The Motor Car Industry

HL Deb 12 November 1991 vol 532 cc530-54

6.37 p.m.

Lord Dean of Beswick rose to ask Her Majesty's Government whether they have any proposals to alleviate the present difficulties of the motor car industry.

The noble Lord said: My Lords, some Members of your Lordships' House have asked me what reason I had for wishing to debate the motor car industry. It is a convention of your Lordships' House that if one has a pecuniary interest one should declare it. I now declare that I have no pecuniary interest. I have no consultancies for any part of the motor industry, nor am I a parliamentary adviser to it, nor am I sponsored by my trade union, the AEU, a major union in the industry.

My main reason for wishing to debate the issue is that before we rose for the Summer Recess at the end of July the signs were there that the industry was in serious difficulty. I took the view that if it was possible to obtain a debate, in spite of all the calls on the time in your Lordships' House and in another place, it would do no harm to have one in an objective sense.

I was concerned that a few weeks ago, on 16th October, there was a Question on the Order Paper which was answered by the Minister, the noble Viscount, Lord Ullswater. The noble Earl, Lord Onslow, who sat behind him, spoke of the success of the motor industry as though everything was all right. Everything is not all right. The noble Earl was referring to the export situation, which looks quite good, but developments in the domestic market are dangerous. Everyone knows that in any manufacturing industry, if the domestic base goes, as sure as eggs are eggs the export performance will be affected later and the whole industry may collapse.

I chose to debate this matter because the motor car industry plays a vital role in our economy. In fact it is a cornerstone of the British economy. The Society of Motor Manufacturers and Traders Limited has provided me with some figures. That body states that the export success of the industry in 1990 was shown by the £9.7 billion of exports. That sum took £2 billion off Britain's automotive trade deficit, outpacing oil as well as aerospace. The deficit for the first six months fell to £617 million compared with almost £3 billion in the same period of 1990.

The society further stated that the motor industry and its customers contributed £20 billion in taxes in 1990. That figure represents more than 13 per cent. of all government tax revenue and is twice the sum raised from taxes on drink and tobacco combined. It is therefore vital that this industry is encouraged to prosper.

I can recall a time during my days in another place and in my early days in your Lordships' House when the motor industry was in serious trouble; it might well have gone out of business. Nevertheless, it rallied. The industry has transformed its operating practices over the past decade and output per head has increased by 90 per cent. since 1980. Some people may think that that figure could be improved upon, but nevertheless it reveals a tremendous increase in output.

Investment in skills and training has been as important for improved quality and efficiency as investment in machinery. The industry is performing strongly on both counts, constantly setting more ambitious targets. Massive international investment is making, Britain an important centre for motor manufacturing.

Let us consider some of the factors that are affecting the industry at present. Those in the industry are of the opinion that the Government's fiscal policy is not helping at all and is damaging the industry at present. At home the 1991 vehicle market is suffering its worse decline for a decade. After 10 months car sales were 22 per cent. down. The recession was aggravated by the Chancellor's punitive Budget last March Some of us are still trying to understand why it was so punitive.

As regards employment, at the end of the 1980s almost 800,000 people depended on a thriving motor industry and trade for their jobs. Over the past year 28,500 jobs have gone from the industry and from franchised dealers. Worse still, another 40,000 jobs are expected to be lost by the spring of 1992. The number of jobs, in the industry is 13 per cent. down on the figure in 1989. The 10 per cent. special car tax and the recently increased VAT combine to add more than 27 per cent. to the price of a new car. Those two charges have added about £1,000 to £1,500 to the price of a family saloon car. Among vehicle producing countries, this tax burden on new cars is at the top end of the European scale. That shows the size of our present predicament.

One of my main reasons for initiating this debate was to try to ensure that Britain's car industry competes on equal terms with the car industries of other countries. When the single market arrives, I want to see the British car industry competing on equal terms with the rest of Europe. I do not want to see our car industry being handicapped by a measure that our Government could easily remove without damaging our economy. Like other industries, the motor industry is affected by inflation, interest rates and the value of the pound abroad. What is unusual is the extent to which the industry is hampered by a combination of taxes which have a pernicious effect on this bedrock of our industrial base.

