Economy: Automotive Industry — Question for Short Debate

– in the House of Lords at 7:30 pm on 19th January 2009.

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Tabled By Lord Harrison

To ask Her Majesty's Government what steps they are taking to help the automotive industry.

Photo of Lord Harrison Lord Harrison Labour 7:52 pm, 19th January 2009

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 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 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 Citroėn 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 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.

Photo of Lord James of Blackheath Lord James of Blackheath Conservative 8:02 pm, 19th January 2009

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 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.

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.

Photo of The Earl of Mar and Kellie The Earl of Mar and Kellie Spokesperson for Transport 8:05 pm, 19th January 2009

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 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.

Photo of Lord Rowe-Beddoe Lord Rowe-Beddoe Crossbench 8:08 pm, 19th January 2009

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.

Some of your Lordships heard Mr Günter 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.

Photo of Baroness Wall of New Barnet Baroness Wall of New Barnet Labour 8:12 pm, 19th January 2009

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.

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.

Photo of Lord Bates Lord Bates Shadow Minister, Cabinet Office, Shadow Minister, Communities and Local Government, Shadow Minister, Energy and Climate Change, Deputy Chair, Conservative Party 8:16 pm, 19th January 2009

My Lords, I join in paying tribute to the noble Lord, Lord Harrison, for securing this timely debate. I identify very much with his tribute to the importance of this industry and its excellent record in manufacturing in this country. I declare my interest, as listed in the register, as a non-executive director of the Vardy Group of Companies, which includes motor retailing among its many activities.

Coming from the north-east of England, the main focus of my interest is the wonderful Nissan company. It came to the north-east of England in 1984, courtesy of the efforts of my noble friend Lady Thatcher. It has had a tremendous impact upon the north-east of England. It is the largest car plant in the United Kingdom and the most efficient in Europe. Last year it exported 75 per cent of its output through the port of Tyne to 45 countries, and Russia is its largest market. Its emphasis on lean manufacturing and continuous improvement has improved the competitiveness of more than 300 suppliers in the region. It is estimated that 56 per cent of manufacturing jobs in the north-east region are linked directly or indirectly to Nissan. The current lead model, Qashqai, has been Nissan's most successful model ever.

This is borne out by the outstanding leadership team at Nissan who have taken some very tough decisions over recent weeks in securing the long-term competitiveness of the plant. It behoves the Government and all policy-makers to see what they can do as well. The proposals I want to put forward are not aimed at bailing out a failing manufacturer—far from it. Nissan is an outstanding success story and is more than able to stand on its own two feet. My proposals are aimed, rather, at freeing up the market.

Most vehicles are purchased from manufacturers by retailers using finance companies, such as Renault or Ford Finance, rather than banks. Trade finance from these sources, however, is drying up and desperately needs lubrication. I do not see that either the loan guarantee scheme announced last week, which is aimed at small business, or the special liquidity scheme announced today aimed at existing car loans will necessarily do this. In his Statement to the House on business support last week, the noble Lord, Lord Mandelson, noted that this,

"is above all a credit crisis".

He said that it was impacting companies whose,

"business models are not flawed, but the credit crunch has drastically reduced the amount of capital available". [Hansard, 14/01/09; col. 1225.]

I totally agree with that analysis. Why, therefore, are the Government persisting with the failed policy of the VAT reduction? The projected cost of the reduction was £12.5 billion over a 13-month period. If it was scrapped now, that could release £8 billion to go towards tackling the real problem of credit availability.

Finally, the Government may care to consider the following idea. In Germany, Italy and Spain, scrapping incentives have been introduced for manufacturers. Under these schemes, high-polluting old cars qualify for a special grant of about €2,000 when they are traded in for new energy-efficient vehicles. That is good for the economy and good for the environment. Will the Government explore the feasibility of introducing such a scheme here?

The message is that Nissan was and is a world-class car manufacturer and through carefully targeted stimulus packages we will ensure that it continues to be so.

Photo of Lord Jones Lord Jones Labour 8:21 pm, 19th January 2009

My Lords, my noble friend Lord Harrison, as a one-time Member of the European Parliament, had great standing in Cheshire and Wirral. He was foremost in supporting the industry, not least in Ellesmere Port, Wirral, the home of the General Motors Vauxhall Astra production. This plant is important, not only to the economy of north-west England, but to north-east Wales and to Deeside especially. We in Wales do not want the collapse of any work in neighbouring Wirral. There is immense travelling to work from north-east Wales to Wirral and vice versa.

