Ministers plan car loan guarantees to prop up motor industry

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Ministers will set out emergency plans this week to help the British motor industry, which is reeling from a near-50 per cent fall in orders.

The Government intends to provide credit guarantees to the car finance houses that offer loans to motorists, enabling them to offer more 0 per cent deals to prospective car-buyers. It is also considering a "scrappage" rebate, whereby drivers of older, more-polluting cars would be offered an incentive to trade in for a newer, greener car.

However, 80 per cent of new car sales are imports, so it's doubtful how efficient such a scheme would be at protecting British jobs. The majority of the UK motor industry's output is exported, so the problem is lack of demand abroad. The fall in sterling in recent months has yet to boost sales. Ministers have ruled out direct subsidies to car manufacturers but could provide aid through credit guarantees for component firms supplying carmakers.

Yesterday, the steelmaker Corus confirmed its intention to cut 3,500 jobs worldwide, including more than 2,000 in the UK, as the firm tries to cope with an unprecedented slump in demand. Corus is owned by Tata Industries of India, like Jaguar Land Rover.

Gordon Brown will today demand tighter controls on the global "interdependent and interconnected" banking system, as ministers prepare to pump emergency aid into the motor industry and face more serious job losses.

The Prime Minister will seek backing for tougher scrutiny of financial institutions at the annual meeting of the World Economic Forum which takes place this week in Davos, Switzerland. He will join Vladimir Putin, Wen Jiabao and Angela Merkel, and hundreds of financiers and industrialists to discuss the recession. The Obama administration will be represented by Larry Summers, his economic adviser.

Mr Brown will argue: "The fragility of the global financial system must be addressed internationally. If what happens to a bank in one country can – within minutes – bring potentially devastating effects on banks in a different continent, then only a truly international response can be effective."

George Osborne, the shadow Chancellor, plans to create "a new culture of financial discipline across government" under a Tory government. It will include writing an explicit obligation to manage public money responsibly into the civil service code and rewarding public sector staff for money-saving ideas.

Tensions at the top of the party surfaced yesterday when Kenneth Clarke, the new shadow Business Secretary, contradicted David Cameron's suggestion that Britain could have to go to the International Monetary Fund for a humiliating bailout. The Tory leader insisted he was not forecasting when he said the Government could "end up back at the IMF", but added: "We are running the risk of those things happening." Mr Clarke, interviewed on BBC1's Andrew Marr Show, poured cold water on the idea. "I don't think it's a realistic possibility, though I'm as gloomy as most people," he said.

The Government is considering subsidising companies to offer employees a four- or three-day week instead of cutting jobs, as reported in yesterday's Independent on Sunday.

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