UK auto bailout has green catch

Business secretary Lord Mandelson last night justified a £2.3bn bailout for Britain's ailing car industry by saying it would help car firms go green.

The plans will set up a temporary framework for the European Commission to provide £1.3bn worth of loan guarantees to UK automotive manufacturers tied to initiatives to reduce emissions and energy consumption, with a further £1bn of guarantees coming from the government.

Lord Mandelson said the scheme will help ensure that new low-carbon investment projects in the sector are not abandoned because companies are temporarily unable to access funding that would usually come from banks.

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

Applications will be assessed on a case-by-case basis by the government on the criteria of companies providing jobs, reducing emissions from vehicles, and delivering innovative technologies. Jaguar Land Rover and Vauxhall are expected to be substantial beneficiaries.

In a swipe at the UK economy's reliance on financial services, Lord 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."

Lord Mandelson is well known for his hatred of the phrase "post-industrial economy" and belief that heavy manufacturing industries such as nuclear power and automotive can lead the UK into a new and more diverse low carbon economy.

No date for the commencement of loans and loan guarantees under the framework has yet been set as the deal is subject to clearance by the European Commission.

At the moment most car firms, having insufficient credit ratings, cannot secure a loan worth more than £200m from European Commission funds without government guarantees.

Paul Everitt, chief executive of industry body the Society of Motor Manufacturers and Traders said the industry welcomed the deal.

"The UK motor industry is productive and globally competitive with a long-term future at the heart of the low carbon agenda," he said. "We look forward to discussing the substance of the announcement at our meeting with Lord Mandelson."