It is worth considering the position of the truck industry. In 1991 the number of trucks sold is expected to be the lowest since 1954. That is a dangerous position to be in. In two years Britain has gone from being number one in Europe for truck sales to number four. I n 1989 the British and German markets were about the same size. However, in 1991 the German market will be three times bigger than the British market. Although this is a cyclical business, the current downturn is the deepest on record and represents a 53 per cent. drop in total sales of trucks and a 49 per cent. drop in van sales. That is a severe reduction. The severe market downturn undermines competitive ability and risks future investment in terms of people, product and machinery.

Cars and motor cycles are the only consumer durables subject to a sales tax of 10 per cent. in addition to VAT. Most noble Lords will be aware that the Monopolies and Mergers Commission has produced a report on this matter. I understand that a report has also been prepared for Sir Leon Brittan for him to study in his capacity as a European Commissioner for industry. I do not wish to discuss those reports in detail as one has to look at the whole picture to grasp the position in the industry. However, I believe that one of the matters that has been studied is whether British people are paying more for the same car than their European counterparts. Vauxhall has carried out some research on this matter. It has concluded that, when one looks at the whole package, a British person buying a car obtains as fair a deal in this country as is the case anywhere on the Continent. However, we can make a balanced judgment on that matter only when we obtain the full reports. Your Lordships' House may debate the reports in due course.

I believe that a factor that helped the motor industry to reach a peak of success was its company trade agreements with some trade unions. The union I belong to has been successful in conducting negotiations with some car producers. Those negotiations have meant that some factories have been able to cut across the problems of demarcation disputes. That has all been done without the help of Mr. Howard in another place, who seems to have something against voluntary agreements and does not appear to believe they can be successful.

I could go into far greater detail. However, I am grateful that so many noble Lords wish to speak in this debate. There are many other aspects that other speakers can discuss in support of my case. My objective in initiating the debate is to raise awareness of the problems faced by an industry that is vital to the economy of this country. I wish to ensure that the Government are aware of the need to initiate constructive measures quickly to help this industry. If the industry deteriorates further, much effort will be needed to regenerate it.

6.49 p.m.

Lord Lucas of Chilworth

My Lords, I am sure the House will be grateful to the noble Lord, Lord Dean of Beswick, for tabling this Question. I note that his Question seeks to address the present difficulties of the motor car industry. I was a distributor in the 1950s. The industry has always had difficulties. That the industry is so resilient is to its credit. It has survived the most enormous setbacks in the 40-odd years I have known it. So perhaps in some ways the present difficulties are no greater, though sometimes no less, than they have always been. What has accentuated the problem is the change in the way in which the industry is structured. I can recall standing on the spot where my noble friend the Minister will stand in an hour or so. I set out the strategic decisions that government through Parliament had decided to take about the way in which the motor manufacturing industry had to go. I believe that those decisions were misplaced. At that time we were too involved in the emotional contortions that the words "British indigenous motor industry" conjured up in people's minds. It was absolute nonsense, as the past half dozen or so years have shown.

In the motor industry what is more indigenous than General Motors or the Ford Motor Company, with 60 or 70 years of existence in this country, offering so much investment, employment and the promise of even more of both? There can be nothing more indigenous. But at that time certain decisions were made which I believe gave rise to some of our present problems.

As the noble Lord, Lord Dean of Beswick, urged, let us consider the industry. In the current financial year it has produced something like £21.5 billion in taxation. That is a little more than the noble Lord indicated but I shall not argue with him. Most of that comes from what I call the indigenous industry. At present Ford takes some 22 to 23 per cent. of the UK market, General Motors has something like 18 per cent. and the Rover company something like 13 per cent. All that comes from home based industry.

What does the home based industry look like today? Huge investment is demanded. It requires £1.5 billion to bring a new model to the market place. There is enormous investment in new plant, new factories and employment. The industry is now so colossal that we are in what is called (I do not like the buzz term) a global industry, to which joint ventures, whether they concern engines, transmission, bodies or even research and so on, give a global nature. That is what we are talking about.

What does the industry mean in terms of this country and our progress? We have to look at the United Kingdom element of that worldwide industry. We must consider first how it will survive, secondly, how it will grow and, far more importantly, how it will be able to compete with our West European competitors. I put it that way. I did not say "EC competitors" because most of the home based manufacturers expect to call themselves European manufacturers and quite rightly so, because that is what the Community and industrial co-operation mean.

