Jaguar Land-Rover to get EIB loan of £270m

Jaguar Land-Rover, the struggling motor group that has been seeking government assistance and has recently put its workforce on a four-day week, looks to set to receive a European bailout package that it hopes will safeguard as many as 14,500 jobs in the UK.

JLR, owned by India's Tata group, has been one of the victims of a 22 per cent drop in UK car sales over the last year. The loan deal, which has been agreed with the European Investment Bank (EIB), a development bank, will see the company get £270m in funding.

Speaking at the end of last month, the head of Tata, Ratan Tata, said that the effect of the downturn on JLR would be "devastating" unless the Government stumped up as much as £500m of loan guarantees. Mr Tata said that the group is not looking for cash as a handout, but rather it needs the money as working capital, arguing that bank funding is hard to come by.

Confirmation of the deal is expected tomorrow when the EIB's board meets in Luxembourg. The bank is also expected to agree a package for Nissan's plant in Sunderland, which will receive part of a £364m loan that will be split between the Japanese company's sites in the North-east and Spain. Both payments will need a government guarantee and will require that JLR and Nissan to commit to greater investment in sustainable technology.

JLR has been asking for help from the Government since before Christmas. However, despite Lord Mandelson, the Business secretary, putting aside £2.3bn in support for the ailing UK car industry, talks between JLR and ministers have foundered. "The primary responsibility for short-term financing or longer-term restructuring rests with the parent company," a spokeswoman for the Department for Business said before yesterday's news of a deal with the EIB.

Tata stresses that it is asking for a loan guarantee from the Government, rather than cash, but the use of UK taxpayers' money to prop up a foreign-owned business would be politically problematic for Labour.

A Government spokesman refused to comment on the agreement with the EIB, but it is understood that the company has had to meet a number of criteria in order to qualify for the loan.

The Government has faced a particular headache with JLR. Giving the group public money is controversial since JLR's financial position is, in part, its own making.

Despite the conglomerate's travails in a number of areas – including the debts from its $11.3bn purchase of Corus, the Anglo-Dutch steel maker – Tata has pumped some $1.2bn into JLR since last summer to help with the cashflow needed to service its debt repayments. The Government is aware, however, that the group's factories are based in Labour heartland areas and rising unemployment could cause an electoral backlash, especially if those without work blame Labour for not coming to their aid. It is estimated that as many as 50,000 UK jobs are dependent on JLR.

The deal with the EIB will come as a relief to JLR's UK workforce, which is spread across sites in the West Midlands and Merseyside. The company cut 450 jobs in January, and the remaining workers have been put on a 35-hour working week after an agreement with trade unions. Car production in the UK has dropped 59 per cent in the last year, as manufacturers seek to clear stock rather than manufacture new cars.