Examination of Witnesses (Questions 380-399)
IAN LUCAS
MP, MS JANE
WHEWELL, AND
MR IAN
GREGORY
10 JUNE 2009
Q380 Chairman: It was a test track?
It was legal?
Ian Lucas: I think it was legal.
I did not get arrested!
Q381 Chairman: I want to follow on
with this questioning in a way because here we have—and
the Automotive Assistance Programme specifically we will turn
to now—a scheme which has to be, to pass the Government's
test, additional; it has to make sure things happen which would
not otherwise have happened, which is quite a tough barrier. I
understand why, from the taxpayers' point of view, the Government
does that. There is a strong focus on Green technology, which
we all welcome, because fuel cell technology, whatever it is,
hybrid technology, lower consumption than conventional engines,
whatever it is, is the key component of a way forward for the
industry, so it is our products being successful internationally
in the future. But there are companies out there struggling to
survive. They have not got time to worry about low carbon, they
want to get stuff now into cars that will be made later this year
and next year, when the market hopefully turns up, and they are
going to the wall now. So my question is, how does that very honourable
strategic focus on Green technology and that very understandable
desire to protect the taxpayer marry up with the urgency of the
situation?
Ian Lucas: I think the cars which
are being sold now and in the near future, because of the EU and
the regulation that is going to be imposed, are going to be cars
which are far more Green than quite recently manufactured vehicles,
so I think the process of actually just getting individuals to
change their cars and by new cars now will be progress in itself.
What I want to see is that fact reflected in the scheme so that
in relation to the resistance to the scheme which may be there
because of people being very concerned about these conditions,
as you have described them, they understand that perhaps those
conditions are not as onerous as they might think they are, and
I think part of the job, as I read through in preparation for
today, is to communicate that fact and to make the scheme more
accessible.
Q382 Chairman: I promised I would
be carefully considered in my remarks to a new Minister, but I
just want to convey a sense of urgency now. My understanding is
that some of our competitor countries, France and Germany, for
example, have moved much more decisively to support the supply
chain by investing directly in the companies, much in the way
the Government here has invested in banks to underpin the financial
services sector with two or three year periods of selling back
those shares over a period of time to the company, equity stakes.
They have moved decisively to give the support they need to survive
and the accusation against the Government is that it has not moved
with similar decisiveness. It has done it for the financial services
sector, to its great credit, but it has not done it for the manufacturing
sector or specifically the automotive sector and our competitors
are doing it.
Ian Lucas: I will look at that
and look at the evidence and then make my judgment.
Q383 Chairman: How much money has
the Automotive Assistance Programme released in loan guarantees
so far? How many schemes have actually been approved? I think
I know the answer to the question.
Ian Lucas: I think it is a round
figure.
Mr Gregory: It is a round number;
it is none.
Q384 Chairman: It is none, yes. It
is absolutely nothing. I know these things take time. The Enterprise
Finance Guarantee Scheme we have taken evidence on as a Committee.
It took time to get going. I do not want to prejudge what we might
say in a report, but it is pretty clear to the Committee it is
now working as it was originally intended to. It took some time
to settle down. These things can take time, I accept that. What
slightly worries me is the evidence which your Department—not
you, the old Department, BERR, gave to this Committee a month
ago talked about 15 schemes progressing. That was a month ago.
I got a parliamentary answer yesterday from the Treasury which
said there were 15 approaches being taken forward. So in a month
we have no more schemes coming in and no schemes approved. It
is this urgency issue which worries me. What is actually happening?
Ian Lucas: We do have more—18?
Mr Gregory: That sounds like the
answer which the Treasury made not being entirely correct. It
should have been 18, which may not sound like a huge advance on
15, though some of the names have actually changed. Some have
come in and some have come out.
Q385 Chairman: Roger Berry comments
that the Treasury has never been very good at accounting! Sorry,
Roger! It was an apolitical comment; not this Treasury.
Mr Gregory: I cannot pretend to
be anything other than disappointed with the progress of those
schemes.
Q386 Chairman: I did get this answer
yesterday, that the Government's work with companies resulted
in around 15 approaches being taken forward. It would be good
to see just a little more. There are more than 15 now. I have
heard that what was intended, I thought, to be possibly one of
first payments not actually being made at all, that is the company
has dropped out and found the money elsewhere because it was so
frustrated by the amount of time it took to get an agreement from
Government. You may know the company I am talking about.
Ian Lucas: It is not a very old
scheme. When did it start?
Mr Gregory: State aid clearance
was the end of February and we launched it on 11 March.
