Ken Clarke attacks "dithering" Government

Mar 9 2009 Agenda By Ken Clarke, Shadow Business Secretary

Ken Clarke attacks the Government’s reaction to the automotive sector’s plea for action.

Reading Lord Mandelson’s response, one is immediately struck by how many things he is thinking about doing, rather than actually doing. He is “working…to assess the impact of the credit crunch”.

He is “considering” a scrappage scheme. He is “engaged in talks…to explore possible ways” of improving access to car finance. He “will be holding a seminar next week” on loan guarantee schemes. He “needs to consider whether there is a potential intervention” on credit insurance. He is “urgently assessing” policies suggested by trade unions.

He is “expecting a report… in spring 2009” on how to improve supply chains. He is working on a scheme which “will potentially help the sector”. But what has actually been delivered? Some extra funding for training schemes and ‘health checks’ for firms facing bankruptcy.

The Government has wasted months dithering while good companies go to the wall. In September, the Government’s flagship Manufacturing Strategy, launched at the Jaguar Land Rover factory in Solihull, hardly mentioned the automotive industry at all.

In October, with car sales falling and jobs under threat, the Business Minister reassured MPs that his Department “stands ready to assist the industry”. In November, carmakers warned that without Government help companies would collapse.

The CBI said a Conservative proposal to provide loan guarantees to car manufacturers “could make a real difference on the ground” but Harriet Harman dismissed the idea as “not worth the paper that it has been press-released on”.

In December, it was reported that the Government would announce an emergency package “within days” and the Business Minister promised that support would be available “very shortly”.

In January, Lord Mandelson finally unveiled his plan to save the industry – a limited package of loan guarantees to support the development of low-carbon cars, which unions called “a massive disappointment”. But even now, some three and a half months after the industry called for urgent action to prevent job losses, no assistance has actually been delivered.

Permission to start the loan scheme was granted by the European Commission only last week and the Government has only just started inviting applications for loans. Six weeks after Lord Mandelson promised “a significant boost” for the industry, not a single penny has actually reached businesses.

Sadly, Lord Mandelson’s so-called rescue package has joined a long list of schemes announced with great fanfare but not actually delivered. The Enterprise Finance Guarantee Scheme, for example, promised to help the car industry by enabling £1.3 billion of new loans to businesses. Almost two months later, just £40 million has been lent and only eight per cent of small firms say their banks are making money available through the scheme. The Capital for Enterprise Fund promised £75 million to help struggling businesses restructure their balance sheets. By mid-February, only seven firms had received funding through the scheme. The Working Capital Scheme promised to guarantee credit lines worth up to £20 billion by March 1.

But almost two months after Lord Mandelson announced the scheme, it still hasn’t been approved by the EU.

The cost of the recession and the Government’s failure to deliver on its promises has been devastating. UK car production fell by a staggering 59 per cent in January, and new car registrations fell by 22 per cent last month.

Real help for carmakers and their suppliers must begin by getting credit flowing. Good firms are struggling not only because of a lack of customers, but because they cannot obtain the finance they need to stay in business, have had overdraft and credit insurance facilities withdrawn or are facing interest rates and bank charges they cannot possibly afford.

The key is not to subsidise production of cars by particular companies which cannot be sold, but to stimulate demand – customers who can afford new cars should be able to get the finance to buy them. Manufacturers should be able to obtain the loans they need to stay afloat.

The National Loan Guarantee Scheme which we are proposing would address exactly these problems. By underwriting loans to businesses, the Government could quickly ensure that banks start providing the services upon which businesses depend – credit lines, overdrafts, credit insurance and car finance. With a total value of £50 billion and no net cost to the taxpayer, our scheme is bigger, bolder and simpler than the Government’s timid and undelivered alternatives. It would apply equally to all companies, of all sizes, in all sectors; avoiding absurd situations like the carmaker told it was too big to apply for support under one Government scheme but too small to apply for help under another scheme. If Lord Mandelson is serious about ensuring a long-term future for the car manufacturing industry, he will stop making empty promises and adopt our proposal as soon as possible.

* Ken Clarke, Conservative Shadow Business Secretary, was responding to Lord ­Mandelson’s reply to a 10-point communique drawn up at an Auto Industry Summit in ­Birmingham.