Tata seeks £1bn from taxpayer to safeguard Jaguar and Land Rover

The Indian Tata Group, owner of Jaguar and Land Rover, is in talks with the Government over a possible £1bn loan to secure the future of its British car-making subsidiaries. Tata bought the two luxury car makers from Ford in March for £1.7bn. The Prime Minister is reportedly considering the proposal.

A spokesman for Jaguar Land Rover said the company would not comment on "speculation on the content of confidential discussions with Government". He added, however, that "we are of course keeping government appraised of the impact on our business. Jaguar Land Rover supports both the UK and the European industry position that government intervention is required to improve liquidity in the supply chain and support continued investment in carbon reduction technology as well as stimulating consumer demand. The French, German, US, Australian and Chinese are all considering industry support packages."

A Business, Enterprise and Regulatory Reform spokeswoman said: "Lord Mandelson will be meeting representatives of the UK automotive and retail motor sector this week to discuss where government action can help."

The car industry has seen sharp decline in its fortunes recently. UK production is down about 25 per cent on last year, and Nissan, Mini and Bentley have all announced cuts in production. Last week, Honda announced it will halt production at its UK plant in Swindon for two months next year.

The chief executive of Jaguar Land Rover, David Smith, has warned publicly that large-scale redundancies in the British motor industry are a "probability": "For every job in the manufacturers, there are four or five in the supply base. It is important we don't lose that supply base because it is still a decent one, providing research and development and engineering jobs."

Jaguar Land Rover has already announced 600 voluntary redundancies and short-time working at the Halewood plant on Merseyside.

Jaguar and Land Rover products are particularly threatened by the long-term increase in the price of fuel and EU targets on carbon dioxide emissions, and are looking to the authorities for help with developing new technologies to make their vehicles more fuel efficient.

The approaches to the British Government for financial assistance echo the situation in the United States, where the "Big Three" of General Motors, Ford and Chrysler have sought aid from the White House and the President-elect, Barack Obama. Worries are growing about the future of GM's extensive European operations, which include the Vauxhall car works at Ellesmere Port and a van plant at Luton. The Swedish government has opened talks on the future of GM's Saab subsidiary, and with Ford about the fate of Volvo cars.

As the largest of the "big ticket" items for consumers, and a purchase that is usually easily deferred, the world's car industry has been one of the worst affected by the gathering global recession. The historic problem of over-capacity in the West is being exacerbated by new production from emerging Chinese and Indian makers, including Tata.