Q387 Chairman: What we are hearing
is that banks—we heard Lembit Öpik pursue this earlier—are
not really wanting to lend to the automotive sector. We are hearing
evidence that a lot of the banks do not understand the way the
scheme is going to work. It is quite resonant actually with the
Enterprise Finance Guarantee scheme and we are hearing evidence
that the Government's own procedures are proving very slow and
bureaucratic, and the combination is that one particular company—and
we have got a long memorandum from them here, Birkby, which you
may be familiar with, have given up waiting for the loan guarantee
on your scheme and have actually arranged the finance needed direct
with Honda. They have to provide the plastic components for new
cars being made in Swindon this autumn. They could not wait any
longer and they are covered in the OEM with the OME -
Mr Gregory: Could I offer just
to comment on Birkby because there is a guy sitting behind me
somewhere in my team who actually spent a lot of the last three
months working with Birkby. Birkby were looking for a sum of money
which was below the £5 million threshold, but we did not
say, "Please go away, you're too small," we worked with
them and one of the things my team member did was to actually
talk to the banks they were dealing with to try and get progress.
We were very, very happy that they actually found an alternative
solution to the financial problem you have identified. We regarded
that as a success rather than a failure. It would have been nicer
if they had done it through my scheme, but the fact that they
found a solution in another way—I would not claim full credit
for that, but we were involved in the discussions with Birkby
and they did actually thank us at the JLR event we held in May
for the work we had done with them over the last two to three
months on that.
Q388 Chairman: In a funny kind of
way I sympathise with that argument because if the taxpayer is
not picking up the bill and Honda are paying for the investment,
then you could argue that is a good outcome, but it took an awfully
long time to get there with a lot of uncertainty for the company
in the process.
Mr Gregory: Can I make a few more
comments, because at 7 or 11 March there were at least three companies
who talked to me for the first time that day, all of whom we are
still in discussion with. At least two of those companies sent
us the very strong signal, "We will come back to you when
we are ready. We need to talk to our banks about our current financing
position. Please do not call them up and rock the boat,"
and they have been working through -
Q389 Chairman: They asked the Government
not to contact the banks?
Mr Gregory: We have been proceeding
in almost every case at the pace which has been dictated to us
by the company. The last thing I want to do is to cut across their
commercial relationships with other customers or with banks and
queer that pitch. Having said that, nobody is more frustrated
than I that we have not actually made any guarantees or loans
under the scheme. That is what I am here to do. That is my prime
objective and I really want to achieve it.
Q390 Mr Binley: I am amazed that
you were talking about March, April, with companies talking to
banks. I would have expected them to be talking about contingency
way back in June, July, August of last year. Are you really telling
me that they did not know what position they were in with the
banks by this March, April?
Mr Gregory: No, I was simply pointing
out that they had made representations to me not to go blundering
in and endangering existing banking relationships. They wanted
to come to us when they were ready and they made those signals
very clear at the seminar and I am perfectly happy to work at
the pace they wish us to go. The last thing I want to do is to
get in the way of a perfectly good commercial proposition and
make it more difficult for them.
Q391 Chairman: That is a very honourable
position, but what it suggests is that the scheme is doomed to
fail if the banks are not playing?
Mr Gregory: We have had direct
discussions with all the major clearing banks over the last three
months and one of the issues here, to the bank's credit, if I
can dare to say that, they came to that seminar on 11 March and
actually put their hand up to say, "Here we are," in
front of a sector which did not have a particularly positive view
of them and said, "We are available; to talk to you about
the investment propositions that we could support under AAP."
We have been working extremely hard both with companies who have
individual banking relationships and directly with the corporate
HQ of the clearing banks and in the regional offices of those
banks, because a bank might take the view at a corporate level
that it wishes to be helpful to the sector. It is very difficult
to translate that on the ground into a particular person in a
bank thinking about lending to company X for project Y. Where
we can, we will get involved in those relationships. We want to
be step by step with the bank as they are considering the proposition.
As the Minister has already said, if it proves that the bank is
simply unwilling to finance, we do have in extremis the
ability to make a direct loan and it seems to me in that case
the additionality argument is quite strong because clearly the
bank is unwilling in a particular proposition to loan.
Q392 Chairman: It is a very interesting
case and we could discuss it at some length, but look at Jaguar
Land Rover. Why no progress there? We know the huge importance
of that company to the UK plc and to Julie's and Adrian's regions.
Why no progress?
Ian Lucas: It is hugely important
and clearly it is of great concern to everyone who works there.
I understand that there are issues which are commercially confidential
relating to that individual company which are being discussed
at the moment, but you can rest assured that it has the highest
priority within the Department and that those are being addressed.
I do not know if Jane can add more?
Ms Whewell: We are working very
actively with the company and have done for some months with a
view to assisting both with short-term but also longer-term financial
security for the company and dialogue is taking place quite often
daily, so it is an ongoing work in progress and a lot of the work
has been done already.
Miss Kirkbride: I would have thought
it should be daily, frankly, because when they came before us
-
Chairman: Three weeks ago?
Q393 Miss Kirkbride: About that,
yes—they are always being very tactful because they need
your support, so they were careful in what they said, but it was
quite clear that they were seething with rage at the fact that
this thing was not being progressed as it should have been and
there was the implication that it was a problem of resourcing
in the Department which was not sufficiently robust to give them
the time and attention they needed to get this thing sorted out.
Ian Lucas: I am very keen to look
at the situation.
