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We all agree that this afternoon we are trying to ensure that the automotive industry survives so that when the recession ends and the upturn comes, we are in the best and most competitive state possible. As a word of caution, although this is an extremely important sector that accounts for 11 per cent. of our exports, manufacturing as a whole makes up more than half our exports. We are looking to the Government to see how
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the manufacturing sector as a whole can survive the recession and move towards the upturn, not only the automotive sector.

As the hon. Lady has said, the automotive sector is extremely important. It provides 200,000 jobs in manufacturing and 600,000 in associated industries such as the garage industry, the parts industry and Formula 1, which has been mentioned. As has been mentioned by Labour Members, for every one job directly in the automotive industry that is affected, about two or three indirect jobs will also be affected. Any downturn in the industry is hugely important.

We are looking to hear from the Government what sort of package they are likely to come up with. In particular, we would like to hear how that will relate to what our friends across the pond are doing for their automotive sector. What they do will affect us. The automotive industries across the world are interrelated. I have seen how competitive Hyundai is in South Korea. I was in China the other day and saw its emerging automotive industry, which is also very competitive. One thing that we must do is produce higher and higher-tech vehicles. As was mentioned by Labour Members, we must maintain our spending on R and D and our university research. It is critical to our future.

I think that everybody here can unite in agreeing that we need to ensure that we keep credit flowing to both the major manufacturers and the second and third-tier supply chain components. If we lose the skills in those supply chain components, it will be difficult to get them back. That is why the Government’s role is critical.

The hon. Member for Coventry, South (Mr. Cunningham) made a good speech about how critical the industry is to his constituency, and the 193 firms involved. He also made the point that critical mass is important. We have critical mass in this country at the moment. If we lose it, it will be much more difficult to get the industry back when the upturn comes.

The hon. Member for Ellesmere Port and Neston (Andrew Miller) made the most important point that I have ever heard him make. We must look to the next generation of vehicles. If we are not looking for high-tech vehicles, we will not be competitive globally. The hon. Member for Houghton and Washington, East (Mr. Kemp) has a high concentration of Nissan manufacturing in his constituency. It is an important part of the automotive chain. The hon. Member for Birmingham, Northfield (Richard Burden) also spoke. The automotive sector is very important to the Birmingham area. My hon. Friend the Member for Bromsgrove (Miss Kirkbride) and other Members from Birmingham are also here.

What has gone wrong, what can be done and what will the Government do about it? Unfortunately, so far, the Government have moved in the wrong direction. The pre-Budget report increased vehicle excise duty regulations to reclaim £100 million more in unused car tax discs. The Government take £33 billion in VAT, road fuel tax and fuel duty but give back only £8 billion to the transport sector. The rate of corporation tax for small firms went up from 19 per cent. in 2006 to 20 per cent. in 2007 and 21 per cent. in 2008. That is going in the wrong direction.

Several other changes in tax policy included in the PBR will have a negative effect on manufacturers. For example, individual firms face up to £2,250 in costs to
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relabel all their stock as a result of a pitiful change in VAT from 17.5 to 15 per cent., which will be reversed in a year’s time. I have received numerous representations from firms getting ready for Christmas about the cost and difficulty involved. That money could be much better spent in other directions, as I will explain in a moment.

Mr. Kemp: Will the hon. Gentleman give way?

Mr. Clifton-Brown: Yes, but the hon. Gentleman is the only Member to whom I will give way, because of the time.

Mr. Kemp: Many Members will be concerned to hear that the reduction in VAT is pitiful. When it comes to car manufacturing it represents hundreds and hundreds of pounds. It is not a pitiful amount to people looking to buy a new car. I can understand that it will be pitiful for small items, but not when it is worth hundreds of pounds.

Mr. Clifton-Brown: Ask one of the retail component manufacturers that have had to reprice hundreds or thousands of products just before Christmas what they think about the VAT changes. I can tell the hon. Gentleman that they are not very amused by them.

Miss Julie Kirkbride (Bromsgrove) (Con): My hon. Friend might want to point out that there have been many good deals on new cars, whose prices have been slashed by far more than 2.5 per cent. of late.

Mr. Clifton-Brown: I am grateful to my hon. Friend. That is the way to do it. If car retailers can give really good deals, that is the way that we ought to go. Somebody mentioned a scrappage package suggested by the Society of Motor Manufacturers and Traders and the Retail Motor Industry Federation. That is a thoroughly good idea: get rid of the old polluting cars and encourage people to buy new clean technology cars. Incentives for people to do so could be offset by VAT on the new cars. It is a thoroughly good and worthwhile package to consider.

What would the Conservatives do about it? We would introduce a national loan guarantee scheme to underwrite debts and ensure that banks lend to small businesses. [Interruption.] Hon. Members may groan, but everybody in this debate has agreed.

Chris Huhne: Will the hon. Gentleman give way?