However, within that context there is competition. It is between the West Europeans as distinct from the Americans, perhaps even the Koreans and the Japanese—who make up the smaller element of what we produce. There are three areas in which we alone discriminate against our home based industry compared with West European manufacturers. Frankly, they are in the Treasury Department and concern taxation. It is not design, productivity, distribution or distributors' arrangements which compare badly. Those are small elements. The fundamental issue is the way in which the Government —successive governments—have viewed the industry. The three areas in question are first the special car tax, secondly VAT and, lastly, the way in which we treat the company car benefit (so-called). I should like to say a few words about each of those areas.

Noble Lords will recall that prior to 1973 we had a variable purchase tax rate. In the top bracket, at 25 per cent., were the luxury items. A motor car came in that category. When we abandoned that format and went to a 10 per cent. purchase tax system, we retained the luxury element in relation to the motor car and called it the special car tax. The noble Lord, Lord Dean of Beswick, accurately described that element of motor car taxation—that element of the 27 per cent. motor vehicle taxation. It is one of the highest rates in Europe and one of the highest across the area in which we try to compete. It has stayed with us and appears still to be with us. Special car tax is a misnomer because 65 per cent. of the 1.7 million cars that will come on the market this year will have a business connotation. They are a tool and not a luxury. Indeed, the other 35 per cent. kept for totally private use can hardly be called a luxury. They provide necessary transportation, particularly in rural areas. As the noble Lord rightly said, the car tax on tax, coupled with purchase tax of 17½ per cent. means that one is looking at taxation of £1,000 or £1,500 per saloon car. The fact that no other European Community car-producing country levies that kind of tax is indicative of the edge that those countries have over us.

How then can the car be called a luxury? I should like to see that description disappear. Output in the heady days of 1989 was 2.3 million cars. In 1990 it was 2 million cars, and this year the figures are 1.5 to 1.7 million. Output is declining. Special car tax is one of the reasons for that decline.

The second reason is VAT. Of all the products that industry buys—computers, robots, telephones or whatever, from the highest to the lowest item, why is the car singled out to exclude VAT as an admissible charge? It is absolute nonsense. Indeed, that element produces out of the £21 billion tax take a sum of £3.3 billion. It is wrong. If it were abolished in to to the increased profit that would accrue to business, and thereby to manufacturing industry, would almost neutralise the effect by virtue of corporation tax.

The last item is the company car tax as a "perk", which was born of the need to control wages and salaries. Health, schooling and the motor car were seen as perks and a way of enhancing salaries. Such perks are now out of date, but they are hung on to. That element is worth about £1.5 billion.

The lower paid are at a disadvantage. The threshold for the tax is £8,500, and there is hardly a salesman on the road who is not affected. The salesmen, the earners and the grafters who drive a company car cannot leave it in the company car park; they have to take it home. Therefore they are penalised. That is wrong.

That package amounts to about £4.55 billion of the £21 billion. The company car is a business tool and that aspect has to be examined. Over the past four years the benefit scales have placed an additional burden of some 300 per cent. on the users of company cars. Those people tend to be the lower paid, who drive the smaller, more efficient and cheaper cars. That must be wrong.

I do not wish to enter into the argument about the way cars are priced. I believe that that is the industry's business and, as the noble Lord, Lord Dean, said, the Monopolies and Mergers Commission is to report on the issue.

The problems facing the industry, both manufacturing and retail—and the retail motor industry employs half a million people and contributes £1.2 billion through purchase tax on repairs and parts—can only be addressed by the Treasury. I hope that my noble friend the Minister will not talk about the Government providing a climate in which business can thrive, because the Treasury impost is a depressant. I should like to see those charges disappear, preferably overnight. There will he winners and there will be losers. Either way, whether they are eliminated in one year or in five, there will be grumblers and those who say it is their right.

If we do not make those changes, dramatically and soon, there will not be just winners and losers: UK Ltd. will be the loser.

7.2 p.m.

Baroness Denton of Wakefield

My Lords, the first time I had the pleasure of meeting the noble Lord, Lord Wilson, was at a typical London corporate dinner. All the other executives played golf. I had stood on the terraces at Huddersfield Town. Real knowledge gave me an advantage. For 20 years I have earned my living in the motor industry—as a dealer, as head of a leasing company and latterly as a director of a manufacturer. I hope that real experience will allow me to bring some value to your Lordships' debate this evening. I certainly have a love of the industry.

I was delighted to see that the noble Lord, Lord Dean of Beswick, had deleted from his original Question the word "British". Had he left it in we should have been restricted to talking about Rolls-Royce Motors, Morgan Cars and Formula One.

