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Lord Dykes: My Lords, while accepting that the Minister has to be—and, indeed, is—even-handed between the combatants in this matter, does he not accept the reality that Israel is the established state?. The Palestinians are still seeking their independence and their state, which President Bush originally promised in 2005. Does the Minister therefore agree that the British Government have a duty to warn Israel about the stage it has reached with this monumental mistake

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of the invasion in Gaza? This is the equivalent of Israel’s Sharpeville. Gaza will now be remembered throughout Arabia as Israel’s Sharpeville. The whole tone has now changed towards Israel in that whole area. This is tragic as it is unfair on the millions of moderate, decent Israelis who want a settlement and a two-state solution. Will the British Government remind the Israeli Ministers—some of them inept and incompetent to a degree which understandably caused the fury and rage of Gerald Kaufman in another place in Thursday’s debate, despite the histrionic language—that they have a solemn duty to resume these negotiations with the Palestinians as quickly as possible, whatever the structure may be, to ensure that Hamas is included? It is absurd, is it not, to exclude Hamas from these processes to create that state as quickly as possible?

The negotiations with President Abbas were going on far too long with no results at all, and no one lifted a finger in the EU part of the quartet or in Britain to protest to the Israeli Government about the lack of response on their part. Does the Minister agree that this must now surely be done as quickly as possible? That means accepting the suggestion made by the noble Lord, Lord Steinberg—we are both friends of Israel, but we have somewhat different views on the way to achieve outcomes—insisting that Israel immediately opens all the crossings on the Israeli side into Gaza.

Lord Malloch-Brown: My Lords, I absolutely share the noble Lord’s impatience. The process had taken much too long, it was much too dilatory, and it was not getting anywhere. There could be no better lesson to all of us—Israelis, Palestinians and all of us in the international community—that this neglect of international negotiations does not lead to a static situation; it leads to one of potentially enormous, overwhelming tragedy and violence. That is what has happened.

As I said to the noble Baroness, Lady Northover, in a previous reply, there absolutely must be the will and urgency for a solution now, before somehow the sense of concern dissolves and it is back to business as usual. We must find a solution. Israel carries very special responsibility to find a solution after the events of recent weeks; but so does the Palestinian leadership. It is time now to build the peace that has eluded us for so long.

Arrangement of Business


Lord Brett: My Lords, I understand that the noble Earl, Lord Attlee, no longer intends to speak in the next debate.

Economy: Automotive Industry

Question for Short Debate

7.52 pm

Tabled By Lord Harrison

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Lord Harrison: My Lords, the automotive industry is suffering acutely from the global downturn. Its precipitous decline in the past six months is charted in an excellent Commons research paper that was published at the end of last week. But bad news comes not as single spies but in battalions: Honda has just announced that it is standing down workers until the summer, illustrating the quickening pace of the decline. So tonight it is right that we debate why and how the Government might help this key industry. I start by asking my noble friend what today’s timely announcement on banking means for the car industry, especially the £50 billion set aside for businesses?

Let us remind ourselves that this is an inherently successful industry on whose coat tails other suppliers, dealers, R&D professionals and entrepreneurs thrive. It is an industry that is totemic of the best of British manufacturing. Those gainsayers who characterise the modern British automotive industry as being as unreformed as the lumbering American car industry, or as a head case left over from the 1970s, are simply wrong. Some 73 per cent of cars and vehicles made in Britain are sold abroad as exports, principally into Europe. They are so sold because they are first-rate products, competitively priced and supplying a real market, either as volume producers—where Nissan in Sunderland has been Europe’s most productive plant—or as producers of executive or specialist vehicles. The recent history of Bentley at Crewe is one such unparalleled success. To fail to help an industry that is currently suffering a lack of customers, short on ready finance, would be to punish a reformed and thriving industry that is well placed to resume successful sales once the credit crunch is crushed.

Professor Garel Rhys of the Cardiff Business School believes that the downturn will last until 2011. Does my noble friend accept this and agree that it would be madness to dissolve the industry’s core of skills, knowledge and expertise, hobbling its resumption of successful sales when the downturn ends? Given that the market lacks customers, not products, does my noble friend agree that we need to stimulate the supply side rather than the demand side? Customers are there, but they lack access to reasonably-priced finance. In talking to the banks over the weekend, was the automotive industry specifically mentioned? What was decided about loan guarantee schemes and how they might be applied here? Given the banks’ reluctance to lend, but their apparent readiness to lend 8 per cent disbursals outside the UK, have the Government considered guaranteeing banks making loans direct to plants themselves, or indeed should the Government make direct loans themselves to the plants? Will my noble friend confirm that there has been a genuine difference of opinion on this issue between BERR and the Treasury on how to help?

