UK To Provide £2.3B Support Package for Auto Industry; Focus on Low-Carbon Initiatives

28 January 2009

The UK government introduced a £2.3 billion (US$3.3 billion) package of measures to support its domestic auto industry, including guarantees to unlock loans of up to £1.3 billion European Investment Bank (EIB) guarantees for investment in lower carbon initiatives; and loans or loan guarantees to support of up to £1 billion of lending for lower carbon initiatives for non-EIB backed projects.

The new scheme will help ensure that major new low-carbon investment projects in the UK automotive sector are not abandoned or located outside of the UK because companies are temporarily unable to access sufficient funding from traditional sources of finance, according to the government.

Additional measures include increased funding for training of employees. Mervyn Davies, the new Trade and Investment Minister, is also tasked to draw up a plan for improving access to finance for manufacturers’ finance arms.

The UK has already taken a series of actions to unblock bank lending to SME and mid-sized companies. The new assistance will apply to projects of more than £5 million (US$7.15 million) from UK-based vehicle manufacturers and automotive parts suppliers with an annual turnover of £25 million (US$35.7 million) or more.

The framework of the package is subject to clearance by the European Commission. The Government will seek approval under the new temporary State aid guidelines announced by the Commission on 17 December 2008. These measures were introduced as a direct response to the access to finance difficulties generated by the financial crisis, and allow Member States more flexibility in providing well-targeted support for companies.

No date for the commencement of loans and loan guarantees under the framework has yet been set since it is dependent on Commission clearance. Applications will be assessed on a case-by-case basis. The assessment criteria will be finalized when they are cleared with the European Union, but are likely to include:

• Value for money to taxpayer;
• Compliance with State aid rules;
• Viability of companies;
• Tied to R&D or capital expenditure within the UK;
• Evidence of having exhausted private sector sources;
• Repayable within 2 years; and
• Further UK objectives on low carbon/green technology.

The UK automotive industry employs nearly one million people from manufacturing to retailing and contributes £10 billion (US$14.3 billion) added value to the economy, according to the government.