Thatcher intervened to save Nissan investment

3 January 2014
By Edd Gent
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Margaret Thacther had to step in to prevent a Cabinet dispute derailing Nissan's investment in the North East

Margaret Thacther had to step in to prevent a Cabinet dispute derailing Nissan's investment in the North East

Margaret Thatcher had to intervene in a dispute between two senior ministers to safeguard Nissan’s investment in its Sunderland plant, confidential correspondence has revealed.

The prime minister had secured a pledge for massive inward investment from the firm, the first Japanese car company to enter the UK, by promising favourable tax breaks to the firm's president.

The plan, agreed in January 1984, eventually resulted in the construction of a manufacturing plant in Sunderland where more than 6,000 people are still employed.

Thatcher was reportedly instrumental in the deal, personally lobbying the company's long-time boss, Katsuji Kawamata, and Japan's prime minister, Yasuhiro Nakasone, but in the run-up to that year's Budget, a Cabinet rift between Nigel Lawson, the chancellor, and Norman Tebbit, the trade and industry secretary, threatened the project.

The former proposed a series of dramatic changes to corporation tax, including the abolition of capital allowances which permitted the tax-free purchase of industrial machinery – a major selling point for the UK and used by Thatcher as an incentive to persuade Nissan to invest without unfeasibly high first-year costs.

Under the old rules, the government would build the Sunderland factory and lease it to Nissan, and private companies would do the same with the machinery that would fill the plant – a way of lowering the barriers of entry for foreign companies looking to invest long-term in the UK and used to make up for historically high corporation tax.

But under the Chancellor's 1984 Budget, Nissan would face additional costs of between £18.3m and £27.5m by 1986 which would take years to recoup.

The change is said to have threatened to damage the project, and the economy, and exposed Thatcher to accusations of a "breach of faith", Norman Tebbit told the prime minister.

In a letter on February 27 1984, he wrote: "If Nissan does indeed pull out, it would clearly be a pity in terms of the project itself; and, of greater importance, would be harmful in terms of our policy of attracting further inward investment of Japan.

"More central to our economic policy, there is also a risk that withdrawal by Nissan could endanger the case for the budget package itself. There is the further point, which must be for you to judge, of the political consequences in light of your own personal and crucial involvement in the negotiations.

"There is a danger that Nissan might interpret the fact that agreement with them was signed in full knowledge of impending taxation changes which would seriously affect the project as a breach of faith."

Thatcher wrote in the margin of Tebbit's letter that she agreed the "position looks extremely serious" and scrawled "so do I" next to the line: "I continue to see this as a greater problem than the Chancellor suggests."

Her intervention placed Number 10 at odds with Lawson who argued that the Nissan problem could be ignored for two years, when the added costs would be felt by the company.

"My own view is that whether (Nissan) decide in 1986 to take (the project) up will depend on a whole range of factors that will only be apparent in 1986," the Chancellor wrote.

On a note attached to Lawson's submission to the prime minister, Andrew Turnbull, one of Thatcher's advisers, labelled the Chancellor "naive", adding: "The argument that this can all be left until 1986 is not very strong."

The final Budget, described by experts as Lawson's most radical for its shake-up of corporation tax, included the removal of capital allowances, but the trade and industry secretary, with the support of the prime minister, successfully demanded a special deal for Nissan that would be modelled on Regional Development Grants.

Reflecting on Lawson's reign as Chancellor, Thatcher said in her political memoir, The Downing Street Years, that he was a "natural gambler".

She wrote: "Nigel Lawson liked a Budget with everything based on one central theme and purpose. (His) search for a brilliant solution to a fiscal problem could lead him to risk all on a winning streak. He was, indeed, a natural gambler."

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