A report released by the Times has indicated that UK personal taxpayers will be the source of funding for “bail out” loans that are to be awarded to the troubled car industry.  

The plans which have been announced by Lord Peter Mandelson, Business Secretary will see a government package worth approximately £2.3 billion being set up in order to assist struggling manufacturers. £1.3 billion of the package will be provided by the European Investment Bank (EIB) and the other £1 billion would be allocated to the development of “green” cars with the funds coming directly from the British Government.  

At a somewhat difficult time, it is understandable that the taxpayers’ money will assist the industry greatly and could end up avoiding the loss of endless jobs but the question a lot of people are asking is, is there any other way of raising the necessary capital? 

An alternative way of raising the funds 

One of the suggestions that have been mentioned quite often is the lowing of taxes. 

With the savings that UK personal taxpayers’ could potentially make, this would free up a lot of cash for a large majority of the population thus resulting in more people purchasing again. This in turn would eradicate the need to use taxpayers’ money to fund a struggling industry.  

Comments on the plans 

Mandelson stated that for Britain, the automotive industry is essential to the overall economy. Many experts are saying that if no action was taken then this would cost jobs and cause a further downturn in an already failing economy.  

Mandelson said: "Britain needs an economy with less financial engineering and more real engineering. The car industry can and should be a vibrant part of that future. 

"The steps we are taking will help companies speed their way to becoming greener, more innovative and more productive. This is the route to securing jobs for the long term as we build a more balanced economy for Britain's future." 

Ken Clarke, shadow business secretary spoke out following Lord Mandelson’s proposal.  "I'm slightly disappointed. I thought the secretary of state who I am shadowing would produce some new ideas, some dynamite."  

"Is it the case that the secretary of state has not produced a bail-out because the Treasury has finally won an argument inside the government and explained to him that they can't afford the kind of support for the industry that was being trailed?" It is has been argued that the plans are not a bail out situation for car companies and it could be possible that only companies where a profit can be made following government aid will benefit. Each case will be assessed on an individual basis.  

Figures over recent months indicated that car sales dropped drastically and a large majority of car manufacturers have noticed this occurrence since affordable loans were no longer being offered to motorists.  

The vital statistics:  

In December 2008 alone, production levels dropped a massive 47.5% (compared to the same period in 2007). A total of 53,823 cars were made in this month and the entire annual figure amounted to 1,446,619 which was still a drop of 5.7%, again compared to 2007.  The manufacturing of commercial vehicles saw an even bigger drop with 56.7% less units being produced.  Throughout 2008, job cuts by many major manufacturers were reported and the companies which stated such action was inevitable included: 

• Jaguar Land Rover
• Toyota
• Nissan
• Aston Martin
• Honda

Currently around 800,000 people are employed within the industry and if action isn’t taken then it is said that many of these jobs could be at risk as a result of mass redundancies.  

Taxpayers’ involvement  

Raising cash for any new scheme is difficult and the question is how will the cash be raised for this new “bail out” regime that is currently in the pipeline? 

As the £2.3 billion plan gains momentum, with roughly £1 billion being injected into the industry directly from the British Government, it will be the taxpayers’ pound that is going to be utilised. 

No package has yet to be finalised so it is uncertain how the government are going to proceed but one could expect to hear further details in the near future.

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