former and hundreds of jobs are kept safe in the UK, choose the latter and Johnny foreigner is secure in garlic and offal while more Brits go on the sick to disguise rising unemployment. What should you do?

Normally I would argue that you should get the best value for your money. Those of us with vivid memories of subsidised British industries shiver at the thought of paying the inefficient to produce sub-standard goods simply to keep jobs within these shores. This week the government announced that it had contracted with a consortium for lots of expensive new trains, the manufacturer in the consortium is Japanese. There was all the usual guff about creating and preserving jobs in the UK, although it seems pretty obvious that placing the contract with a UK-based manufacturer would be likely to create or preserve even more. The value of the contract is said to be £7.5billion and the number of UK jobs preserved or created is claimed to be 12,500 of, if you prefer, £600,000 a job. The successful consortium said it will spend 70% of the value of the contract in the UK, leaving a mere £2.25billion to be paid by UK taxpayers but spent outside the UK.

As always, nothing is as simple as it might appear at first. The bidding documents issued for these major contracts include all sorts of provisions requiring each tender to comply with very detailed criteria, usually including a requirement that a certain percentage of the money will be spent in the UK. In addition there is a requirement on the government to treat all bidders fairly and judge their tender on its merits. Define the relevant merits too nationalistically and you risk high-quality overseas companies not wishing to be involved. The exercise cannot operate sensibly on the basis that the contract will be awarded to a UK manufacturer come what may, because an awful lot of money is involved and additional future expense arising from ordering the second-best rather than the best can easily outweigh any short-term benefit from keeping jobs at home.

All the usual suspects have lined-up to criticise the government for placing the contract with the Hitachi consortium. The Conservatives have aligned themselves with Trotskyite union leaders and similar Neanderthal extremists by calling for British Jobs for British Workers. The local MP for the area in Derbyshire which houses the UK's last remaining train manufacturer has expressed his disappointment in strong terms, something which does him great credit because he is a Labour Party MP and has put the interests of his constituents above those of his party.

What I find so difficult about the criticism of the government's decision is that, for once, they appear to have sought value for money. £7.5billion is a vast sum. Every penny of it will come from taxes and on a commercial decision like this value for money must always be paramount. There have been too many instances of taxpayers' money being spent to preserve jobs in marginal Labour-held constituencies, yet providing a boon for a Labour marginal was put to one side this time. It might be fair to infer that the Hitachi bid was markedly superior to that of the British based rival bidder. Were they neck-and-neck one would expect the British bid to be successful, if for no other reason than that keeping £2.25billion on shore is important in the middle of the deepest recession any of us will experience. It might well be that the government looked for ways in which it could justify keeping this contract at home, I would certainly expect them to do so with a view to electoral advantage. In the end they felt they could not justify placing the contract here.

The very fact that this contract was placed with an overseas bidder at this time suggests to me that it was probably the right decision to take. The trains in question will have to remain in safe and efficient service for a long time. The better quality they are, the lower their maintenance costs and the longer they can run all contribute to future savings compared to buying a lesser product.

Although I can see a benefit to modest protectionism in difficult times, everything must be placed in context. Where there is no real difference in quality between what can be bought here and what can be bought elsewhere, by all means buy in the UK to bolster British jobs and British businesses. Where, however, you are dealing with vast sums of money which have to provide a benefit for many years to come, long-term value for money must always prevail.

1 comment:

Chalcedon said...

They lied again. It's 500 jobs in the UK. Assembling kit trains I expect.