Industry News
£750m government funding for UK car and nuclear industries under threat
21st May 2010
At least £759 million worth of government funding earmarked by Lord Mandelson to nurture Britain’s car and nuclear industry is under threat, The Times has learnt.
It is understood that loans worth £270 million to Vauxhall, £90 million to Sheffield Forgemasters, £20 million to Nissan, and £379 million worth of guarantees to Ford will be reviewed by David Laws, the Chief Secretary to the Treasury.
Mr Laws will decide as early as next week whether the loans and guarantees represent value for money and whether they support a policy that is consistent with new Government’s aims. He is also expected to seek advice from the Treasury’s in-house lawyers about whether the Government can renege on Lord Mandelson’s financial promises.
The review forms part of George Osborne’s plan to cancel unnecessary expenditure commitments and to start paying down Britain’s £163 billion budget deficit with immediate effect. The Chancellor said yesterday that any new spending projects approved since January 1 would be reviewed. The four car and nuclear projects were signed off by the Treasury so will return to the desk of the Chief Secretary for review.
In March Lord Mandelson, the former Business Secretary, unveiled a £90 million taxpayer-funded loan for Sheffield Forgemasters. A spokesman for the company said yesterday that, while the loan had been agreed in principle, it was in the “preparatory stages ahead of the due diligence process”. It is understood that even where there are break clauses — which would cost the Government punitive fees for reneging on a legal commitment — the Treasury would still consider trying to wriggle out of it.
Earlier this year Lord Mandelson managed to secure the medium-term future of Vauxhall’s Ellesmere Port and Luton plants with £270 million worth of loan guarantees for the carmaker’s parent, GM Europe.
In March the Treasury signed off £20 million worth of grants to persuade the Japanese carmaker Nissan to build its new electric vehicle in Sunderland. In the same month Lord Mandelson extended £379 million worth of loan guarantees to Ford UK, which is investing £1.5 billion in Britain to build cleaner car engines.
A Treasury source played down concerns that the funds handed over to car companies, in particular, were at risk: “The point of the review is to see things that were wasted and not value for money. In order for us to reconsider they would have to be considered poor value for money. I have not seen it suggested that they were.”
Should the Government seek to renege on earlier commitments, it would represent an unravelling of much of Lord Mandelson’s interventionist industrial policy, which used a £950 million pot of taxpayer money called the Strategic Investment Fund to help to nurture key business sectors such as green technology, biotechnology, nuclear energy and wind power.
In their first press conference since the election Mr Osborne and his deputy, Mr Laws, expressed their eagerness to start earmarking expenditure cuts immediately. Mr Osborne said that his first Budget would be on June 22. He also indicated that Government departments would be told this week how much of an additional £6 billion in cost savings they would each have to bear.
The Chancellor made it clear that the departments would have to make the cuts within the current financial year. The majority of the savings would be used to pay down the deficit, with some deployed for job creation schemes in a concession to the Lib Dems.
The Chancellor gave details of the new Office for Budget Responsibility (OBR), which is to be chaired by Sir Alan Budd, a former member of the Bank of England’s interest rate-setting committee. Sir Alan has recommended that the Treasury appoint Geoffrey Dicks and Graham Parker to complete the three-member Budget Responsibility Committee. The committee will produce its first economic forecast before Mr Osborne’s Budget next month.
While Mr Osborne declined to be drawn on whether the Government would announce an increase in VAT in the Budget, he hinted that he would stand by a pre-election pledge to cut corporation tax from 28 per cent to 25 per cent and introduce a cut in the tax rate for smaller firms.
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