Tuesday, 5 July 2011

Preferring UK based companies is not protectionist - its value for money.

Paying a foreign company £1.4bn for trains costs the UK taxpayer over £3bn, as compared to paying a UK company...

Or paying £1.4bn to a UK company would really have cost less than £0.7bn...

The UK government have just awarded a £1.4bn contract to a company based in Germany for the supply of train carriages.

A company with manufacturing facilities in the UK bid for the contact but lost out to the German company because their bid was more expensive.

Now consider this... a foreign company will take £1.4bn and it will be lost to the UK - lost to its people and the government.

However a UK based company would take £1.4bn and pay out a very large proportion of this to UK based workers as salary - salaries on which income tax and national insurance is paid.

Also part of the £.14bn will go to local suppliers for components that go into the final product, again part of this will then go on to the suppliers employees as salary and attract income tax and national insurance.

All the people receiving salary will spend a good part of that money on other UK goods and services, so paying 20% VAT.

On the back of an envelope, I estimated that half of the original £1.4bn paid out to a UK firm would go straight back to the government as tax!

An other part of this calculation is the loss of jobs in the UK - we don't have full employment, so it is fair to assume that many of the people losing their jobs (both with the main company and its suppliers) will end up on benefits, and so made a direct claim on other taxpayers. I don't know how much this would total - but I suggest that for a £1.4bn german bid to beat a UK bid, the UK bid would have to be around £3.5bn

Notes:

The Thameslink update programme was initiated about 20 years ago and was supposed to be completed by 2000... it is long overdue.

Bombardier (a Canadian owned train manufacturer, with manufacturing facilities in the UK) have recently lost out on a Government contract for new trains for the Thameslink Line.

The contract for the new trains has, instead, gone to the German company 'Siemens'

Bombardier have just laid off 1400 - at least 400 are directly as a result of losing this contract bid.

2 comments:

  1. GBP isn't very useful in Germany, so if we give 1.4bn of them to Germany, then wouldn't they send them all back into our economy, one way or the other? I.e., wouldn't importing German trains help British exports in a different area? (It would be a different situation if we shared the same currency, of course.)

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  2. That's a theory Anthony, but the money is more likely to be used to pay old debt than for new business - after all there is so much debt compared to new business!

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