The size of the investment required for the industry to be a player is enormous if the industry is to operate in the truly international scene. For example, last week Fiat announced that it would be spending 32.6 billion dollars on development. Even Rolls-Royce has a US transmission—"US" meaning United States in this cafe. The networks are complex and extensive: Ford with Mazda, Suzuki and Isuzu with General Motors, Mitsubishi with Volvo in Holland, Rover with Honda and, as suppliers, Peugeot and VW among others. There is no new British gearbox now.

There must also be more than a domestic market for sales. We have had vivid evidence of that since the beginning of this year when domestic sales fell drastically but production in the UK rose, largely because of the buoyancy of the German market. As has been mentioned, that market has now suffered a downturn and the consequences are apparent.

There has been government interference in the motor industry. Past governments were responsible for moving the industry from its skill base in the West Midlands to Linwood and Ellesmere Port. When the cold winds next blew the unprotected branches fell off.

I worked for Rover when it was in the care of the DTI. The focus was not on the customer but on Victoria Street and the cars were built to meet politicians' timetables. Could there be any other excuse for the Maestro? We had the National Enterprise Board. As a measure of government success in running industry, its record was graphic —35 companies folded, 38 were sold at a loss and only 29 returned the taxpayers' money.

It is not the Government's job to pick winners and losers in industrial areas but—and my noble friend Lord Lucas did not want this said—to create a climate in which any industry, including the automotive industry, can survive. The enormous ups and downs we suffer in currency and in inflation have to be levelled out. No manufacturer can work in those circumstances. Although a few accountants think it clever when the only profit in a major manufacturing company comes from currency dealings, that is not the way to build a manufacturing base.

The Government have worked wonders in attracting inward investment into this country from automotive companies and, latterly, in ensuring that the Japanese cars built here can be exported to Europe. They must continue to defend that right of export, which was not easily achieved.

Japanese manufacturers here have shown us that we can build cars of world quality and the lesson has been well learnt. Apparently, in Sunderland they know when they are building better quality cars than the Japanese: the latter do not send their figures. Significantly, some of the research and development budgets of Nissan have come to this country recently, which is a great step forward.

There is much that the Government are doing. Perhaps they could go further in some areas. They could provide more help at overseas trade fairs and more economic counsellors at embassies whose job is not only to help find customers but also joint ventures to link this country with the global network. As the noble Lord, Lord Dean, mentioned, we have a labour relations climate in which incoming companies can negotiate a single union contract. The AEU has been at the forefront in creating that climate.

The other area where the Government may consider helping is in the strengthening of relations with universities and polytechnics, particularly the latter, to help the industry exploit its innovations quickly and remain competitive.

As others have said, the whole of this discussion must be taken in the context of the fact that a report from the Monopolies and Mergers Commission is with the DTI. What its findings will be no one knows. Without doubt it will comment on the issue of the pricing of cars. That is an area where, unlike my noble friend Lord Lucas, I believe the industry as well as the Treasury has some way to go.

The industry supplies its dealers through a franchise system, with fixed agreements and margins. Traditionally, manufacturers have always given extra support to the car rental companies, to increase the numbers of vehicles which that market takes and as a means of promoting models to new customers. Therefore, the rental companies were receiving much better margins than the dealers who had invested heavily in the franchise. That could—just—be supported as a marketing expense. However, in difficult times the manufacturer extended that additional discount to several large fleet owners. Consequently, those fleets are returning to the market used vehicles much more cheaply than can a dealer who is a franchise holder. The whole market for those models has therefore depreciated. The dealer takes less profit and the cost of those extra discounts to the fleet market are reflected in the price which the private customer pays.

Not only private customers but all customers lost value when a manufacturer recently used a price reduction across the board to stimulate sales. That is not a good definition of customer care. If manufacturers were to return to orderly marketing with simply an advertising support scheme for rental cars—substantial if need be—the market would undoubtedly slowly return to a more prosperous state.

We should remember that the motor industry does not mean only manufacturers. The retail side of the sector has an annual turnover of £55 billion and directly employs some half a million workers. Indeed, the retail motor industry is the largest employer of a full-time labour force in any retail sector. It has undoubtedly suffered tough times and in dealing with these much reliance has been put on the profits obtained from used cars.

