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Session 2008 - 09
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Public Bill Committee Debates

The Committee consisted of the following Members:

Chairman: David Taylor
Burt, Lorely (Solihull) (LD)
Challen, Colin (Morley and Rothwell) (Lab)
Cox, Mr. Geoffrey (Torridge and West Devon) (Con)
Fisher, Mark (Stoke-on-Trent, Central) (Lab)
Foster, Michael Jabez (Hastings and Rye) (Lab)
Gibson, Dr. Ian (Norwich, North) (Lab)
Gray, Mr. James (North Wiltshire) (Con)
Hemming, John (Birmingham, Yardley) (LD)
Holloway, Mr. Adam (Gravesham) (Con)
Kemp, Mr. Fraser (Houghton and Washington, East) (Lab)
Pearson, Ian (Parliamentary Under-Secretary of State for Business, Enterprise and Regulatory Reform)
Prisk, Mr. Mark (Hertford and Stortford) (Con)
Stuart, Ms Gisela (Birmingham, Edgbaston) (Lab)
Ward, Claire (Vice-Chamberlain of Her Majesty's Household)
Wright, Mr. Anthony (Great Yarmouth) (Lab)
Wright, Jeremy (Rugby and Kenilworth) (Con)
Eliot Wilson, Committee Clerk
† attended the Committee

Third Delegated Legislation Committee

Monday 11 May 2009

[David Taylor in the Chair]