I am not advocating throwing good money after bad, but this dynamic industry needs help during the temporary drought of customers. Interestingly, venture capitalist Jon Moulton also believes that financial aid may be the wisest course, recognising the cost and misery of abandoning broken communities at the heart of industrial Britain. Of course, the Government must adopt a case-by-case approach for assessing claims on the public purse. Those cash-rich companies, such

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as Tata on Merseyside and Honda in Swindon, should shoulder the burden of interim funding themselves, and do so for their own very good and sound commercial reasons. Does my noble friend agree?

The Government have already been active in dealing with the downturn, but the temporary reduction in VAT to 15 per cent is perhaps of marginal worth in respect of the domestic car market. After all, 86 per cent of automobiles sold on the domestic market in Britain are imported, and the net saving of 2.13 per cent on VAT—not 2.5 per cent—is not a compelling incentive; indeed the fact that Citro√"n dealers offer to pay the total VAT on sales to customers suggests just that. The VAT cut will, of course, help domestic sales of the 27 per cent of cars made here in the UK and, in turn, this will give some succour to hard-pressed car dealers.

Europe is the principal market for Britain’s automotive exports and imports. Can my noble friend report on the meeting in Brussels last Friday, which was convened by Commissioner Verheugen to co-ordinate a rational approach to shared problems? My noble friend Lord Mandelson has warned member states to avoid self-defeating protectionism. Nevertheless, France, Spain, Sweden and Germany have already devised national plans. Are HMG fully engaged in swapping innovative ideas with our partners? For instance, Germany’s short-term Kurzarbeit initiative, where wages are being paid by the Government for up to 18 months to ensure that key workers remain in place ready for the upturn, is worthy of examination. Are we actively stealing such good ideas?

Does the UK support the European Investment Bank’s proposed £40 billion facility available to the automotive industry? As I understand it, member states are permitted to give help to their domestic plants to facilitate government guarantees to maintain their liquidity and investment. However, the Finance and Leasing Association believes that such finance is restricted only to promoting new energy-efficient schemes. What is the truth? Are we fully on board? The EIB also proposes supporting skills updating, R&D and so on. Are we sympathetic to those?

In the longer-term, what is Her Majesty’s Government’s view of membership of the single currency? How much better off we would now be inside the single currency, rather than exposing ourselves to the violent swings in exchange rates that so impair rational business planning for the automotive industry. Nor can we remain deaf to the criticism of bosses of our Japanese-owned plants, who are frustrated that Britain’s absence from the eurozone weakens their access to the single European market.

Half the jobs in the automotive industry are found in components firms. They, too, need tailored help. Does my noble friend acknowledge that many of them are small firms lacking the in-house personnel to tap into the current raft of excellent government schemes aimed at honing core skills, encouraging R&D and promoting innovation, as well as repositioning the industry to face the challenges of producing low-carbon emission cars and the environmentally friendly vehicles of the future? Will my noble friend say how Government might improve knowledge and confidence for these

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smaller firms to take up these schemes? Selective assistance and finance for Investment in England initiatives are complemented by many others, but do those firms for which those schemes are designed know of their existence? Can my noble friend report on the Automotive Innovation and Growth Team, the useful supply-chain group—will its life be extended?—and on the Foresight Vehicle group and the National Skills Academy for Manufacturing? These should be nurtured during the downturn.

The influential SMMT called for government action, including special liquidity arrangements for manufacturers’ finance companies to access money through banks, scrapping plans for increased vehicle excise duty and a new first-year rate, increased capital allowances for fleet buyers, and the temporary shelving of plans to reform business car capital allowances. Are HMG sympathetic?

Finally, the FLA is a body representing motor, asset and consumer finance providers working through independent non-bank lenders and subsidiaries of manufacturing companies. Am I right in believing that these companies do not have access to the Government’s finance schemes announced last October? Will HMG extend the eligibility criteria of the Bank of England’s special liquidity scheme and the Debt Management Office’s credit guarantee scheme to such lenders?

In proposing this debate, I had hoped to touch on many important issues for the future, but tonight we must concentrate on the matters of the moment. We must address the problems and consequent opportunities of the moment; namely, the survival of a successful industry bringing pride and jobs to Britain. If we fail in our task, there will be no automotive industry to talk about, and we will all be the poorer.

