The creation of the Department for Business, Innovation and Skills and the Departmental Annual Report 2008-09 - Business, Innovation and Skills Committee Contents

3  The Automotive Assistance Programme

34. On 27 January 2009 the Secretary of State announced a £2.3 billion package of loan guarantees to Britain's automotive manufacturers and large suppliers, primarily to support investment in low carbon plant and research and development. The scheme is designed primarily to use government guarantees to unlock up to £1.3 billion of loans from the European Investment Bank (EIB) and a further £1 billion in loans from other lenders. In exceptional circumstances, government loans may be provided under the AAP.[46]

35. We considered the AAP in our Report on the Automotive Industry in the UK which was published in July 2009. At that time, no funds had been disbursed through the scheme and we concluded that:

    "we are profoundly disappointed that to date not one single penny has been advanced through the scheme. We hope that this will change rapidly".[47]

We also concluded that there was too great a gap between eligibility for the Enterprise Finance Guarantee Scheme and eligibility for the Automotive Assistance Programme and recommended that "the loan guarantee threshold for the Automotive Assistance Programme should be lowered urgently to £1 million".[48]

36. The threshold for the Programme has now been lowered to £1 million, in line with our recommendation. We welcome the fact that the Department has now lowered the limit of the Automotive Assistance Scheme from £5 million to £1 million, in line with the Committee's recommendation.

37. However, little progress has been made in releasing funds through this scheme. The Government has yet to provide a single loan guarantee, although Mr Fraser confirmed that an offer of a loan of £10 million had been made to Tata Motors European (TMETC) for the production of electric vehicles.[49] However, recent press reports indicate that Tata have since rejected that loan.[50] Another offer of a loan guarantee was made to Jaguar Land Rover (JLR) but the company had decided not to accept the Government's offer. [51]

38. In July we were told that the Government was in negotiations with 18 companies. This has now risen to 20:

    We have engaged with about 20 companies in negotiation on this scheme and there is a pipeline which could actually amount, if they were all to come off, to a total of projects guaranteed by the scheme of £2 billion. So there is no shortage of negotiation. Obviously we cannot fund all those, but they will not all come off, so although we have not got the money out of the door at the moment, there is activity around the scheme.[52]

39. When asked why the process was taking so long, Mr Fraser argued that the Department was not "dragging its heels", it was just that there were complicated issues to address before negotiations could be concluded:

    This is not just giving people money on a short-term basis. The conditions of the funding are linked to the future viability of companies and particularly related to their investments in low carbon-related technologies.[53]

Furthermore, he added that:

    These are long negotiations and of course we do not want to just put taxpayers' money behind any old sort of agreement or scheme. It has to be very carefully thought through but there is a lot of negotiation in the pipework with a number of different companies. [54]

Despite the lack of progress, Mr Fraser remained of the opinion that the Automotive Assistance Programme was not failing.[55]

40. While we are aware of the apparent success of the scrappage scheme, and while we appreciate the fact that negotiations to agree loans and loan guarantees with car companies can be complex and time-consuming, the absence of a single loan or loan guarantee from a scheme which was heralded as "a further £2.3 billion package of loan guarantees" is disappointing. The Government needs to expedite its negotiations, and prove to us and the automotive industry that the Automotive Assistance Programme can provide tangible benefits to the industry.

46  Business and Enterprise Committee, Ninth Report of Session 2008-09, The Automotive Industry in the UK, HC 550, Ev 64 Back

47   HC (2008-09) 550, para 31 Back

48   HC (2008-09) 550, para 20 Back

49   Q 80 Back

50  Back

51   Q 87 Back

52   Q 87 Back

53   Q 93 Back

54   Q 99 Back

55   Q 101 Back

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