As shadow Minister for Wales in 1991, I was present alongside the then Secretary of State for Wales—the noble Lord, Lord Hunt—when Toyota UK conducted a ceremony to commemorate the building of an engine plant at Deeside in north-east Wales. The Deeside engine plant was built to time and many hundreds of people now work there. Sadly, however, Toyota UK has declared this year that an £88 million new engine development for Deeside in north-east Wales is to be postponed. Nobody in the company, in the workforce or in Deeside took pleasure in this announcement. It is a body blow to a most successful management team and workforce active in Wales.

Toyota on Deeside has been superb in training employees, in supporting our county council of Flintshire and in helping dozens of local charities and voluntary organisations. We had hoped to see this £88 million investment go ahead as a reward for what we had delivered in this part of Wales. Wales needs developments such as these. Such developments create skills, and skills are the lifeblood of the Principality.

I wish the plant well and I hope the Government will respond powerfully to the needs of the industry, not least for this exceptional workplace on the banks of the River Dee in Flintshire.

Photo of Lord Bhattacharyya Lord Bhattacharyya Labour 8:23 pm, 19th January 2009

My Lords, I declare an interest as professor of manufacturing at Warwick University.

The House has heard a great deal about the current state of the car industry. The issues have been debated thoroughly in the press and here today. I concur with what other noble Lords have said and, in the brief time available, I shall not add to their analysis.

We have fantastic inward investment companies producing cars in Britain. Toyota, Honda and Nissan are efficient companies that produce superb cars, which are usually designed in their home country. We are lucky to have their manufacturing facilities here and should support them. For these companies, the problem is one of consumer credit. If they cannot access credit, they cannot offer loans to consumers. If the consumers cannot get loans, they will not buy cars. If consumers do not buy cars, factories close or go on short time. We can and should break this logjam, but we must go further.

For the last 20 years, we have heard about the importance of the service sector, the knowledge-based economy, sunrise industries et cetera. Less has been said about the need for a vibrant manufacturing industry. Much of this is the fault of manufacturing itself. The 1970s and 1980s were not a good advertisement for British manufacturing. Due to lack of investment, poor management and a weak skills base, the British car industry was virtually wiped out by competition from Japan. France and Germany faced the same foreign competition but were more successful in their response. They restructured their industries with state support and developed new products that appealed to consumers, using their local, indigenous companies. We find the same success at home. The aerospace industry received government support through launch aid and other channels. It used the opportunity to develop better products and became a very successful exporter.

The car industry is facing huge challenges over the next decade, from emissions to safety regulations, and a new generation of high-tech but low-carbon cars will be required. The companies that best meet these global needs will grow as the world emerges from recession. We have a unique tactical opportunity. As our products are high quality, we exported over a million cars in 2007, an increase of more than 7 per cent. In fact, we exported £170 billion-worth of manufactured goods, which was more than half of total British exports. With sterling at current levels, we have the chance to see our exports and European market share grow in the short term. However, for growth to continue beyond the narrow horizons of currency traders, short-term advantage must be supported by long-term investment. Investment for the future requires access to capital today. We need a level playing field with our competitors in Europe and the United States.

Jaguar Land Rover is the only major car company with an extensive R&D base in Britain. It plans to invest £800 million on a new product and a low-carbon technology programme. However, it may not be able to sustain this investment if its access to capital is choked off by the banking crisis. We must act so that progress in our car industry is not endangered by failed speculation in the financial sector. British-based manufacturers should be offered loan guarantees so that they can secure finance to fund innovation and research. They must then invest here to develop new products with British suppliers, so that we have a vibrant British manufacturing base.

The Government are saying the right things about easing the credit situation and they are using the right language about the need for a vibrant manufacturing sector. The Government say that help is coming. What I think we all want to know is, "How long?".