8.02 pm

Lord James of Blackheath: My Lords, I congratulate the noble Lord, Lord Harrison, on obtaining this discussion on this important subject. I should first declare my interest, having spent my main career years with the Ford Motor Company.

According to the noble Lord, 86 per cent of all cars are foreign imports. I would not argue with that. On the day that I joined the Ford Motor Company, the figure was 2 per cent, and that was nearly all made up of top-end Mercedes. What went wrong in July 1964? The first Harold Wilson Government went wrong. They came in and decided that they had to cure the economy of what they perceived as a credit crisis—we should all be so lucky today—by imposing stringent controls on the purchase of cars. There was a maximum of 18 months to pay, with a 50 per cent deposit, and no one could sell a car for two years. Worse still, at the end of that two years, when the controls were taken off, there was no back-stock of vehicles that were ready and waiting to be bought. The only cars available were those coming from Japanese and Korean manufacturers which flooded the market. The British motor industry never recovered and was ruined from that day on. We owe it something now at this exceptional time to try to put it right.

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What could we do? One thing would fulfil a lot of what the noble Lord, Lord Harrison, was talking about, but would not actually require the extent of government subsidy and support he asked for. We could perhaps relieve a little of the Government’s burden by repealing the Consumer Credit Act 1974. If this were to be done, you would immediately open up the way again for the banking community to provide secured lending for motor cars, and that would effectively remove the need for much of the guarantees that the banks had received and give them an incentive to become more aggressive in lending for cars, as opposed to anything else in the community. It would provide the necessary financial fuel to kick-start the motor industry again. If it takes one or two years for the whole crisis to be resolved, such a measure would have a profound effect by the end of that period. We could probably tweak it a little bit with some additional government support. Firms such as Tata could go down the path of olden times, whereby they could provide their own forms of credit plans. That would give them another profit incentive. It would be a really big initiative that would cost us nothing and would have a huge effect.

8.05 pm

The Earl of Mar and Kellie: My Lords, the United Kingdom’s vehicle-building industry would like help from the United Kingdom Government, as do many other industries. That would cause already-constructed vehicles to be sold and credit to become available again to enable those sales to take place. Many people will have delayed purchasing during the commentator-enhanced start of the recession, and they will be anxious to require a replacement for their current vehicle, which they have held on to for rather longer than they had initially planned. Car manufacturers will need to slow down their rate of production—several have taken breaks in production—otherwise, there will be ever-increasing fields of unused cars, which it may be questionable to call new cars.

So far, I suspect that the Minister will go along with me and give limited assistance. My preference would be for any government support to be prioritised on cleaner and smaller cars. To be really tough, we should only accept group A and group B engines that emit up to 120 grams per kilometre. We should refuse to allow car engines to exceed 2 litres in capacity. Moderation may allow for the inclusion of group C cars, which emit up to 150 grams, to obtain a good ratio of petrol engines to diesel engines and avoid overuse of either fuel, and to achieve a balance for the refineries.

A crisis is a good time to change things—so says at least the crisis theory of social work, with which I lived for a long time. Britain and Germany should abandon their big-car, company-car culture. The Government can help by not assisting car builders that build larger cars. At the same time, work is required to improve batteries, to increase all-electric urban vehicles and hybrids, and to promote LPG vehicles, unless supplies of LPG and propane are being used up at an appropriate rate. The public can assist in this move to cleaner cars by being properly informed about the various rates of vehicle excise duty and, hence, fuel

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economy, all of which should be mandatorily and prominently advertised—not just for group A and group B vehicles with their zero and £35 vehicle excise duty rates. Ultimately, we must recognise that there are predictions that the internal combustion engine that we know and love may well go out of production by around 2036, although the fleet will of course be significant until about 2050.

The Government should assist this industry, which is good in parts and exports well, but not help too much, in fairness to other industries.

8.08 pm

Lord Rowe-Beddoe: My Lords, I join noble Lords in thanking the noble Lord, Lord Harrison, for bringing this important subject to our attention. I declare an interest as a former chairman of the Welsh Development Agency, when it and I were greatly involved in the strengthening of the automotive industry within Wales in particular and the UK in general.

At the outset, I remind your Lordships that the link between the UK automobile product and the UK consumer is relatively weak. As noble Lords have heard, 75 per cent of total UK production is exported, while 85 per cent of total automobile purchases are imported. Therefore, stimulation for the purchaser alone could well aid overseas-based companies more than those here.

I suggest that a more effective way to address the severe cash-flow and inventory problems confronting our manufacturers would be to provide loan guarantees to the individual corporations, rather than to provide guarantees to the banks. This course of action could be criticised for putting the Government or their agencies into a position of choosing winners, but so be it. I should prefer that to having the banks at this stage determine to whom they loan.

