Driving lessons

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And so the latest UK government credit crunch statement rolls off the production line. The package to help the car industry, announced on Tuesday, has some of the features of others in the series: a lack of detail, a lack of urgency about its delivery, and a suspicion that it was devised as a tactical rather than strategic weapon. The difference is that in this case a cautious and small-scale approach is right.

Lord Mandelson insisted the proposals were not a bail-out. Good. The UK taxpayer should not be supporting an industry that contains some groups with deep enough pockets to look after themselves, and a sector that was – rightly – shrinking anyway.

It is certainly true that the UK would benefit from building up its manufacturing base rather than relying as heavily as before on financial engineering. But this does not mean unthinking support for sectors that need structural change.

Instead of a blank cheque, the business secretary outlined plans to guarantee up to £2.3bn of loans to the car industry. The government will back £1.3bn of loans from the European Investment Bank and support a further £1bn of loans for developing green technology outside the EIB plan. Insofar as this provides liquidity that would normally be readily available, and is on commercial terms, this is welcome.

And that’s about it. Ministers looking at ways to improve access to funding for car companies’ finance arms will not produce crowds in the showrooms overnight. Since reduced availability of car loans is such an obvious part of the fall in demand, it is odd that this is not being addressed more promptly.

Tuesday’s statement was sound as far as it went – which was not very far. But it will not be an end to debate about support for the motor industry. The plan has been presented against a backdrop of worries about job losses, yet it is not, and should not be, a scheme to save jobs come what may. Taxpayers’ money to help companies through the credit squeeze should not be allocated on the basis of who has the loudest voice. Within scarce resources, help for big car companies means less assistance available for smaller and medium-sized businesses hurt in the downturn.

Lord Mandelson must resist pressure to match the scale of support that some other European governments are offering. The more that individual governments seek to sustain their own local car operations in the hope that someone else will fail and so reduce capacity, the likelier becomes the prospect of an all-out subsidy war. And that would make a bad situation even worse.

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