ABSTRACT
INTRODUCTION: UK SUBSIDY POLICY Subsidies enable governments to achieve specific objectives such as higher employment, lower prices, import savings and income redistribution. British governments have used a variety of subsidies, with regional policy as one element in the total. Subsidies can be classified in various ways. For example, a distinction can be made between general and specific types.1 General schemes have been the traditional method of subsidising British industry. They are blanket subsidies available to all firms which satisfy certain conditions, for example, relating to investment, employment, training or location. General schemes aim to influence the operation of markets without detailed and costly involvement in the affairs of individual firms. In contrast, specific subsidy schemes provide a ‘tailor-made’ subsidy to an individual firm or person for a particular purpose, such as the survival of a unit, the re-structuring or re-equipment of an enterprise or the development of a new airliner. Specific subsidies have increased in importance with the Industry Acts of 1968, 1972 and 1975. In contrast to macro-economic policy, they represent an attempt at ‘fine tuning’ through state intervention at the extreme micro-level, namely, the firm. A selective, discriminating approach is used in which the amount of subsidy is negotiated for each case and, ideally, set at the minimum level required to influence decisions. However, attempts to negotiate specific subsidies with individual firms will usually take place in a non-competitive situation, where the firm’s cost levels are likely to be X-inefficient (see Chapter 10).2 The Government and the enterprise will be in a bilateral monopoly bargaining situation, the outcome of which is indeterminate! Without alternative cost yardsticks, the resulting state subsidy is likely to be based on inefficient cost levels. Moreover, if the state imposes profit controls on subsidised firms, the enterprise will have a further incentive to pursue objectives other than maximum profits.3 For present purposes, it is sufficient to note that subsidies to an individual firm will have a locational dimension.
