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27 Jan 2009 : Column 165

Automotive Industry

3.32 pm

The Parliamentary Under-Secretary of State for Business, Enterprise and Regulatory Reform (Ian Pearson): With permission, Mr. Speaker, I shall repeat a statement made by my noble Friend the Secretary of State for Business, Enterprise and Regulatory Reform. I begin by extending a warm welcome to the right hon. and learned Member for Rushcliffe (Mr. Clarke), who has returned to the Opposition Front Bench.

I want to make a statement on the Government’s plans to help the British automotive industry to weather the downturn in the global economy. The automotive industry—with its nearly 1 million employees, from manufacturing to retailing, and its £10 billion in added value to the economy—is in the front line of the downturn, with its output falling faster and further than any other sector’s since the summer.

We need to counter that 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. The industry and its supply chain will benefit from the measures that the Government have already taken to boost the economy. Those include the VAT cut, which saves consumers hundreds of pounds when buying a vehicle, and Government guarantees that secure £21 billion in new and existing credit lines and lending for businesses, many of them in the automotive industry supply chain. However, I recognise that we need to do more. Today’s measures will give a specific boost to the industry, providing real help and laying the foundations of its reinvention for a low-carbon future.

The industry is not a lame duck, and this is no bail-out. The industry has been transformed over the past decade. Productivity has risen, catching up and overtaking that of both France and Sweden. In Britain today, 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 that we are taking today will help companies to speed their way to becoming greener, more innovative and more productive. This is the route to securing jobs for the long term as we build a more balanced economy for Britain’s future.

The world’s car industry is at a turning point. In Britain, we need to be at the leading edge of the development of low-carbon vehicles and green manufacturing. This offers a major business opportunity for us. However, this greening of industry needs investment in plant, research and development. Today I can announce that to back that investment, we will provide loan guarantees to Britain’s automotive manufacturers and large suppliers. First, we will offer guarantees to unlock loans of up to £1.3 billion from the European Investment Bank. Secondly, we will offer guarantees to support up to a further £1 billion of lending, or loans where appropriate, to cover worthwhile investments that are not eligible for EIB support or that will bring special value to Britain. Applications will be assessed by us on a case-by-case basis. There is no blank cheque on offer; there are no operating subsidies. We are committed to ensuring that anything backed by the scheme offers value for taxpayers’ money, enables us to green Britain’s economic recovery,
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delivers significant innovation in processes or technologies for the long term, and supports jobs and skills in Britain.

To support these aims, the Government will build on their programmes that are currently supporting the automotive industry. To further strengthen the sector’s skills, we are increasing funding for the training of all employees. We have developed a package to tailor the Government’s Train to Gain programme to meet the automotive industry’s specific needs. If there is the demand from the industry, my right hon. Friend the Secretary of State for Innovation, Universities and Skills will boost the funding to support new training to £100 million from its present £65 million. This offers real help to people, including workers in small and medium-sized enterprises in the automotive supply chain. The £50 million economic challenge investment fund that is being announced separately today by the Higher Education Funding Council also creates new opportunities for automotive employers looking to tap into academic expertise in improving business performance.

Earlier this month, my right hon. Friend the Transport Secretary announced the provision of £250 million to support consumers switching to ultra-low-carbon cars, but we want the car industry in Britain to meet that demand for low-carbon cars. So alongside our loan guarantees for the greening of the industry, the next element of today’s announcement is that I am inviting the regional development agencies to work with the Technology Strategy Board to bring forward a further step change— [ Interruptio n ]—in our programmes for research and development into cleaner engines, lighter cars, plug-in hybrids and components for electric vehicles. [ Interruption. ]

Mr. Speaker: Order. Hon. Members must listen to the Minister. He is putting a statement before the House, which is something that Back Benchers often call for—so please listen.

Ian Pearson: Thank you, Mr. Speaker.

This investment will build on the £110 million of support for research and development that was announced last September.

We are looking at steps to improve car company financing arms’ access to additional funding. The finance arms play an important role in providing the credit that keeps the industry functioning. The Secretary of State has asked the new Trade and Investment Minister, Mervyn Davies, to draw up a plan for improving their access to finance—a task to which he will bring considerable experience and expertise.

Taken together, today’s announcements will provide our leading automotive companies, their workers and suppliers with a significant boost. It will also ensure that the downturn does not derail the investment in innovation and change that is needed to make Britain a world leader in the development and manufacture of low-carbon vehicles. This is both an economic objective and an environmental imperative.

The automotive industry knows that it must change to succeed in this new world. It has to be cleaner and greener. The Government know that this is an important national objective—a key to building a competitive and balanced economy. Within the resources agreed in the
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pre-Budget report and the provision made then for such contingencies, we are determined to counter the credit crunch, counter the recession, create a level playing field for the industry and build Britain’s low-carbon industrial future. As a Government, we will take whatever action it is possible and appropriate for us to take. I commend this statement to the House.