Mr. Clifton-Brown: No. I said that I would give way only once. Everybody in this debate has agreed. We do not need to be political about it; we need to ensure that the banks lend to businesses so that they are there when the upturn comes.

The Conservatives would give tax breaks to businesses that hire workers who have been unemployed for three months or more, which would be revenue-neutral, as it would be funded by lower spending on unemployment benefits. We would cut corporation tax rates, reducing large corporation tax from 28p to 25p and small corporation tax from 22p to 20p. Those measures would help business
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to get more cash flow now. We would allow businesses to defer VAT for up to a year. We want to get cash flow into small businesses in particular, here and now.

I have one question for the Minister before I finish. The noble Lord Mandelson has been in serious talks with the automotive industry. We need to know what package is likely to emerge from those talks so that we can help safeguard those 800,000 jobs. When it comes, we will evaluate it to see whether we can support it, but we want some real information from the Minister.

3.46 pm

The Economic Secretary to the Treasury (Ian Pearson): It is a pleasure to serve under your chairmanship, Mr. Cook. I congratulate the hon. Member for Romsey (Sandra Gidley) on securing this important debate. From the strength of feeling expressed today, nobody can be under any illusion that hon. Members do not value and appreciate the automotive industry in the UK and recognise it to be of strategic importance to the UK economy.

Hon. Members will be aware that I have form. Those who know me are aware that I have been a passionate advocate for the manufacturing industry throughout my parliamentary career, and I can assure hon. Members that that has not changed now that I have become an economics and business Minister at the Department for Business, Enterprise and Regulatory Reform. We as a Government need to consider what more we can sensibly do to help the automotive industry through these difficult times, but we should not forget what action has already been taken by the Government and what help is available or will become available shortly.

Reference was made to the letter that I sent through the automotive manufacturers to supply chain companies, detailing a range of existing support mechanisms. I will say a bit more about that in a few minutes. My hon. Friend the Member for North-West Leicestershire (David Taylor) said that some companies did not get it. If he has the details, we will try to ensure that word gets out to all the companies in the automotive supply chain, because it is important.

It is clear that there is a strong feeling among Labour Members about the importance of the automotive sector. We have heard contributions from my hon. Friends the Members for Coventry, South (Mr. Cunningham), for Birmingham, Northfield (Richard Burden), for Ellesmere Port and Neston (Andrew Miller), for Houghton and Washington, East (Mr. Kemp), for South Ribble (Mr. Borrow) and for Wolverhampton, North-East (Mr. Purchase), as well as interventions by my right hon. Friend the Member for Oxford, East (Mr. Smith) and my hon. Friend the Member for North-West Leicestershire.

I note that my hon. Friends the Members for West Bromwich, West (Mr. Bailey), for Birmingham, Selly Oak (Lynne Jones), for Birmingham, Hall Green (Steve McCabe), for Birmingham, Edgbaston (Ms Stuart) and for Gateshead, East and Washington, West (Mrs. Hodgson) are also here but have not had the opportunity to speak, as this is only a one-and-a-half hour debate. I have no doubt that if they had spoken, they would have expressed the same concerns as other hon. Friends.

It is a bit disappointing, to say the least, that for most of this debate, there has been only one Back-Bench Member from the official Opposition. I hope that that
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does not reflect the Conservative party’s lack of interest in the automotive industry in the United Kingdom. The UK values the automotive industry, and the Labour Government value it. We are doing what we can sensibly to provide it with support.

Chris Huhne: I hope that the Minister will include the Liberal Democrats in his encomium to Labour Members. We have motor industries in our constituencies as well —in Romsey, Eastleigh and Solihull—and we are, proportionately, the most highly represented group in this debate.

Ian Pearson: I will not be drawn into mathematics, but I acknowledge the largely constructive way in which the hon. Member for Romsey made her points.

Last year, the United Kingdom produced 1.7 million vehicles, about three quarters of them for export. We produced about 3 million engines and a record 39,000 pieces of construction equipment. This is an industry that employs almost 1 million people in the United Kingdom. It is of immense value to our economy.

Much was made of actions that were being taken by other countries with regard to the automotive industry. In particular, my hon. Friend the Member for Ellesmere Port and Neston talked about the US automotive manufacturers and the discussions that have been taking place in Congress about a package of support for them. I want to assure him and the House that we are continuing to monitor that situation very closely indeed and we will examine the implications that any such package may have for the UK plants of those automotive companies.

My hon. Friend also stressed, very validly indeed, the role of the Prime Minister in securing investment in the new Astra at Ellesmere Port. I could point to many other examples of where the Government have been intervening to provide support, whether it has been selective financial assistance to help companies with new products or new projects; support through the Technology Strategy Board; green carbon research and development expenditure; or Train to Gain and other training packages. A significant amount of support is already being made available through this Government.

Mr. Binley: I recognise the time constraints, but can I impress on the Minister that businesses, particularly those within the supply chain of the motor manufacturing sector, are crying out for working capital—for cash? It is widening the guarantee scheme with the banks that provides a real answer. I am not bothered how he does that, but will he give us some hope today that he will do that?