Photo of Lord Cotter Lord Cotter Spokesperson for Innovation, Universities and Skills, Spokesperson for Business, Enterprise and Regulatory Reform, Shadow Spokesperson (Business, Innovation and Skills), Shadow Spokesperson 8:27 pm, 19th January 2009

My Lords, we have had a timely debate today, as there is no question but that the automotive industry is highly important. I pay tribute to the noble Lord, Lord Harrison, for calling this debate and particularly for referring to the importance of the small business sector. Of course the automotive industry is important as an exporter—it accounts for 11 per cent of this country's exports—but it is also important in that we are talking not only about big companies but about the small businesses that feed them. The success or failure of the automotive companies therefore impacts throughout the country. For example, Jaguar Land Rover employs some 15,000 people but reckons to support a further 60,000 jobs through suppliers and dealerships.

Coincidentally, just this last Saturday I helped to launch a community bus—called Bluey—in my village, Congresbury. That minibus has a number of components, such as a lift for a wheelchair, raised and lowered steps and so on. An automotive vehicle is made up of a number of components and provides jobs elsewhere.

So what to do? The Government have today announced a further initiative to try to get credit and lending flowing. I hope that this time the banks will respond fully and with openness and that they will take the action that we are looking forward to them taking.

In this connection, we have all been dismayed by some parts of the financial sector, but Jaguar Land Rover says that its managers will not receive any bonuses this year. I hope that the financial sector will bear that in mind, because the way things have happened there has been outrageous.

As has been mentioned, there is an important opportunity to encourage environmentally friendly vehicles—good for the environment, of course, but good for us for export. There is a possibility of increasing loans to carmakers, as referred to by the noble Lord, Lord Harrison, from the European Investment Bank, according to the European Union Industry Commissioner. Money should be used from that source and others for investment and restructuring rather than just for keeping the operation going. I hope that we may have a response and clarification from the Minister on that.

We could put into the melting pot the suggestion that vehicle scrapping should be encouraged to give the opportunity for older vehicles to be put to one side, if you like, and to encourage the take-up of fuel-efficient technologies to renew our fleets.

Returning to today's Statement, I know that the Finance and Leasing Association has expressed hopes that its sector will get practical encouragement. Has that been taken into account? We all look forward to hearing the Minister's response to our debate today, an important debate at this crucial time for the economy of this country.

Photo of Lord de Mauley Lord de Mauley Shadow Minister, Cabinet Office, Shadow Minister, Business, Enterprise and Regulatory Reform, Shadow Minister, Children, Schools and Families, Shadow Minister, Innovation, Universities and Skills 8:31 pm, 19th January 2009

My Lords, I congratulate the noble Lord, Lord Harrison, on initiating this debate with such impeccable timing. I also, very belatedly, welcome the Minister to the Dispatch Box, as this is the first time that we have faced each other. We look forward to his skill and experience being addressed to the problems that our country faces in fields such as this.

The economic troubles that have engulfed us all have recently led Jaguar Land Rover, BMW Oxford, Honda, Aston Martin, Vauxhall and Nissan to announce closures, cuts or other steps in attempt to stave off the worst, with all the redundancies, loss of skills and general pain that that will involve. In October, production of cars fell by as much as a quarter and, of commercial vehicles, by more than 40 per cent—that in a single month.

The importance of the motor sector is so much greater than that of the manufacturers alone, because it extends to suppliers, to whom several noble Lords have referred, small businesses, in particular, to which the noble Lord, Lord Rowe-Beddoe, and others referred, as well as to the motor finance industry, to which my noble friend Lord James of Blackheath referred. This is not exclusively a credit-crunch phenomenon. Our trade deficit in motors has doubled over a dozen years. Jobs in the industry fell by nearly 40 per cent over 10 years from 1998.

Last year, frustrated by lack of government support for UK industry, Rolls-Royce located a new testing facility in Germany, rather than Derby. An executive told the FT that the Germans value manufacturing, that there is better productivity and that they have a better education system. The Government have chosen not to be competitive. Britain has caused that industry to export its capabilities.

The Government's response to current problems has been both to dither—the Secretary of State was said to be considering what to do as long ago as November—and to make life more difficult. The rise in excise duty bands, for example, will affect nearly three-quarters of cars, which will do nothing for demand.

Ministers often try to paint this party as the one of inaction, but its dithering shows that it is Labour that is truly worthy of that title. What we need now, rather than ineffective VAT cuts or unconditional bail-outs of specific industries, is affordable credit for viable companies—not just small companies, but all companies, including the motor companies.

