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Is it morally correct to subsidise overseas companies?

With Lord Mandelson set to deliver a £400 million subsidy to Magna, the probable acquirer of GM Europe, there are concerns as to whether state aid, at least to such a level, is both morally and politically correct.

The truth is that a £400 million subsidy, along with a guarantee of employment for thousands of UK workers in the short to medium term, is probably worth significantly more to the UK economy and the UK government in taxes. Whether we like it or not overseas companies will look to place their manufacturing needs in the cheapest country and cheapest markets around the world. Without assistance from the local authorities and the government of the day, thousands upon thousands of jobs will be at risk which can lead to deprivation and massive unemployment in some areas.

The truth is that busy areas and busy markets attract new entrants and new companies. We have seen the North of England decimated by the collapse of the UK mining industry, even though some progress has been made on other employment options, and the Midlands and the North West of England have also suffered from the collapse of the UK car industry. While a £400 million subsidy may well be a significant figure, it does actually pale into insignificance in the long run.

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