Wednesday, January 26, 2005

Airbus subsidies- not a great way to fly

According to the FT (22 January- subscription required), UK taxpayer support for the new A380 super-jumbo so far amounts to £780 million. Since the project provides 8,000 jobs, this amounts to a chunky £100,000 subsidy for each job.

Successive British governments have burned eye-watering piles of our cash on the bonfire of the aircraft industry. From Brabazon to Concorde to Airbus, they’ve swallowed the industry line that these projects are vital to the future of Britain’s technological base. Funding cannot be left to the private sector because…well, we all know the City is too shortsighted to recognise the terrific investment opportunity they represent, and anyway a lot of the benefits are spin-off, which cannot be captured by individual private investors, and…and…yes of course, the aircraft factories are based in high unemployment areas so really the subsidies are a form of social welfare.

The politicians like to present these subsidies as investment in some white-hot technological future, which unless we stump up will migrate overseas, making us all worse off. Gordon Brown’s massive R&D tax credits are a classic case. But the supposed investment in the aircraft industry has never knowingly produced any return to taxpayers.

Take the Concorde fiasco. The original estimate of UK taxpayer support, made in the early sixties, was £75 million. By the time the project hit the buffers in the seventies, the cost had escalated to about a billion. There was no return. Indeed, there were no paying customers, the few planes that were produced having to be given away to British Airways.

Now if instead, that one billion had been invested by the shortsighted City- say in the UK stock market- it would have produced a massive return. The stock market has gone up thirty fold since the mid-seventies (even allowing for its abysmal performance under New Labour), so British taxpayers would be sitting on £30 billion- quite a nice nest egg, even by the standards of our current fiscal black holes.

Against that background, the sight of Tony junketing down in Toulouse, coming out with the usual twaddle about giant steps are what we take etc, was enough to have me reaching for the in-flight sick bag.

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