£2bn support for motor industry unveiled

(Christopher Furlong/Getty Images)

The Government unveiled a package of support for the car industry worth £2 billion amid warnings of a "catastrophe" for the sector with the loss of tens of thousands of jobs.

The Business Secretary Lord Mandelson said today that the Government would provide loan guarantees to car manufacturers and large suppliers to try to reverse a huge slump in car buying.

Jobs have already been axed in the industry and a number of plants are on extended shutdowns because of the drop in sales.

Leading car firms including Honda, Nissan and Jaguar Land Rover are among those which have been hit.

Lord Mandelson said today's measures offered a "significant boost" to the industry but he denied the Government was offering a "bail out" or a "blank cheque".

Lord Mandelson told the House of Lords the Government would offer loans of up to £1.3 billion from the European Investment Bank as well as guarantees of support up to a further £1 billion for lending and loans where appropriate.

The Government would assess any bids on a case by case basis but the minister stressed the Government was not offering a subsidy or blank cheque to car firms which have been pressing for action for months.

Unite has been calling for aid worth up to £13 billion for manufacturing, including car companies.

The union's joint leader, Tony Woodley, said that without a robust intervention from the Government the car industry was heading for a "catastrophe" with the loss of tens of thousands of jobs.

Lord Mandelson said he recognised the Government needed to do more to help the car industry tackle the recession.

Mr Woodley said the Government's announcement would come as a "massive disappointment" to the tens of thousands of workers in the industry.

"Two billion pounds sounds like a lot of money but at least half of this will be taken up by Vauxhall and Jaguar Land Rover alone, leaving little or nothing for the hundreds of component companies.

"This is a fraction of the support being given by almost every other government in Europe."

Mr Woodley said the Government should double the money it had announced today, warning that the spectre of redundancy was hovering over thousands of skilled workers.

Derek Simpson, Unite's joint leader, added that the money from Europe was "months away", adding: "There could be little left of the industry by the time it arrives.

"This package is too little but it is not yet too late. Ministers must leave behind the failed free markets philosophy once and for all and intervene decisively now."

The Society of Motor Manufacturers and Traders, which will meet Lord Mandelson to discuss the package tomorrow, said it was an "important announcement" which recognised the strategic contribution of the motor industry.

Chief executive Paul Everitt said: "We look forward to discussing the substance of the announcement with Lord Mandelson."

Lord Mandelson also announced increased funding for training of car workers which met with approval from business groups.

Steve Radley, chief economist at the Engineering Employers Federation, said: "This is a long awaited and welcome package which recognises the unique circumstances affecting one of the key sectors of manufacturing.

"The next step has to include short-term measures to help companies hold on to workers.

"While additional funding for training will help secure the skills manufacturing will need for the eventual recovery, this should be linked to more flexible support for companies implementing short time working to tide them through this difficult period."

Lord Mandelson said the automotive industry employed almost a million workers and had been in the front line of the economic downturn, with output falling faster and further than any other sector since the summer.

"We need to counter this to prevent an irreversible loss of capacity, skills and technology.

"The health of the automotive industry is vital to the strength of manufacturing in Britain and is at the heart of many of our regional economies."

Lord Mandelson said he wanted to lay the foundations to "reinvent" the industry for a low carbon future.

"This industry is not a lame duck and I am not proposing a bailout. It has been transformed over the past decade. Productivity has risen, catching up and overtaking both France and Sweden.

"In Britain, we have some of the world's most productive car plants. For the future, Britain needs an economy with less financial engineering and more real engineering. The car industry can and should be a vibrant part of that future.

"The steps we are taking today will help companies speed their way to becoming greener, more innovative and more productive."

The minister said the world's car industry was at a turning point and companies in Britain needed to be at the leading edge of the development of low carbon vehicles.

Lord Mandelson said the Government was prepared to provide loan guarantees, initially to unlock loans of up to £1.3 billion from the European Investment Bank, as well as guarantees of a further £1 billion of lending or loans.

Lord Mandelson said the Government would increase funding for the training of employees, including boosting support for new schemes to £100 million.

The Government said it had already taken a series of actions to unblock lending by banks to smaller companies, but today's package applied to projects over £5 million from UK-based vehicle manufacturers and parts suppliers with an annual turnover of £25 million or more.

Lord Mandelson said the Government wanted to make sure that the package offered value for money to taxpayers and would give a boost to the "greening" of industry as well as securing jobs and skills.

The package is aimed at ensuring that major new low-carbon investment projects in the UK motor industry are not abandoned or moved to other countries because firms were unable to access sufficient funding.

The Government said it was determined that, as well as helping companies through the recession, workers in the industry will be able to access funding to help maintain their skills and improve their training.

Lord Mandelson also invited regional development agencies to bring forward programmes for research and development into cleaner engines and lighter cars.

David Frost, director general of the British Chambers of Commerce, said: "After years of being treated as the Cinderella sector, politicians now realise that manufacturing will be central to the UK's recovery.

"If good companies collapse during the recession, they will never be replaced."

Mr Clarke told MPs that the Government had first pledged help for the motor industry last October.

The Tories had backed a loan guarantee scheme as early as last November, to free up car finance for those able to afford the monthly repayments and help keep the industry going.

"Here we are months later - months later - and during that time sales of cars in this country have dropped by a half whilst the Government dithers.

"And what does it produce on this key subject on how to help consumers who can afford the credit to get the credit to buy the car?

"We are delighted to discover that the Government says, 'We are looking at steps to improve car company financing arms' access to additional funding."

Mr Clarke said Mervyn Davies was being asked to set up a "taskforce".

"Can the new trade minister be asked through our minister to do something to improve the Government's competence, its ability to keep up with events, and its ability to produce programmes that work," Mr Clarke said.

The shadow business secretary said the car industry would have "listened in vain" to the news that money would be made available from the European Investment Bank.

Such help was first announced in September last year, he added, and was already being used by other European countries.

Mr Clarke said the loans to promote green technologies were "well intentioned" but lacking in details.

"Experience shows that these packages are not in practice, usually with regards to Government announcements, for weeks and weeks.

"They are well intentioned. They are not well financed."

Pointing to the news at the end of the statement that resources announced in the Pre-Budget Report would be used on the measures, Mr Clarke said: "The Treasury or somebody has noticed what we have been saying.

"That this wave of panic-stricken announcements has pledged the taxpayers' credit for billions - tens of billions - of pounds, and someone's said to BERR [the Department for Business Enterprise and Regulatory Reform], 'We cannot afford anything but modest loan guarantees with all these provisos about how you give it out."

And ahead of a summit with motor manufacturers tomorrow, Mr Clarke said ministers should ask the big multinational firms what they would "bring to the party" to help a "vital" industry in the UK.

He added: "This industry is suffering almost worse than any other at a time of catastrophic decline which the Government is plainly unable to answer or to measure up to."