Memorandum submitted by the Department
for Business, Innovation & Skills
1. Overview
At the oral evidence session on 10 June 2009
I undertook to provide the Business and Enterprise Select Committee
with a supplementary memorandum to provide further information
to the Committee to inform their inquiry into the Automotive Assistance
Programme.
This supplementary memorandum covers: government
support available to the automotive industry; the AAP internal
scrutiny panel; relative unemployment rates in the UK and Germany,
and short time working.
2. Support for the Automotive Industry
The Government provides support for the automotive
industry in three ways: directly, indirectly and through other
support mechanisms which are not specific to the industry. Consequently,
it would not be possible to give an exact figure for the total
support which is available to the industry. The following is a
snapshot of these three channels of funding and is not intended
to be applied as an exhaustive list, but does provide an overview
picture of the wide range of Government support open to the industry.
The direct support schemes are AAP, scrappage
and development towards lower carbon vehicles. The AAP aims to
unlock a total bank and EIB support package of up to £2.3
billion. Scrappage amounts to a fund of £300 million made
available up to March 2010. The funding for the development of
low carbon vehicles consists of a number of short and longer term
initiatives, from £250 million for the future promotion of
ultra-low carbon vehicles purchases and related infrastructure
to the £7.7 million funding taken forward by the Centre of
Excellence for Low Carbon and Fuel Cells (Cenex); the £20
million public procurement programme (led by the Department for
Transport), and the Premium Automotive R&D programme worth
over £45 million.
Indirectly, the Government supports the industry
through resourcing regulatory policy frameworks such as the BIS-led
Vehicle Industry Policy and European Regulation (VIPER) group
and the Competitive Automotive Regulatory System for the 21st
Century (CARS21) High Level Group which negotiates on behalf of
the industry on the European platform. There is also the New Automotive
Innovation and Growth Team (NAIGT) where the Government has been
working with the industry on key strategic issues for the future.
There is a wide range of additional Government
support which the industry, particularly the supply chain, can
tap into, from "Train to Gain", to the wider portfolio
of grants available to Small and Medium Enterprises (SMEs) to
help for the individual.
A sample of the schemes available to SMEs are:
the Enterprise Finance Guarantee Scheme (EFGS); Working Capital
Scheme (WCS), and Capital for Enterprise Fund (CfEF). The EFGS
secures up to £1.3bn of additional bank loans to small firms
with a turnover of up to £25 million. The WCS secures up
to £20 billion of short term bank lending to companies with
a turnover of up to £500 million. The CfEF provides £75
million of equity, made up of £50 million of Government funds.
There is also the Government's funding of the
Regional Development Agencies (RDAs) and Business Link. The former
runs the Grant for Business Investment (GBI) discretionary scheme
that can provide a capital grant to businesses to support sustainable
investment in England, which has to date awarded over £165
million.
Additionally, there is a separate £1 billion
Government guarantee facility has been set up to support bank
lending to small exporters from the Export Credit Guarantee Department,
as well as the increase of the amount of lending available via
the Small Firms Loan Guarantee Scheme by £60 million, to
£360 million in financial year 2008/09.
For the individual, the Government provides
support through a suite of welfare to work policies aimed at getting
those without work back into employment as quickly as possible.
For the issue of redundancies, there is the Rapid Response Service
which is offered to every employer with 20 or more redundancies,
or in local communities, who have been disproportionately affected
by multiple smaller scale redundancies.
The automotive industry is also supported by
the wider financial incentives such as the cut in the VAT rate
by 2.5% and reduced vehicle excise duty.
3. AAP's Scrutiny Panel
The AAP Scrutiny Panel comprises of HMG officials
across 7 directorates of BIS, and officials from Her Majesty's
Treasury (HMT). In addition to this it is intended to have an
external member formerly with the Industry Development Advisory
Board (IDAB) to act in a non-executive role.
The Panel is intended to meet regularly dependent
on caseload and can consider multiple cases. However, it is intended
the first few AAP cases will be taken through the full IDAB process
in order to test our approach rigorously.