The scheme announced on Wednesday extends only to companies with turnover of up to £500 million. I am sure the Minister will be able to tell us how many of the auto manufacturers I mentioned earlier that will help. The noble Lord, Lord Harrison, asked what this week's announcements in the banking industry mean for the auto industry. It has been rumoured that, as we have been demanding from these Benches for two months, the loan guarantee scheme will be extended to larger companies. There is a specific onus on the Royal Bank of Scotland, but as my noble friend Lord Bates said, it is unclear if the whole scheme extends to larger companies, and if it does, whether it will be on a sufficient scale. When we proposed our loan guarantee scheme, the Chancellor said that it would be "an empty promise" and,

"would not help the British economy or the people of this country".—[Hansard, Commons, 18/12/08; col. 1229.]

Yet it was strongly supported by the leading trade bodies and commentators. All Ministers could do then was rubbish it, yet here they were on Wednesday proudly announcing a pale imitation of it.

I join other noble Lords in asking the Minister most importantly if the loan guarantee scheme will be extended to all companies, including Jaguar, Land Rover, Aston Martin and the others, and if so, on what scale. Secondly, while the extension of the special liquidities scheme to consumer car loans is welcome as far as it goes, as the noble Lord, Lord Harrison, asked, will the Government give the non-bank motor finance companies full access to the recently announced liquidity and guarantee schemes? And thirdly, when will the EIB money for R&D, which their German and other competitors have already accessed, be released to our auto companies?

Photo of Lord Carter of Barnes Lord Carter of Barnes Parliamentary Under-Secretary, Department for Culture, Media & Sport, Parliamentary Under-Secretary, Department for Business, Enterprise & Regulatory Reform, Parliamentary Under-Secretary (Department for Business, Enterprise and Regulatory Reform) (Communications, Technology and Broadcasting) (also Department for Culture, Media and Sport), Parliamentary Under-Secretary (Department for Culture, Media and Sport) (Communications, Technology, and Broadcasting) (also in the Department for Business, Enterprise and Regulatory Reform) 8:36 pm, 19th January 2009

My Lords, I, too, congratulate the noble Lord, Lord Harrison, on securing this debate. I registered 14 specific questions in his informed intervention; I hope, therefore, that he will forgive me if I fail to capture all of them tonight. He can rest assured, as can others, that those that are missed verbally will be returned to in writing.

I welcome this opportunity to respond to the comments made. I listened to the intensity of the debate and the strength of feeling, as well as the significance of the challenges. The House should be very clear that the Department for Business, Enterprise and Regulatory Reform is extremely focussed on all of these issues, on the importance of this sector and on its reach into the economy, both geographically and into other businesses. I apologise to noble Lords for being a pale imitation of my noble friend Lord Mandelson, of Hartlepool and Foy, who is currently on a trade mission to India. As I listened to this debate, I was rather wishing I had taken up his invitation to join him. However, I know the issues facing the sector are at the forefront of my noble friend's mind and his travel schedule. In addition, while he is in India, he is scheduled to meet many leading business women and men, including Ratan Tata, to discuss how industry, including the automotive industry, is faring during this difficult period.

With the exception of the interventions from the noble Earl, Lord Mar and Kellie, and the noble Lord, Lord Cotter, most of the comments were around the vicious and unfortunate consequences of the triple jeopardy of the lack of consumer credit—the lack of availability of finance; the negative effect that has on demand—the lack of availability of customers; and the negative effect that has on production and, thereafter, long-term and secure employment.

The automotive sector is very important to UK manufacturing, as many speakers have made clear, with major inward investment from the global car companies that provided employment for 180,000 people in 2007, along with over 550,000 in the retail business and an estimated further 200,000-plus in the supply chain. It contributes £10 billion of added value to the UK economy, exporting £25 billion worth of vehicles and parts in 2007. The automotive sector was a significant part of the R&D sector, spending over £1.4 billion. Those numbers and many of the comments about how this industry has reformed and put itself into a position of international competitiveness challenge the final comments of the noble Lord about the failure of this Government to create an industry or support it into real health.

The issues with which we are dealing are the issues of today and of today's markets. They are also the issues of simultaneous structural and cyclical change, which is a feature of many markets with which we are currently dealing. We are fortunate, as the noble Baroness, Lady Wall, made clear, to have six of the top 10 vehicle makers and 19 of the top 20 automotive parts makers with a manufacturing presence in the UK, and—we meet them daily and weekly—companies that wish to stay in the United Kingdom.