As we have heard, the motor industry in the UK is of significant importance to the economy. The Ford engine plants at Bridgend and Dagenham are recognised by their global management as exemplars of best practice, and they produce 25 per cent of Ford’s worldwide engine requirement—a major export. However, as your Lordships have heard, Nissan and Toyota in the UK are consistently numbers one and two in the European productivity league, as measured in output per worker, and not far behind them on the pan-European scene is UK-based Honda. BMW Mini is outstanding, and in productivity terms the Ellesmere plant is one of General Motors’ best performers, if not the best, in Europe. At the other end of the market, the ex-works value of the output of Bentley, Rolls-Royce and Aston Martin in 2007 was equivalent to some 250,000 Superminis. One can see here the impact of high value-added manufacturing.

More than 50 per cent of manufacturing employment is in automotive components and systems, largely of course in SMEs, where greater job losses have already been recorded than in the main assemblers. As an example, Honda has announced a four-month shutdown at Swindon but continues to pay its employees basic rates. SMEs cannot afford such luxury and have to make redundancies, as they do not have that financial muscle.

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Some of your Lordships heard Mr G√1/4nter Verheugen talk about a pan-European solution. There should be such a solution, otherwise we will be in danger of attracting unfair competition in the industry. Above all, we have to retain our skills. We have heard of the Kurzarbeit in Germany. I hear that France is already talking of €1.5 billion of support and the Germans of €800 million. All these measures are designed to retain skills, and that is the most important thing that we can do in the next 18 months to two years. We must retain the skills of this significant industry so that we are ready for the recovery, when it comes.

8.12 pm

Baroness Wall of New Barnet: My Lords, I, too, thank my noble friend Lord Harrison for presenting us with this timely and very important debate. I declare an interest in that I work with the Sector Skills Council, about which I shall speak.

The automotive sector in the UK makes a significant contribution to the economy. With an annual turnover of around £50 billion, the sector directly employs 158,000 employees on around 3,300 sites and supports more than 700,000 jobs in the supply chain. Within that chain, 82 per cent of businesses employ fewer than 50 people. Annually, 1.7 million cars and commercial vehicles are built in the UK, together with more than 3 million engines. The biggest global players all have manufacturing sites in the UK. These companies—the top-tier automotive supply chain companies—along with the Society of Motor Manufacturers and Traders and the trade unions, have come together under the umbrella of the Semta automotive sector strategy group to champion the development of skills and business improvement across the sector.

Government have already pledged, under the sector compact, £65 million of support for the companies within the Semta footprint in England. Forty-five automotive companies have already taken up this offer and the target of 200 companies is to be achieved in the first year. This funding is addressing the need for upskilling at levels 2 and 3 in particular, with first and second NVQs available, as well as leadership and management development, all-age apprenticeships and skills for life. The funding is clearly assisting companies to train and upskill in large numbers. For example, for Toyota, Honda and Jaguar/Land Rover, training in business improvement techniques is part of a drive to improve the bottom-line performance of those companies and, alongside that, to qualify their workforce. Furthermore, specific programmes are being developed by the National Skills Academy for Manufacturing so that the automotive sector can meet the current demand for the rapid deployment of world-class upskilling.

However, during these difficult times, wider and deeper support is needed for the vehicle manufacturers and their supply chains. The number one assistance that the sector requires to save jobs is access to affordable business finance. This would greatly assist sales with more attractive loan rates for the consumer, the stocking of showrooms and, for the OEMs, more investment in new technologies and R&D.

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In terms of incentives and assistance for the sector to keep people employed during the downturn, employers would like to see an urgent extension of sector compact and Train to Gain support in the following ways: management and leadership grants widened to cover all sizes of companies; 100 per cent funding for level 3 qualifications for all occupations; a broad range of level 4 qualifications to be supported, including, for example, design engineering skills where there is a shortage; wage subsidies also to be available to large companies to save jobs; and an extension of the SME “bite-size chunks” offer to large companies.

At my meeting last Friday with all the major motor manufacturers, it was clear that the focus that the Government have placed on the industry is much appreciated, but they are desperately anxious that this commitment is delivered “like tomorrow”. Semta and the SMMT have joined voices to ensure that all automotive employers know about and can easily access available support. Their next joint meeting will be on 28 January and more than 150 employers will be in attendance. This would be a great opportunity for the Government and their agencies to respond to the needs of the industry.

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