Ms Whewell: I can give you my
undertaking that I am not aware of any instance where lack of
resourcing has got in the way of support of Jaguar Land Rover.
I am not aware of any instance. We give it the top priority.
Q394 Chairman: It is not just resources,
it is also—I do not want to say the quality, it is the qualification
of the resource. You are being asked to take extremely difficult
decisions about an industry sector of great complexity and with
hugely difficult financial calls. I have seen the membership of
the advisory body now, it is available on the Internet. It is
a good group, clearly, but it is a very difficult call to make.
Are you sure—and perhaps I will ask the Minister—that
not only do you have good civil servants working with you, which
is fine, but civil servants who also can deal with these very
complex issues in the timescale needed to stop businesses failing?
Ian Lucas: These are hugely important
issues and clearly the highest quality of advice and expertise
is needed, and I will certainly take back the observation you
have made.
Q395 Chairman: It may be an unfair
observation, it may be merely a concern, but I would just like
the reassurance that you have the qualification as well as the
quality of people there to do it, and the quantity, three Qs.
Two specifics before I move on. You mentioned, Mr Gregory, the
gap between the Enterprise Finance Guarantee and the Automotive
Assistance Programme which caused Birkby difficulty. You are being
flexible in addressing that. We have heard this raised with us
frequently by the industry in this inquiry. This gap is a problem.
Are you now telling us that the pragmatic experience of Birkby
suggests that that gap can in practice be narrowed and the thresholds
have been brought down to close to the RFG levels?
Mr Gregory: Certainly we have
been very happy to talk to any company which has a project which
falls under the £5 million from the outset. There was a concern
that this might swamp the scheme with a lot of very small applications,
but we are entirely happy to discuss projects smaller than that,
and I know the Minister wants me to look at any flexibility on
that.
Ian Lucas: Absolutely. The message
going out today is, "Don't let that £5 million barrier
prevent you from approaching the scheme."
Q396 Chairman: So the minimum level
now becomes the level of the Enterprise Finance Guarantee scheme
presumably? There is no minimum level as such now, it is a pragmatic
exercise for the Department now?
Ian Lucas: Yes.
Q397 Chairman: That is a very interesting
piece of news and I am grateful for that. Thank you. Just finally,
is the issue of cost of these guarantees an issue as well? There
is a premium here being charged of an industry which is in dire
financial straits. Can you justify that?
Mr Gregory: We do have the ability
under the clearance we received from the European Commission for
state aid purposes to reduce the premium charged for the guarantee
for a period of two years by up to 15% below the commercial rate
we would normally charge. Below the state aid limits we cannot
go.
Q398 Mr Binley: Can I say right from
the outset, Minister, that you have been in situ for a very, very
short time indeed so please do not take the concerns I am going
to express in any sense personally, but we are twelve months into
this recession. I am still a non-executive company chairman. We
first went and talked to the bank last July about contingency,
what might be there for us should we need it and I am getting
the impression that that lack of understanding of urgency has
not really got through to the Department, and I hope you can do
something about it. Can I, secondly, say that I recognise the
banks have competing pressures. On the one hand we have had a
massive sector removed, foreign banking, from lending in this
country. Secondly, banks have to rebuild assets. Thirdly, the
Government itself has placed pressures on banks, some parts of
the banking sector, a large part of it, by demanding quite a high
return, which has been changed of late, I recognise, but nonetheless
a high return, all of which detracts from available credit in
the marketplace. The FLA itself has said there needs to be more
credit in the marketplace, more credit for the people who create
finance for the purchase of cars. They say there are people out
there who want to buy cars but they simply cannot get the finance
that easily, it is not available. They say they have been talking
to BERR about two schemes but their review of those discussions
has been that not very much has happened over a very long time.
That is the truth of the matter from their perspective, so tell
us what actions, if any, you have introduced to support the finance
activity of the industry. Let me specifically ask—and I
suppose, Ian, this is directed to your two colleagues—what
has happened to the Automotive Access to Finance scheme because
none of that has happened so far, so I understand?
Ms Whewell: This is a line of
work which is being led by a colleague but I have been quite closely
involved over the last few months. I think it would be fair to
say it is probably the most complex piece of work I have ever
been involved in. It involves extremely complicated financial
instruments. Progress has been made, but I agree it has been quite
slow. Where we are now is seeking to construct a financial instrument
which would give access to the liquidity they are seeking, but
we have been told very clearly by the industry that they must
have legal certainty, and that is a perfectly reasonable thing
to ask for but that will require us to go to the European Commission
for clearance of what we would propose to do so that they can
be satisfied it is not an unreasonable state aid, and they have
told us that that will take several months. We have emphasised
how urgent it is, but equally we will need their cooperation to
make progress, so we are working as fast as we can but the industry
itself has said, "We must have certainty," and the only
way we will get certainty is by getting the blessing of the European
Commission.
Mr Binley: Chairman, I look at the document
in front of us called "National Support Measures Across Europe
for the Auto Sector".
Q399 Chairman: I think provided by
the FLA?
Ms Whewell: Yes.
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