Financial Assistance to Industry
6.30 pm
The Parliamentary Under-Secretary of State for Business, Enterprise and Regulatory Reform (Ian Pearson): I beg to move,
That the Committee has considered the motion, That this House authorises the Secretary of State to undertake to pay, by way of financial assistance under section 8 of the Industrial Development Act 1982, in respect of the Scrappage Scheme, sums exceeding £10 million and up to a cumulative total of £300 million to vehicle manufacturers for the assistance of the automotive industry.
It is a pleasure to serve under your chairmanship, Mr. Taylor.
Mr. Mark Prisk (Hertford and Stortford) (Con): On a point of order, Mr. Taylor. Car scrappage is an important issue that will affect every one of our constituents. I do not seek to challenge this Minister, but there is a problem. Although we are expected to consider the issue, we will be able to do so properly only if we know what the details are. There is no written material to support the motion. Can you tell me whether that is in order and whether this is an appropriate procedure? If it is, I wish to record my concern that the House is not able to do its job properly, because I think that the procedure is at fault.
The Chairman: The hon. Gentleman did me the courtesy of saying that he was going to raise that point of order just before the start of our proceedings. What I said to him then I will now say publicly: his concerns will be on record and they will be part of the minutes that will eventually go back to the House. He might want to make a similar point at a later time.
Ian Pearson: As hon. Members will be aware, this is a very challenging time for the automotive industry and the automotive supply chain. The car production figures for March were down 51.3 per cent. on March 2008, while commercial vehicle output was down 57.1 per cent. The number of new cars sold in the United Kingdom last month was the lowest since 1993 and the 11th consecutive monthly decline in new car sales. Given the sharp decline in sales, we see that vehicle manufacturing, the associated supply chain and automotive retailing are under extreme pressure. Jobs are at risk, and there have already been job losses to date.
Mr. Fraser Kemp (Houghton and Washington, East) (Lab): Is my hon. Friend aware that, last Friday, Nissan Motor Manufacturing (UK) rang me, as its constituency Member of Parliament, to say that 150 new jobs will be created in my constituency to deal with the anticipated spike in production that the company will face as a result of the proposed scrappage scheme?
Ian Pearson: I am well aware of Nissan’s announcement that it is taking on temporary workers as a result of the UK scrappage scheme and other European-wide scrappage schemes. It is also bringing back the weekend shift system, which is greatly to be welcomed in the north-east. That demonstrates the importance of the scrappage schemes that are being introduced throughout Europe.
I draw attention to the fact that 180,000 people are employed in automotive manufacturing, with a further 200,000 in the wider manufacturing and services supply chain. The retail, service and distribution part of the sector also employs 500,000 people. The sector is strategically important for the UK economy and the Government are determined that the car sector remains an important part of our manufacturing base in the future. As was announced in the Budget, the Government plan to introduce a car and van scrappage scheme to support the sector, and £300 million has been allocated to finance the scheme.
Under the scrappage scheme, motorists will be offered a discount of £2,000 on a new car, or van of up to 3.5 tonnes, if they trade in for scrappage a vehicle that they have owned for 12 months or more that is older than 10 years. The £2,000 grant is made up of £1,000 from the Government, with a minimum of £1,000 matched by industry. The scheme will operate from 18 May until March 2010, or until the Government funding has been used up. The scheme is voluntary, so not all manufacturers or dealers may choose to participate. However, the majority of manufacturers have already signed up, and new ones are signing up daily.
The decision to implement a scrappage scheme was taken after careful consideration of car industry proposals, lessons learned from other European schemes, and concerns about the impact of such a scheme on other sectors of the economy. We have endeavoured to introduce the best possible scheme to help the automotive sector while ensuring that we look after taxpayers’ interests properly and minimise impacts elsewhere in the economy. It is important that we get that balance right.
Mr. Adam Holloway (Gravesham) (Con): Has the Minister considered the effect on the used car market?
Ian Pearson: We certainly have given that consideration. If the hon. Gentleman wants to make a speech and raise further questions, I shall happily answer those when I respond to the debate.
Under section 8 of the Industrial Development Act 1982, the Government are required to seek parliamentary approval for financial assistance when the sums exceed £10 million. There are several reasons why the motion should be approved—my hon. Friend the Member for Houghton and Washington, East has just mentioned the positive impact for Nissan that has come just from announcing the measure. Its primary purpose is to provide a boost to new car sales to help the industry in the current downturn. We expect that the scrappage scheme will have an immediate and positive effect on sales of new cars.
That has been the experience in other EU member states. In Germany, new car sales were up 40 per cent. year on year in March, while in France they were up 8 per cent. New car sales in the UK were down 30 per cent. year on year in March. I enter a caveat to those numbers, because the German scheme was particularly generous and came after a period of depressed demand. We would perhaps expect the UK experience to be more in line with that of France, although clearly there are uncertainties when a new scheme is introduced.
Increased demand for vehicles will contribute to improved trading conditions for the motor industry along the entire supply chain. The scheme will naturally bring forward some sales that would eventually occur in the future, but there might be an offsetting adjustment down the line. However, the industry has made it clear that it needs real help now, and it is likely that it will be able to cope better with any correction later because trading conditions will improve in due course in line with the economy as a whole.
Although new vehicle sales represent only about 25 per cent. of all vehicle sales activity—the balance is accounted for by sales of used vehicles—and only retailers of new cars and vans will benefit, there is already anecdotal evidence that the prospect of a scrappage scheme is sparking renewed interest and footfall in all vehicle dealerships. I hope that second-hand dealerships will recognise that.
Helping to stimulate the market will have the benefit of getting money moving around the whole system. There are also some secondary benefits to a scrappage scheme—replacing the ageing car fleet with newer, more fuel-efficient models should create a modest environmental benefit. However, the scheme is primarily designed to boost the automotive industry and restore consumer confidence, not as an environmental measure.