Mr. Kenneth Clarke (Rushcliffe) (Con): May I begin by thanking the Minister for welcoming me to my new position? I think I have debated matters upstairs in Committee with him twice in the past six months, so I am used to his courtesy and competence, and I look forward to our exchanges.

I am grateful to the Minister for his courtesy in repeating to this House the statement made a few moments ago by the Secretary of State in the upper House. I actually think it is a constitutional outrage that it is being done in that way, and that it is a very poor way of accounting to the House of Commons, but at least we have been given the details of the package, such as it is.

May I say that I am slightly disappointed? I thought that the Secretary of State, whom I am shadowing, would produce some new ideas and some dynamite. He has been trailing a massive programme of support for the automotive industry, but unfortunately the Minister has had the task of producing pretty small beer. Is it not the case that the Secretary of State is not producing a bail-out because the Treasury has finally won an argument inside the Government and explained to him that it cannot afford the kind of support for the industry that, it seemed to me, his Department was trailing over the weekend?

Does the Minister realise that this package is part of the Government being behind the curve and too late, and not responding to events that are deteriorating by the week before they produce any package at all? Does he recall that back on 16 October, he stated that the Government “stands ready to assist” the car industry? By November, we were advocating a loan guarantee scheme for the finance arms of car companies. [Interruption.] So was the hon. Member for Ellesmere Port and Neston (Andrew Miller).

The key problem was obviously that demand had fallen off a cliff, no one was buying a car, and the people who wanted a car and could afford the hire purchase could not get the credit arrangements to buy it. It is part of the credit crisis, the credit crunch, in this country that should be the main object of our intentions at the moment. The Secretary of State said that the Government were already working on that, but here we are months later, and during that time sales of cars in this country have dropped by half while the Government dithered. And what do they produce on this key subject of how to help those consumers who can afford it to get credit, so that they can buy a car? We are delighted to discover that the Government say, “We are looking at steps to improve car company financing arms’ access to additional funding.” The new Trade and Investment Minister, Mervyn Davies, is to set up a task force to consider that. Will the Minister ask the new Minister to do something to improve the Government’s competence, their ability to keep up with events and their ability to produce
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programmes that work? May I advise the new Minister not to involve the Prime Minister in any preparations? We have all lost faith in his competence in the delivery of anything.

To the rest of the statement I think the car industry will have listened in vain. The Minister made a great deal, in his few sentences, of the money from the European Investment Bank, which I think was first announced back in September last year, and which is already being expended by other European countries.

The other matter in the statement is the loan guarantees for green technology and so on. Again, they are well intentioned, but the Government are not giving details. We will have to explore whether they produce detailed answers on how they are going to allocate them. They say that they will have to be satisfied and mention all the provisos that are in place, but again, experience shows that these packages are usually not in place for weeks and weeks after the Government have announced them. They are well intentioned, but they are not well financed—they are loan guarantees. At the end of the statement, somebody has insisted on including “this is all within the resources announced in the pre-Budget report.” The Treasury—or somebody—has noticed what we have been saying: that the wave of panic-stricken announcements has pledged the taxpayers’ credit for tens of billions of pounds. Someone has said to the Department for Business, Enterprise and Regulatory Reform, “We can’t afford anything but modest loan guarantees, with all these provisos about how to give them out.”

This is a vital industry, of particular importance to the industrial midlands, but important throughout the country. I suspect that one of the problems with the loan guarantee scheme is that, in the past 12 years of the Government’s activities, there has been such a decline in our manufacturing base that 80 per cent. of any sales money now goes to cars that are made abroad and imported. In the past 12 years, our trade deficit in motors has more than doubled, so packages for the car industry are relevant.

I understand that a car summit will take place tomorrow. Given that a Commons Minister must be there, perhaps this Minister may even be allowed be attend. I urge him, when he gets there and faces Tata and other multinational giants, which have strong balance sheets, to ask them what they will bring to the party and to try to clarify what on earth the Government can do that is targeted properly at the automotive industry now. As he rightly says, the industry is suffering worse than almost any other at a time of catastrophic decline, which the Government are plainly unable to answer or measure up to with proposals and schemes.

Ian Pearson: I think I am going to enjoy debating with the right hon. and learned Gentleman downstairs as much as I enjoyed debating with him upstairs. Once we get beyond his synthetic anger about our having a Secretary of State in the House of Lords—the right hon. and learned Gentleman was in the Cabinet when Secretaries of State sat in the House of Lords—perhaps we can make some progress.

I also hope that we can make progress on debating the real issues. I do not want to play party political point-scoring games about who first thought of a working capital guarantee scheme to help with company credit. It has been known for a long time that that was a problem for the industry.

