Govt blames BoE as car industry nose-dives

Friday, 13 March 2009 12:00 AM

By Laura Miller

Strained relations between the government and the Bank of England reached a head when the central bank issued a rare public reproach to Lord Mandelson, the business secretary.

In an unusual step the Bank issued a statement saying it was "puzzled" by criticisms from Lord Mandelson that aid money to help Britain's hard hit car industry could have been delivered quicker.

"On giving financial liquidity assistance to the car financing arms, I wish that our discussions with the Treasury and the Bank of England - and it is the Bank of England which is in pole position on this - had gone quicker than they have," the business secretary told the BBC on Wednesday.

In a curt and rare reply to criticism the central bank said: "It is not the role of the Bank to provide sector-specific support. That is clearly and properly a matter for the government."

The exchange of words comes as the car industry reels from the worse effects of the downturn, with a slump in demand in the domestic and export markets leaving manufacturers little option but to cut production and jobs.

Honda will stop work at Swindon for four months, and Nissan and Mini have announced plans for large scale redundancies.

The spat followed a meeting on Wednesday between the government, the Bank and the automotive industry over how the £2.3 billion package to help struggling car firms will be distributed.

The initiative was initially praised when announced several weeks ago, but has since been criticised for a slow implementation that has left many companies unable to access much needed funds.

Comments from the business secretary seemed to try to lay blame for this failing at the door of the Bank.

This latest escalation is an attempt to show it is the government has control of provision of help to the car manufacturing industry.

The business and enterprise department said it is not willing to enter into a "battle of words" with the Bank, but a spokesman emphasised that it was "perfectly reasonable for the business secretary to speak up for the needs of business during these tough times".

But shadow business secretary Ken Clarke laid the blame squarely on Lord Mandelson. He said: "We urged the government to take action several weeks ago, but at the time all Peter Mandelson did was ask one of his junior ministers to study it. Now he's complaining about the delay.

"But while the government dithers and indulges in internal rows, the situation is getting worse for all car companies, week by week. Whether it is Peter Mandelson's fault or the Treasury's fault, urgent action by government is now essential."

In addition to the finance package, the automotive industry has also pushed for government backing for a 'scrappage' scheme. Consumers would receive incentives to buy new cars and scrap older, more polluting vehicles. Several European countries have adopted the scheme with some success, particularly Germany.

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