In this country VAT on a used car is paid on the margin not on the total selling price. That is not the case throughout Europe and there were fears that the Community would direct away from our system. However, this was well protected by the Government. It is important that it continues to be so and that as the other VAT implications are dealt with—for instance, some member countries allow business users to reclaim VAT—the Government continue to be pro-active to ensure that our retail industry does not lose out.

It would also be helpful to the retail industry were the Government to remove the cyclic nature of sales driven by the annual prefix registration letter. By forcing such a large percentage of sales through August, the system puts enormous strain on the finances of retail dealerships and is supportive of imports whose factory holidays work to a different pattern to home manufacturers. The customer would benefit too by being removed from the crush.

The industry has always asked for the abolition of car tax. However, this raises large sums in revenue and is not totally out of line with European Community practice; five countries have additional sales taxes similar to car tax and others have luxury rates of VAT. Again, I suggest that some of the cost of the cars is as much with the manufacturer as with taxation. The industry used to say that it could not reach 2 million units without the removal of the car sales tax. It did, and did so substantially.

One possible reason for the removal of car tax would be if the Government were to tackle the issue of the company perk car. One of the contributing factors to the decline of the British motor industry has been the company car. Cars were built for transport managers who argued about the second wing mirror and were happy with vinyl upholstery. The consequence was that the UK built cars for these people but the private customer with money to spend looked elsewhere for his vehicle; in particular, to European imports. If the tax benefits were to be removed would we not also create an environmental benefit—undoubtedly smaller cars would be used—and there would also be great traffic benefits as people who commute in their company car by themselves would be much more likely to share transport or, where available, use efficient public transport.

It is an area much discussed, but can there be any justification for the accountant who drives only to his office, day in day out, having a car over the person driving to work on the line in the same company, or to a checkout in an off-centre shopping mall?

Such a move would also benefit the private customer who would have more power in his purse. As long as the fleet buyer is king the private customer will get, in many dealerships, a second-rate deal. Indeed, when Ford's UK chairman can say in today's marketplace that people want to come and bargain for the best deal that they can get I suggest that there is a failure to recognise today's customer. It is the nurse who needs a car for shift work, the mother who can get the children to school only by private transport and the young man whose parents do not own a car.

I conclude on an upnote; not about what the Government can do but why industry can do it without the Government, or perhaps alongside them. Originally, Japanese manufacturers planning to produce vehicles in this country assumed that they would have to bring their own component supplies with them but they have been amazed by the high quality of components available to them. Instead of relocating Japanese component manufacturers to this country their main routes are to buy from European companies where possible and, if not, set up a joint venture with such a company in order to ensure supplies of the quality that they need. As an alternative, they would buy a local company and find that it took very little time to turn the production round. Only as a final resort do they feel it necessary to persuade the Japanese component manufacturer to set up in this country. That is a great credit to the change which the component industry has driven for itself. The benefit of government focus on inward investment to this country is at its most obvious when these component manufacturers become more competitive and attract global customers.

Demand is not simply driven by the price of a product. Removing car tax would not bring back into the showroom the person who has discovered that his car does 60,000 miles quite efficiently. Nor would it change values on what brings quality to his or her life. What the Government can do is to continue their concentration on creating an economic climate by defeating inflation and continuing to reduce interest rates so that the car industry can both reduce costs and stimulate demand.

7.15 p.m.

Lord Brougham and Vaux

My Lords, I too wish to thank the noble Lord, Lord Dean of Beswick, for giving us the opportunity to debate this important subject. The motor car industry is important to the British economy. The noble Lord quoted the export successes and therefore I shall not repeat them.

Every year the industry invests billions of pounds in new plant, equipment and R&D to make the product more exciting to own and operate and more reliable, safe, fuel efficient and environmentally friendly and to offer good value for money. For example, during the past 10 years Ford has invested £960 million at Dagenham and £580 million at Halewood. During the past 18 months it has invested a further £200 million at Dagenham. Vauxhall and other companies have done the same and there has been new plant from Japan. Cars today are becoming more technically sophisticated, with growing levels of advanced electronics which will continue to require well-trained dealers and service personnel.

During the late 1970s the industry was heading for extinction. It was non-competitive in quality, cost and reliability of supply. At that time the market growth was filled by an increase in imports. By 1979 imports were at 55 per cent., reaching a high of 58 per cent. in 1989. The plants were overmanned; for instance, at Jaguar where I took an industry and parliamentary fellowship course 18 months ago. When Sir John Egan took over in 1980, 14,000 workers produced 13,000 cars of fairly poor quality and reliability. Nine years later a workforce of 12,000 produced 50,000 cars of better quality and reliability.