Ian Pearson: Let me reply to that point in a moment. First, I want to talk about three areas where the Government are taking action. The first is the action that we are taking to encourage demand in the United Kingdom economy, to create consumer confidence and provide a fiscal stimulus. That is a vital area. We want people to have the confidence to go back to buying cars. In response to the points that my hon. Friend the Member for South Ribble made, we also want them to have the ability to make commercial decisions to buy commercial vehicles. That is why the £20 billion fiscal stimulus is important. It is why the agreement that was reached by European Heads of State for a European-wide fiscal stimulus is another key measure that needs to be introduced.

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As hon. Members will be aware, with three quarters of the cars that we manufacture being exported, it is vital that European countries and the US, which are key markets for us, look to provide a fiscal stimulus and take measures to boost the confidence of their consumers, so that those consumers can continue to buy cars in the future. I think that the Conservative party needs a lesson in economics and how aggregate monetary demand works, if its members say that the fiscal stimulus is not an appropriate policy issue; it very much is. As my hon. Friend the Member for Houghton and Washington, East clearly pointed out, the effect of that stimulus on a car can amount to several hundred pounds and can be a significant additional incentive. Of course, as the hon. Member for Bromsgrove (Miss Kirkbride), who has flitted off again, mentioned, discounts that are being made available at the moment by the car manufacturers mean that there are some very good deals for those people who want to buy cars.

Several hon. Members rose

Ian Pearson: I will give way to the hon. Member for Cotswold (Mr. Clifton-Brown) and that will be the last time I give way, because I want to reply to some of the points that were raised earlier.

Mr. Clifton-Brown: In order to get something positive out of this debate for all those businesses that are struggling on a day-to-day basis and all those people who are likely to lose their jobs, can the Minister give this House any idea this afternoon when some of that European money is likely to flow into the automotive businesses?

Ian Pearson: I will talk in a moment about some of the support mechanisms that are already available or are just about to become available.

The second point that I wanted to make is that this issue is not about just having a fiscal stimulus for the economy; it is also about ensuring that banks continue to lend. Right hon. and hon. Members will be aware of the pressure that the Government have been putting on banks to continue to make lending available, not just to small businesses but to larger businesses as well.

There have been several announcements in the last few weeks. For example, on 23 November NatWest RBS said that it will maintain existing overdraft pricing for small businesses, and it has also pledged to continue to provide committed overdrafts for business. There is an issue about some overdrafts not being committed overdrafts and consequently they could be withdrawn without notice. Lloyds TSB has also been taking action, with its charter for small business. Separately, HSBC is delivering a £1 billion business support fund. I believe that it is only as a result of the significant dialogue that there has been between the Government and the banking system that some of these measures have been announced. I am sure that the whole House will welcome those measures, and we need to continue to ensure that we keep banks in the spotlight, so that they continue to lend at appropriate rates to businesses.

The third area that I want to address is the Government support mechanisms that are available. Hon. Members mentioned Government procurement. We need to look
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around the Government more widely to see whether there is more that we can do to provide assistance at this point in time.

Packages of measures are available or becoming available, such as the small business finance scheme that was announced in the pre-Budget report. There is £1 billion in extra support to companies. We hope that the scheme will be up and running early in the new year. Similarly, we hope that the export credit insurance to small companies will also be available early in the new year. Obviously, there are legal requirements that must be met to get these schemes up and running in a proper way, but we are doing everything that we can to move as quickly as possible to ensure that that funding also becomes available.

In addition to taking measures on export credit insurance, we are actively working as a Government to see whether there is something sensible that we can do on domestic credit insurance.

A decision has been taken by the European Investment Bank today that £1 billion of new lending will be available immediately to the banks through the European Investment Board, confirming an announcement in the pre-Budget report. Again, the House will welcome that decision. As a Government, we have been pressing very strongly to double the amount of money coming from the European Investment bank for green cars in the next few years. There will be an €8 billion fund and I believe that it will be very important to our industry, to help it with the R and D that it is doing to take carbon out of its new product ranges. We will continue to apply pressure in that area. We are taking other measures to support R and D expenditure through the Technology Strategy Board, and I am sure that those measures will continue to bear fruit.

We continue to have a dialogue with the large automotive manufacturers that came to see Lord Mandelson and myself very recently.

As has been said, we have seen the collapse of big household names such as Woolworths and MFI. Clearly we cannot rule out other companies being at risk, and that is one reason why we need to continue to have a dialogue. However, I want to stress that any Government support that would be provided needs to be regarded as exceptional. These are exceptional times and we are having to contemplate doing exceptional things. Loans from Government should always be seen as very much a last resort. In the first instance, we should be looking to companies and their parent companies to provide the funds that are required for the future. We should also look to companies to restructure. However, in certain instances, we will possibly need to go further. That is why we continue to have dialogue, as appropriate, with companies during these difficult times.

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