I recognise that the new car registration figures for 2008, which were published by the SMMT on 7 January, were disappointing, and that the trend seems likely to continue for the immediate future. I note the SMMT's anticipation of a drop in sales from approximately 2.4 million cars in 2007 to approximately 1.7 million in 2009, although I think it is generally recognised in the car industry that 2007 was, as it was described to us, a bumper year. The bar may be set higher. Nevertheless, that is a significant drop.

This is not just a UK problem. While registrations in this country were 11 per cent lower than in 2007, they fell by 18 per cent in the United States of America and by 28 per cent in Spain. The shortfall in customers, in demand and perhaps in consumers' views of the value and type of motor car that they wish to have is changing. It is very real and it is very widespread.

The declining demand and the reaction to the current economic climate have necessitated action by employers, as many speakers have made clear this evening. We saw this recently in the job losses that were announced at Nissan. Further difficult decisions will be necessary to secure future success. As my noble friend Lord Mandelson said, while current demand for cars is hit by the recession, demand at its levels in 2007 is unlikely to return for some years, if ever; so the industry as a whole will have to adapt, not only in Britain but in Europe and worldwide, to a somewhat more constrained and perhaps differently configured market. That will have implications for the size of the industry and its individual companies and whether they restructure and consolidate.

This feature of excess capacity is not unique to the automotive sector, as noble Lords know; it is common across many sectors that are facing simultaneous structural and cyclical decline. None the less, this is a sector with a strong future, and here in Britain we are determined to ensure that the car sector remains a permanent and important part of our manufacturing base.

We have been talking frequently and in much depth to the industry. My noble friend Lord Mandelson and Ian Pearson met the main automotive trade association and representatives of industry in late November to hear at first hand about the particular issues affecting the automotive sector. The key issue raised by the industry in meetings with us was the issue that was raised by most noble Lords this evening: namely, access to credit for companies for investment in new green products and greener manufacturing technologies for their supply chains and for consumers who wish to buy new types of cars.

The industry provided a variety of suggestions and further information, which we have been considering carefully. What have we done so far? In addition to the measures announced today by my colleague in another place, which are designed to ease liquidity and reduce the downside risk of insurance, and to schemes relating to asset purchases, there will, in answer to questions asked this evening, be greater clarity about how those will operate, provided through an exchange of letters between the Chancellor and the Governor of the Bank of England at the end of this month.

Moreover, my noble friend Lord Mandelson unveiled £22 billion of funding to unblock the credit markets, which will make it easier not only for small companies but for those with a turnover of up to £500 million to access credit. In answer to the question asked by my noble friend Lord Harrison, we anticipate that the automotive supply chain will benefit in particular from the working capital guarantee scheme. We have successfully lobbied for the European Investment Bank to double to €8 billion the support for investment in greener cars and manufacturing processes, although I register that that is not the €40 billion that the car industry requested, and we are pushing for the bank to speed up its processes.

We have undertaken a targeted communications campaign. My colleague the Business Minister Ian Pearson wrote to all the major car manufacturers outlining what support may be available to their suppliers. On the difference of scale and scope of smaller firms, we have tried to make it clear that the larger players in industry and trade associations have a real responsibility to ensure a necessary level of knowledge cascading through the industry. As we unveil new schemes we will ensure there are ongoing communications and that point of clarification is continued.

Despite the scepticism voiced this evening by some noble Lords, we have scaled back the fees on vehicle excise duty and reduced VAT. There has been some criticism of the VAT measure, but a few hundred pounds off the price of car is significant even if the benefit does not apply to export models. As my noble friend Lady Wall knows, we have dedicated £65 million to fund training in the automotive and related sectors, part of the £1 billion allocated to Train to Gain that assists companies identifying appropriate training. I think only 45 of a possible 300 automotive companies have engaged with SEMTA, the sector skills council. If there is more we can do to help in training, design or simple communication—with SEMTA or with SSCs in conjunction—we are willing to do it. We are in constant communication with DIUS to see if there is more that can be done to make these schemes work effectively.

