During the recent recession many industries have found themselves in financial difficulties. Although some have managed to survive and even thrive, others have relied on the Government to offer financial aid. The industries are those that our economy and culture is built on and their survival is essential. These are industries such as the banking sector and the car industry. Therefore, the Government has offered help in a number of ways but were these options the best choice?
THE UK CAR INDUSTRY
In the last year, the UK Government has implemented the ‘Scrapage Scheme’ and it gave those with a car that was registered on or before August 1999 the option to have at least £2000 off of a new car. The Government put aside £400m and they paid £1000 of the £2000 with the car manufacturers paying the other half. It was intended to encourage consumers to spend their money on new cars to keep the industry afloat in the recession.
Big name manufacturers participated with the full list being published as Allied Vehicles, Bentley, BMW, Chevrolet, Citroen, Daihatsu, FIAT, Ford, Honda, Hyundai, Isuzu, Jaguar, Kia, Land Rover, London Taxis International, Mazda, Mercedes Benz, MG Motor, Mitsubishi, Nissan, Perodua, Peugeot, Porsche, Proton, Renault, Rolls Royce, SAAB, SECMA UK, Ssangyong, Subaru, Suzuki, Toyota, Vauxhall, Volkswagen, Volvo, Iveco Ltd, Chrysler, Renault Trucks UK Ltd. This gave consumers a range of brands and vehicles to chose from.
It did prove successful with the Government reporting over 330,000 cars being purchased through the scheme this year. They have even extended the scheme to include cars registered on or before February 2000 and to vans. This widens the amount of people who can take advantage of the scheme and purchase a new car or van.
Along with the scheme, the Government has released plans to pump £2.3bn into the UK car industry to keep the industry going, to support current supply levels and to protect jobs. However, even with this intervention, the industry has taken a hit from the recession with reports of production falling around 30.9%. The help from the Government could considerably contribute to the survival of this industry.
BANKING SECTOR
The most obvious industry to be hit hard in the recession is those solely reliant on money for business; the banks. In October 2008, the Government offered a bail out of £37bn to try and keep the banks from going out of business. In return for this, the taxpayers will own 60% of RBS and 40% of Lloyds TSB and HBOS. The banks would also have to limit the amount and number of cash bonuses given out to their employees to retain profits to pay back the Government. Lloyds TSB would also have to sell some of their branches to attempt to raise some capital.
One bank that did not receive help in time was Northern Rock. This banking company acquired such a large amount of debt that in February 2008 it was taken in to state ownership after 2 unsuccessful takeovers (neither potential buyer could afford the debt). This meant the Government took ownership of the company and they also did not give any reimbursements to any shareholders.
THE ARGUMENT FOR SUPPORT
The positive effects of Government support to businesses in a recession are high. The aid keeps the economy moving forward through the recession instead of heading deeper into it. This therefore means that the Government have no choice but to give financial aid, they must do all they can to aid survival. Another benefit is that it can save jobs and avoid a large sudden inset of unemployment.
THE ARGUMENT AGAINST SUPPORT
The opposite argument could be that it is the businesses own doing that they cannot survive through a recession. If they had saved some profits or made more strategic decisions maybe they wouldn’t need the Government’s help. If they hadn’t, then the money could have been spent on improving health care or schools for example.
CONCLUSION
Ultimately, the Government has to help those industries that our economy needs to continue to exist. The negative effects of not providing financial support are greatly outweighed by the positive effects. This can be clearly seen in the case of Northern Rock; many people lost their life savings as well as their careers.
Without consumer and business spending, the economy will cease to enter the recovery stage of the business cycle.
BIBLIOGRPAHY
· http://www.direct.gov.uk/en/Nl1/Newsroom/DG_178251
· http://news.bbc.co.uk/1/hi/uk_politics/7853149.stm
· http://news.bbc.co.uk/1/hi/business/8497239.stm
· http://news.bbc.co.uk/1/hi/business/7666570.stm