4. Unemployment Rates in the UK and Germany
Based on Eurostat's[6]
figures, in the UK since 2000 the unemployment rate has been around
5% while Germany saw unemployment increase from 7.5% in the early
part of the decade to 10.7% in the third-quarter of 2005. More
recently, the unemployment rate has started to increase in the
UK but decrease in Germany. In March 2009, the (seasonally adjusted)
rate was 7.1% in the UK and 7.6% in Germany.
For the UK unemployment increases have been
larger than falls in employment, due in part to population growth,
but mostly due to the increase in the size of the UK's labour
market caused by people joining the labour force from previous
economic inactivity.
5. Port Rates
Policy responsibility for this issue lies with
the Department for Communities and Local Government.
In the Society for Manufacturing and Motor Trade's
(SMMT) written evidence to the Committee, they have asked the
Government to defer the collection of business rates to the 2010
Revaluation. As background, the Committee should note that the
Chancellor announced at the pre Budget Report 2008 that the Government
will legislate to give businesses more time to pay in certain
circumstances. Legislation has been laid before Parliament so
that businesses facing such bills in those circumstances will
not be required to pay their backdated liability within the financial
year at present, and will be able to do so in equal interest-free
instalments over 8 years.
Although a recent review of ports and the subsequent
separate assessment of a number of new properties within ports
highlighted the issue of the impact of backdated liability, the
legislative changes implemented will apply to all ratepayers occupying
properties that meet the criteria, including those in ports who
meet the criteria, to benefit from a schedule of payments for
backdated liability.
Port occupiers have told us that, where the
designated port operator was regarded as liable to pay the business
rates, the contractual arrangements between the port operator
and port occupiers typically contained explicit or implicit fee
elements to cover the business rates incurred by the port operator.
The Government understands that, under the current
economic climate, it could be harder for businesses faced with
significant unexpected backdated bills of more than 33 months
from 1 April 2005 to discharge their liabilities.
The Communities Secretary still has the power
to prescribe rules for ascertaining rateable values, and in theory,
he could use those powers to prescribe rateable values for the
individual businesses at ports. However, it is very difficult
to see how exercising such powers would assist businesses at ports.
This is because the businesses within ports would still be rated
separately from the port as they should be, and they would still
be faced with three years' backdated liability payable immediately
on top of the liability for this year.
The power to prescribe rateable value is not
itself retrospective. So we cannot prescribe a value for a day
before the order prescribing the value was made, and in order
to deliver some benefit to the businesses, we would need to prescribe
a value which generated results below the market rental value.
However, there are no other properties valued
other than on the basis of market rent and there is no clear rationale
for special treatment. In particular, there is no basis on which
a low rateable value could be established. If the valuation methodology
was challenged by any other ratepayer whose property is valued
conventionally, it would be difficult to defend in rationality
and reasonableness terms.
Most importantly, the Government cannot directly
intervene between the ports and the occupying businesses as the
liability for paying rates or not through tenancy agreements would
be a private contractual agreement between the ports and the occupying
businesses.
6. Social Charges which support Short Time Working
in other Countries
The Government cannot comment on the social
charges which support short time working in other countries. We
believe that each country must make policies which best suit their
own economic, social security and employment frameworks. Moreover,
the Government could not introduce exactly the same programmes
as in other countries because existing systems are different.
The British system of tax credits already provides
an automatic increase in incomes to families when wage income
is reduced as a result of a reduced working week, and the Government
believe that our system of tax credits and help with credit is
the best way to help businesses and workers.
Where short time working is necessary then the
best use of non working time would be to re-train and up-skill
those involved. With the benefits of devolution, each home nation
within the UK is able to determine the training policy which best
suit their needs. For example, in England the `Train to Gain'
budget has been injected with up to £100 million to assist
the automotive industry. Whereas in Wales, the "ProAct"
scheme provides up to £2,000 per person for training and
a further £2,000 for a wage subsidy whilst this training
is being undertaken.
I hope this information is of assistance to
the Committee in completing its inquiry and I look forward to
receiving a copy of the final report.
30 June 2009
6 Eurostat is the Statistical Office of the European
Communities. Its task is to provide the European Union with statistics
at European level that enable comparisons between countries and
regions. Back
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