My noble friend Lord Harrison and others asked for a report on the meeting last Friday convened by European Commissioner Verheugen. My noble friend Lord Mandelson attended the meeting—arranged at his behest—where Governments agreed to co-ordinate support for the industry and seek early engagement with the new US Administration to understand the transfer of their measures to companies working and operating in the European markets. In addition, the Czech presidency agreed to put the issue on the agenda of the spring Competitiveness Council and we made a specific request to accelerate the accessibility and delivery of the already allocated EIB funding, ensuring that all manufacturers were eligible for the funds available. My noble friend also asked about the Government's view of membership of the single currency. The Government's position on that has not changed.

What further support is there? People say Government should do more. Many of you have said this evening that this is not enough. We understand this argument. Members of this House and others feel strongly about this issue. There has been much discussion about further support. My noble friend Lord Mandelson has made clear that if there is appropriate assistance that we can offer, we will consider it. We have also been urged to take action because other countries have already done so—the argument made here this evening is that companies in the United Kingdom will be at a competitive disadvantage if other companies act first and we are slow to follow. This is something for us to consider and monitor—we are doing both. We also need to be sure that any action we take will work in the United Kingdom and for the United Kingdom, given the structure of the UK's industry in this sector. The circumstances and needs of car manufacturers in other countries are different. It is right that each country responds, albeit in concert, according to what is best for them.

My noble friend Lord Mandelson is meeting representatives from the industry for a second automotive summit at the end of the month—my noble friend Lady Wall referred to that. I would not go as far as another noble friend in describing being a junior Minister as "dehumanising"—though anyone who transfers from business to a ministerial portfolio recognises some of his analysis. I have learnt during my short time at BERR that it is inadvisable to pre-empt my Secretary of State and suggest what the outcomes from a future meeting he is chairing might be. Equally, on how we would choose to forecast the length of the challenges facing this sector, I have also learnt that forecasting the length of time current conditions will last is best done by forecasters not Ministers—let alone junior ones. You will not be surprised that BERR and Her Majesty's Treasury are as one in recognising the significance of the issues being faced by the automotive sector.

We understand the urgency, but we will not and, I am afraid, cannot be rushed into taking action that might not be effective. Any assistance needs to be for the future and not for the past. This Government fully recognise the pain the sector is feeling—we are not debating this reality, but rather how to handle it and not make false assumptions of what the industry may look like in the future. We also need to have an eye on what would best help to keep jobs and investment in the United Kingdom, and ensure that we are best placed to win new investment in the future.

Noble Lords have asked about support for particular companies, but they would not expect me to comment on commercially sensitive discussions. However, to the specific points raised by the noble Lord, Lord Bates, with respect to Nissan, it is fair to say that the 1,200 job losses announced recently are regrettable. We understand that this decision was reached specifically in response to the market. The view of the plant is that it is one of the most efficient in Europe. The regional development agency, One North East, which I am sure the noble Lord knows well, will lead a taskforce to help Nissan and its suppliers deal with the consequences of the decision, and we will help any employee through the suite of schemes available to find alternative opportunities as quickly as possible. As a Government, we remain committed to the Sunderland plant. We contributed £6.2 million to it which did help to secure the model that the noble Lord referred to. We will continue to work with Nissan to secure new investment and, indeed, my noble friend Lord Mandelson plans to visit the plant as soon as possible to discuss plans to bring the manufacture of Nissan's new family of electric vehicles to the site, in line with our commitment to the development of low carbon vehicles as an integral part of the UK automotive industry for the future.

On the specific point also raised by the noble Lord, Lord Bates, on scrapping to stimulate demand—which I assume is what lies behind the question—we are aware of it and are considering it carefully. Some countries in Europe have looked at this, but as a number of speakers have already indicated, 86 per cent of the cars purchased in the United Kingdom are imports. In truth, scrappage is likely to be of greater benefit to other countries, although we recognise that it would be of some help to the retail sector.

The Government are looking at the industry as a whole and not just at the automotive sector. Suffice it to say that any government intervention to help the biggest companies would be exceptional and should not get in the way of necessary restructuring. We have a responsibility to the taxpayer and a responsibility, when considering intervention in any market, that we do not harm the fittest when seeking to help the most challenged. Critically, when one is considering sectoral intervention, one needs to be very clear that one is not propping up business models, product lines, capacity and pricing structures from another time.

I thank my noble friend Lord Harrison and all the other speakers for their contributions to this critical set of issues, and confirm that we will return in writing to any questions that were not answered.