Mandelson defends £2.5bn ‘green’ bail-out

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Too little, too late. The damning Tory verdict on the £2.5bn car industry bail-out was matched by union attacks and heavily qualified support from business, as the government package unveiled on Tuesday got a distinctly lukewarm reception.

Peter Mandelson will hope to secure a more enthusiastic response when he meets the motor industry on Wednesday. The business secretary can argue that he has fought the sector’s corner, persuading the Treasury to agree the UK’s first support package for a non-financial sector in this recession.

At the centre of the package are guarantees designed to unlock £2.3bn of bank lending to car manufacturers and suppliers too big to qualify for the state-backed loans scheme unveiled this month. The loans – up to £1.3bn from Brussels and £1bn of other bank loans – must be used for research and development in low carbon technology.

Other elements include relatively small amounts of support for training, innovation and R&D – but only the promise of a review on help to increase lending to consumers to buy cars.

Lord Mandelson asserted on Tuesday that the package would help the industry achieve the “cleaner and greener” transformation needed to ensure its place at the heart of British manufacturing. Citing the sector’s relatively high productivity, he insisted the government was not subsidising uncompetitive companies.

“This industry is not a lame duck and I am not proposing a bail-out,” he told peers. “We are determined to counter the credit crunch, counter the recession, create a level playing field for the industry and build a low carbon industrial future.”

The industry’s reaction was muted, however. GKN, which has laid off thousands globally in its car parts businesses and is on Wednesday expected to point to further cuts in a trading update, welcomed the measures.

But there were contrary views on the merits of targeting loan guarantees which could take time to come into effect, as opposed to the support offered by other governments.

Disappointment centred on the omission of any tangible help for car manufacturers’ finance arms, in spite of advance signals from Lord Mandelson backing such measures.

Kevin Morley, the former managing director of Rover and now a professor at Warwick Business School, said there was “little point spending money to send workers back to build more cars that people don’t want”. But Ian Pearson, the business minister, suggested that the Treasury was not convinced of the merits of supporting the consumer finance arms of carmakers and said the priority was to “restore overall confidence” to encourage people to make such big ­purchases.

“The question to be asked is, even if you make sure finance arms have credit available themselves, whether people do want to have new cars,” he told MPs.

Ministers are concerned that state support for car purchase would result in the taxpayer subsiding imports, as most of the cars bought in Britain are made overseas.

The government also appears reluctant to cede to the immediate calls for it to go further, by extending its support to direct subsidies and other sectors.

There was also concern from the EEF manufacturers’ body and the unions over the failure to provide support to help employers keep on skilled workers, such as the Dutch approach of paying companies to allow employees to work part-time, rather than being made redundant. Government insiders said such measures had not been ruled out but stressed the significant barriers to enacting them, not least the potentially huge cost to the taxpayer.

The rationale for ministers’ reluctance to unveil larger scale support may be comprehensible. But it failed to mask the sense of disappointment that characterised much reaction on Tuesday.

The comments from Peter Luff, the Tory chair of the business select committee, summed up the mood. “This should have been an important statement,” he told MPs. “It’s not.”

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