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The right hon. and learned Gentleman quoted me, but he should also quote the pre-Budget report, and the announcements about setting up the working capital scheme and the enterprise finance guarantee. Both measures give significant support to industry as a whole, not only the automotive industry, and respond to some of the key issues that companies have presented to us, day in, day out. They want access to credit. The enterprise finance guarantee provides loans now for small companies with a turnover of under £25 million. They can go to their local banks and discuss the position with them. From 1 March, we hope that the working capital scheme will be available, too, providing credit that is needed for new and existing credit lines.

Perhaps the right hon. and learned Gentleman misread the statement, but we said that we had tasked Mervyn Davies to work to find a solution; we did not say that we had set up a taskforce. [Interruption.] The right hon. and learned Gentleman asks me from a sedentary position whether I can explain the distinction. There is a great difference between asking somebody to do something and setting up a taskforce. We have asked Mervyn to do the job. If the right hon. and learned Gentleman paid a bit more attention to detail when reading the statement, we would all be the better for it.

What we are announcing today is support that will guarantee the loans that the EIB is going to be issuing—very shortly, we hope—to some of our major car manufacturing companies. Under EIB rules, there has to be a guarantee for funding above £200 million, and we are saying today that we will make that guarantee available. We have also stated clearly that we are making available guarantees for up to £1 billion more in lending to companies with a turnover of above £25 million in the automotive supply chain. I believe that that will be widely welcomed by companies in the automotive sector.

We did not hear any constructive suggestions from the right hon. and learned Gentleman. I know that he is new to speaking from the Opposition Front Bench, but in addition to opposing what we say, he needs to come up with some of the characteristic policy interventions that I think have been the hallmark of his political life. We heard nothing positive from him today, however. We believe it right that there should be a fiscal stimulus, including a VAT cut. The package of measures that we are announcing today is possible only because we are putting a fiscal stimulus into the UK economy. I thought that the right hon. and learned Gentleman believed in that; now, I suppose that he does not.

I hope that he and I will be able to have constructive debates on these matters in the future; I am sure that there is the potential to do so. Meanwhile, I would have thought that he would wish, on reflection, to welcome the support that we are putting in place for the automotive industry.

Mr. Geoffrey Robinson (Coventry, North-West) (Lab): May I reassure my hon. Friend that there will be a warm welcome on this side of the House for his statement today, particularly from those Members who have interests in cars, vans and trucks in their constituencies? May I press him a little further, to ensure that there will also be a positive welcome from the industry for what he said about the £16 billion EIB funding that will be available over four years for the greening of the industry, as he put it? Am I right in saying that that Government guarantee will be made available to those companies
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that do not enjoy a single-A rating—I think that that applies to the whole of the British motor and truck industry at the moment—and that we will be able to go further than the £200 million, access to which would otherwise be restricted, with a full Government guarantee? That could be a major influence in getting the funding that we need.

Ian Pearson: My hon. Friend is a long-standing expert on these matters, and he is absolutely right. Under the EIB’s rules, loan applications in excess of £200 million have to be guaranteed if companies do not have the requisite credit rating. A number of companies in our automotive industry fall into that category at the moment, but they need this guarantee, and our proposals will help to unlock up to £1.3 billion of funding from the EIB. That will be welcomed by the industry. The Government have pushed for green research and development to be supported further through the EIB, and we continue to do so. Again, we believe it right to take positive action, and to have an active industrial policy to support our companies through difficult times. That is what we are doing today.

John Thurso (Caithness, Sutherland and Easter Ross) (LD): I thank the Minister for his usual courtesy in supplying an advance copy of the statement. I also welcome the right hon. and learned Member for Rushcliffe (Mr. Clarke) to his duties. I rather suspect that I shall enjoy his interventions a little more than the Minister will.

It is worth repeating that at the heart of this recession is the financial crisis, and that restoring confidence in the financial system remains the single most important task if there is to be any improvement in the economy. Does the Minister accept that, given the trends in the economy and unemployment, it is clear that there will be a significant and serious increase in unemployment in the year ahead? In that situation, the Government cannot undertake a series of piecemeal bail-outs. They can, and should, adopt a strategic approach based on clear principles, to ensure that we can take advantage of the recovery when it comes. A fundamental principle within that approach must be long-term value for the taxpayer. Provided it is based on considered strategy and informed by clear principles, it is sensible to look at strategic industries, such as the automotive industry, which includes both cars and commercial vehicles, and to assess how best to preserve their core competence for the future.

The Minister is right to highlight the potential of green technology and the part that the automotive industry can play in it. Indeed, we have an opportunity for a real step change towards achieving those goals, but how will the measures announced in the statement deliver them? The core of the package is the European Investment Bank loans and non-EIB loan guarantees, much of which have been announced already. What is effectively new and what have been the barriers to using what has already been announced? On the detail, how will these proposals be administered, who will undertake the due diligence, what will be the estimate of costs to the industry and the taxpayer, and how will this help the component supply chain?

This statement provides a number of worthy crumbs of comfort for the automotive industry, but as it has been announced today, it is neither strategic, nor comprehensive, nor the panacea it was trailed to be. I thus have grave concerns about whether it will work.

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