Jaguar wins go-ahead despite aid shortfall

Date: 21/03/1996

By Tim Jones

THE European Commission is set to approve only part of a 95-million-ecu UK state aid package intended to persuade Jaguar to build a new car in the West Midlands.

At its 27 March meeting, the Commission will approve around 48 million ecu of the 57-million-ecu regional aid grant requested by London and only a portion of the extra 38 million ecu sought from development agencies and training offices.

However, the reductions have been made on the understanding that the UK government will top up the shortfall with a series of non-notifiable subsidies to ensure that Ford - which owns Jaguar - does not walk away from an investment that could create 6,000 jobs in a depressed area.

DGIV, the Directorate-General for competition, will give the UK government the go-ahead to take additional measures to bring the full aid package up to the 'magic figure' of 95 million ecu, said a source close to the talks.

The approval will bring an end to one of the most complex state aid investigations carried out by the Commission in recent times.

When Jaguar decided to design and build its new X200 small sports saloon, it hesitated between making it in the US or building 475-million-ecu worth of new plant at Birmingham's Castle Bromwich factory.

Since the West Midlands is classified as an EU 'assisted area', the company asked for state aid, a request which was notified to the Commission in May last year.

The Commission had to decide whether the 57 million ecu in regional aid truly represented the extra cost of locating the plant in an 'assisted area' compared with a non-assisted area.

At the same time, it had to calculate whether the part of the second 38-million-ecu batch of measures to boost the competitiveness of local component-makers through retraining and job secondment schemes further reduced the cost of basing the plant in Birmingham.

Coming up with the requested 95-million-ecu figure should ensure that the extra plant is built and the jobs secured.