Mr. Prisk: Will the Minister confirm exactly what the environmental standards are? What is not included for a new car purchase?
Ian Pearson: There is no restriction on car purchases under the scheme, other than that the cars should be new. We are not restricting this to the UK—we cannot for competition reasons. The scheme is for new cars when there is trade-in on a scrappage certificate, and the Government £1,000 will be matched by dealers.
We think that scrappage will also have road safety benefits. For instance, the AA has produced analysis suggesting that a scrappage scheme would save lives because there could be up to 380 fewer fatal accidents a year, given the dramatic improvements in car safety technology in the past 10 years. Obviously, the Department for Transport has an interest in this area and agrees that there are safety benefits. It is undertaking a consultation on improving road safety in Great Britain beyond 2010.
The scheme is important for the automotive industry and will deliver a short-term boost, which is needed by the sector, that is time-limited, financially capped and proportionate so as to minimise impacts on other parts of the economy. In addition to that economic benefit, it could have a number of other benefits. I commend the motion to the Committee.
6.40 pm
Mr. Prisk: I welcome you to the Chair, Mr. Taylor, and look forward to your firm but fair guidance. I thank the Minister for his opening remarks.
We value the automotive industry, which generates a wealth of skilled jobs. Some 800,000 people are directly or indirectly employed by that industry, which generates some £10 billion or so in the United Kingdom economy. From talking to the industry, I understand that even today some 2,000 automotive component manufacturers are part of an industry that utilises a number of crucial technological skills—for example in the design, development and production of car engines. The sector is therefore important to the economy and many communities represented by hon. Members, and that is why we recognise the need for tax-efficient and economically effective schemes that can help the industry to survive in the short term and sooner or later, we hope, prosper as we come out of the recession. We genuinely hope that the scheme will be effective and that it stimulates additional car sales in the way in which the Minister suggested.
I raised my point of order with you, Mr. Taylor, because there are important questions of detail that we should, as part of our parliamentary responsibilities, try to tease out from the Minister. It would help Committee members if some written facts accompanied the motion. However, I suspect that this situation it is not the Minister’s failure, but the system’s. I register that point with you, Mr. Taylor, and hope that the House will note it.
As the Minister said, a simpler and somewhat more generous scheme was introduced in Germany in January. Under that scheme, consumers scrapping a car that is more than nine years old receive a €2,500 discount. To date, there has been a 35 per cent. to 40 per cent. increase in sales and, last month, the German Government announced that they would extend the scheme because they had initially received applications from some 1.2 million people. That scheme is clearly working but, as the Minister said, the scheme here will be different. The UK Government are offering a £1,000 discount with the same again expected from the industry, which will cost the automotive sector some £300 million. Does the Minister accept that the industry has already had to start withdrawing existing discounts to pay for the scheme, which is leaving the consumer no better off in many cases?
Some people have reported that, in the last month, prices have started to creep up in expectation of the scheme, because manufacturers will have to use the money that they would otherwise have used to offer their existing discounts. The danger is that those with cars less than 10 years old are being left worse off. I suspect that that is one reason why the scheme is reported to be unpopular with the car-buying public. A survey at the weekend by Parker’s Car Price Guide showed that some 81 per cent. of car buyers would not seek to use the scheme. That is only one survey, and others will be carried out in the weeks to come, but why does the Minister think that the public who responded to that survey have rejected the scheme? A quote from one of those surveyed—Julia Smith, who lives in Basingstoke—was reported by BBC News:
“In practice this scheme is just not working...I think it just hasn't been thought through terribly well.”
So there are issues of practicality. That woman has gone not for a new car, but for a nearly-new car. Again, there is a question of distortions.
I should like to draw the attention of the Minister and hon. Members to the Treasury Committee’s report on the Budget, which showed that the scheme was potentially distorting and costly. Using the Treasury’s own figures, the Committee noted that fewer than one third of the projected 300,000 sales would be additional to those already planned. Given that 86 per cent. of those sales are expected to involve imports, the Committee concluded that only between 12,600 and 14,000 new British-made vehicles might benefit from the scheme. It concluded:
“If the Government’s £300 million of funding supported the sale of only an extra 12,600 new British-made vehicles, this is the equivalent of spending more than £23,000 on each vehicle...It demonstrates that a considerable amount of the £300 million funding could be spent on supporting sales of foreign-manufactured cars that would have happened anyway.”
Given that, why do the Government regard the scheme as good value for taxpayers?
Scrappage schemes in Germany, France and Italy all include strict environmental standards but, as the Minister has just told us, the Government have not included such standards. You, Mr. Taylor, could therefore get rid of your old Mini or VW Polo—I am making an assumption here, but we live in an age of close scrutiny, so I am sure that you drive nothing more grand than that. Those cars have fuel efficiencies of about 40 miles per gallon, and their carbon emissions are roughly 160 grams per kilometre, so they are pretty clean, although they are getting on a bit—the cars, I hasten to add.
Under the scheme, you could scrap that car, Mr. Taylor, and buy a Hummer. As I suspect you know, a Hummer is a somewhat larger vehicle. It is an ex-US military vehicle, with a fuel efficiency of half that of the Polo or the Mini and carbon emissions of twice theirs. Therefore, although the Minister said that one benefit of the scheme was environmental, we have a peculiar situation in which people could get rid of cleaner cars to buy cars that were dirtier in terms of fuel efficiency and carbon emissions. Given the Government’s commitment to cutting carbon emissions, will the Minister explain why the UK is almost the only country whose scrappage scheme lacks any environmental standards?
Michael Jabez Foster (Hastings and Rye) (Lab): Does the hon. Gentleman know anyone who is daft enough to do what he suggests?
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Prepared 12 May 2009