| | | Effective PR

India's TATA plays brinkmanship with UK's Labour Party

Editorial Staff

Having failed in its initial bid to gain support from the British government via Peter Mandelson, TATA is now playing hard-ball with the UK's Labour Party in its bid to get its purchase of Jaguar Land Rover underwritten by the UK taxpayer. It's getting dangerously close to a foreign company playing power broker in UK politics.

The UK Treasury has not buckled to pressure from India's TATA to provide it with free loan guarantees. The company, which bought Jaguar Land Rover from Ford as sales for the UK manufacturers' models slumped around the world, was originally reported to be seeking what amounted to a grant that would have meant it had got the world-famous marques for free, or nearly so.

But even the efforts of Peter Mandelson, who has in the past put his reputation on the line for wealthy Indians in return for a variety of benefits for the Labour Party, were thwarted by The Treasury.

The requests were watered down to seeking loan guarantees - which the UK was prepared to offer but on stringent terms. TATA does not like those terms, it is widely reported today.

At the heart of the terms is not just the advance fee for providing the guarantees but a question of securing input into corporate governance.

For the UK government, which has so far declined to offer free support to any foreign-owned car maker and which, not long ago, allowed the last domestically owned mass manufacturer to collapse, apparently wants to take an approach similar to that which it has adopted in bank rescues: a specific power of veto over a limited range of decisions, a seat on the board and a say in the choice of chairman.

TATA says no, it is reported, and has threatened to close some or all of the UK plant with resultant job losses.

Last month, Ratan Tata, CEO and autocratic head of TATA group, complained that the UK Government would not use the banks it owned to provide favourable financing to Jaguar Land Rover.

But TATA has not produced a long-term plan to secure the future of the carmaker, or at least has not produced a long-term plan that satisfies the government.

TATA has the support of unions, driving a wedge between the Labour Party and its traditional supporters - whose members pay a monthly levy which is the backbone of Party funding. The General Secretary of Unite, a major UK union, Tony Woodley, has been quoted as saying that, if the government "jeopardises the company and British jobs [there will be] serious repercussions." That may mean withholding the "political levy."

That plays directly into the hands of TATA and Mandelson: Mandelson needs Indian money to support the Labour Party and Indian votes to shore it up at the next election. TATA is highly influential both as a major employer (through its various divisions including steel) and due to its exalted position as India's number one company, Indians abroad. A strike against TATA would be seen by many as a strike against India and Indians.

That will translate into both a drop in contributions and in votes, something the Labour Party cannot afford.

And so, the simple fact is that the Labour Party is financially threatened if it fails to use public money to bail out a division of a (highly profitable) foreign group of companies.

There are options: the UK government could, simply, take Jaguar Land Rover into public ownership.That would satisfy the Unions, particularly if there is a sensible exit strategy, and as the implication of the original TATA request is that the company is worth nothing, it should be done without compensation. That would put down a marker that the UK's tax revenues are not for sale and not available for blackmail.

After all, if you are going to play hard ball, you've got to be prepared to be hit hard in the balls.

TATA has taken that risk. Now the question is whether the UK's Labour Party has the courage to make the hit on behalf of the taxpayer, or whether it will push the ball into safety to save its own revenues.