Government's delay over auto industry loan decision is costing jobs
Jan 19 2009 Agenda
A credit loan scheme could prove a jobs lifeline at JLR, says Alan Duncan, Conservative Shadow Business Secretary.
On September 8 last year, Gordon Brown and Alistair Darling visited the Jaguar Land Rover factory in Castle Bromwich to launch their new manufacturing strategy. The Government would, they pledged, help British car manufacturers remain competitive by delivering ‘Macroeconomic Stability – allowing businesses to plan for the long-term’.
Since that announcement, the economy has entered a serious recession and UK car production has fallen by at least 25 per cent. Last week, following a 30 per cent drop in sales, Midlands-based Jaguar Land Rover announced that it will cut 450 staff, on top of around 850 jobs lost before Christmas.
Unions say these losses could be “the tip of the iceberg” and the firm’s Chief Executive has warned the situation may not improve “for some time”. Despite the plunging value of the pound, the UK’s trade deficit in motor vehicles has soared by more than 240 per cent since 1996. Even Gordon Brown has said he plans to scrap his own official Jaguar and replace it with an electric car.
As other car manufacturers such as BMW, Nissan, Honda and Aston Martin also lay off staff, it is clear that the UK car industry is in serious trouble.
Every job lost is not only a tragedy for the individual involved, but also represents a further reduction in the UK’s manufacturing capacity which could have serious implications for the future structure of our economy. Jaguar Land Rover, for example, does not just provide 75,000 jobs but is also a centre of engineering excellence in the Midlands, spending around £3billion a year on research and development.
Future economic recovery and growth will depend on retaining the skills and expertise needed to develop and produce a range of innovative new products. If manufacturing skills and expertise are killed off by Labour’s mismanagement of the economy, they could be lost to Britain forever.
In normal times, if a business fails the Government should not be expected to step in and bail it out. Taxpayers’ money must not be used to prop up businesses which have simply been badly run or sell inferior products.
However, today’s unique circumstances call for unique measures. Many good firms are struggling not because of a lack of customers, but because they cannot obtain the finance they need to stay in business, are having their overdraft facilities withdrawn overnight or are facing interest rates they cannot possibly afford.
At Jaguar Land Rover, Chief Executive David Smith says the main reason for recent problems is not a lack of good products to sell or worker expertise but “a lack of bank funding and liquidity” and “an inability to access the credit markets”.
This is exactly why, in December, the Conservatives proposed a National Loans Guarantee Scheme to underwrite loans made by banks to businesses and help get credit flowing through our economy.
Our plan would focus on vital short-term credit lines, overdrafts and trade credit; helping banks resume provision of some of the services on which businesses depend. For firms like Jaguar Land Rover, a large-scale loan guarantee scheme could help provide the credit needed to prevent further job losses. Business groups including the CBI have praised our suggestion, saying the scheme “could make a real difference on the ground”.
Countries around the world have already taken swift action to support their motor vehicle industries. In France, the President has pledged large-scale support for ailing car manufacturers, on top of an emergency package announced before Christmas. In Spain, the Prime Minister has announced millions of euros in aid for the struggling auto industry.
In Sweden, the Government is providing over $3billion in support. In Germany, car manufacturers including Opel have received over €1billion in Government loan guarantees. In Brazil and Japan, tax cuts are planned to stimulate demand for new cars. In Romania, the Prime Minister has confirmed aid for car parts suppliers. In America, major car manufacturers have negotiated billions of dollars in emergency assistance.
In Britain, however, the Government has wasted weeks dithering while companies go to the wall. The Government’s much-vaunted Manufacturing Strategy, launched in Birmingham last year, hardly mentioned the vehicle manufacturing industry.
As the Federation of Small Businesses has noted, some 6,000 British businesses have closed while the Government failed to act. Ministers have bluntly dismissed our loan guarantee proposal as “not worth the paper that it has been press-released on” (Harriet Harman), “nothing but a cruel con” (Stephen Timms) and “an empty promise... [which] is wrong, muddled and would not help the British economy” (Alistair Darling).
This week, Ministers finally bowed to pressure and performed a swift u-turn to adopt a watered-down version of our policy. However, rather than the £50billion of guarantees which our plan proposed, the Government’s version will provide only “up to £11billion” of guarantees. Crucially, the Government’s scheme provides cover only for small and medium firms, and not for bigger businesses.
Larger firms like car manufacturers will not be covered, leaving their employees facing anxious and uncertain futures. Citibank economists have dubbed the Government’s scheme “relatively insignificant” and the CBI says: “The scale of the problem goes well beyond what the government has announced.”
In short, the Government’s answers to the challenges facing the auto industry remain woefully inadequate.
For Jaguar Land Rover in particular, Government help is still not forthcoming. Weeks of talks with Business Secretary Lord Mandelson have failed to reach a conclusion and the firm’s Chief Executive has complained that “The frustrating thing ... is that we have been talking for a couple of months and in the interim we have seen the French take action, the Swedes take action, while clearly the US has taken some major action for GM and Chrysler... We do need access to credit facilities otherwise we will be disadvantaged versus some of our competitors”.
There is no way of knowing how many jobs might have been saved had Ministers acted quickly.
After making such an almighty mess of the economy, Gordon Brown has a duty to everything he can to get credit flowing again and prevent further job losses and bankruptcies. This is not the time for unconditional bailouts or nationalisation. But a large-scale loan guarantee scheme like the one we are proposing could prevent the collapse of good firms which, if destroyed, could not readily set up afresh in the future.
It is not just individual jobs which are at risk but the whole country’s future manufacturing capacity. If he is serious about ensuring a long-term future for our car manufacturing industry, Gordon Brown will stop dithering and adopt radical policies like those which the Conservatives are suggesting as soon as possible.