Output per head has increased by 90 per cent. since 1980 but there is still much to do to match our European competitors in terms of productivity and quality levels. It will be hard to achieve in some of our old plants built years ago, whereas a new greenfield plant such as Nissan has the advantage. It is now exporting cars to Japan which are, I am told, as good if not better than cars made in Japan.

As I said earlier, the industry is producing safer and more reliable and environmentally friendly cars and soon the electric car will he with us. There is also the catalytic converter which eliminates a major portion of exhaust gas pollutants. Today all engines are more fuel efficient by an average of at least 17 per cent. We also see diesel engines which are quieter, more powerful and more fuel efficient than their counterparts. On average emissions are down by about 30 per cent. aid they are 30 per cent. more fuel efficient than the petrol driven car with a three-way catalytic converter.

During the past few years the industry has made cars safer and has introduced a range of security features to deter thieves. It is working further to improve security. However, standards differ so a common BSI vehicle security standard adopted throughout Europe would be in the best interests of us all.

The noble Lord's Question asks whether Her Majesty's Government have any proposals to alleviate the present difficulties of the motor car industry. The industry would not expect the Government to move it to greenfield sites, but it could and should be helped in two ways, the first of which my noble friend Lord Lucas dealt with regarding VAT and special tax.

A second way to help the industry is to have a larger differential between environmentally friendly and non-environmentally friendly fuels. There should be a greater incentive to use unleaded petrol in order to encourage its use and the purchase of cars equipped with catalytic converters. Again, given the environmental and fuel efficiency advantages of diesel, the taxation incentives should be enhanced to further its acceptability among consumers. In France there is a considerable difference between the price of diesel and other petroleum fuels. The result is that about 30 per cent. of all new vehicles sold are diesel powered compared with just over 8 per cent. of vehicles sold in this country for the year to date. Furthermore, there should be a standardisation of diesel which will allow engine designers to work with a consistent fuel.

Why do we not remove all taxes on cars and collect the revenue from the fuel bought at the pump? That could not be done overnight but it is worth considering. It would reduce the environmental effects of motoring, thus forcing the manufacturer to compete in the area which really counts—fuel efficiency.

The UK motor industry has come a long way since the 1970s. It is now extremely important in the spheres of employment, exports and basic manufacturing infrastructure. It needs not support but equal opportunities to enable it to compete on the so-called level playing field. However, it still faces challenges as it goes towards the next century.

7.21 p.m.

Lord Stoddart of Swindon

My Lords, I join with other noble Lords in congratulating my noble friend on bringing forward this Question this evening. I confirm from my own experience what he said about the truck industry. Last Tuesday I visited Ford Iveco in Slough to see the new cargo model being made. I learned from that visit that the number of trucks produced had fallen from 14,900 to 6,000. There had been a drop of £200 million in turnover and a reduction in employment from 1,400 to 800 people. Therefore, there is no doubt that the truck industry is undergoing severe difficulties even though British manufacturers are producing some of the best trucks ever.

As noble Lords have said, in the last Budget the tax burden on cars was raised to more than 27 per cent. We must bear in mind that that compares with 14 per cent. in Germany and 22 per cent. in France. Combined with a 20 per cent. increase in company car tax scales and the imposition of national insurance contributions on the company car and fuel benefit, the British motor industry was dealt a body blow just at a time when it was already suffering considerable difficulties and a downturn in UK sales as a result of the recession.

Sales at 1,600,000 this year will be down by 22.5 per cent. on the 1990 figures but since the projections in 1989 for sales in 1991 were 2,200,000 there is a real reduction of over 27 per cent. in the expected sales for this year. That is the real measure of the recession which is taking place and of the problems which the car industry is having to cope with. In fact, it was budgeting for sales at 2,200,000 and has had home sales of only 1,600,000. That could not have come at a worse time—only a year before the advent of the single market when competition from the Continent will be much stiffer. There, car manufacturers seem to receive a better deal from their governments especially where the car industry is state owned.

In my view the industry resents the lack of leadership by the Government. The industry needs leadership. Can the noble Lord, Lord Reay, say just what is expected of the car industry and where the car is expected to fit in with any transport policy which the Government may have?

It is accepted by the motor industry that the role of the car may very well have to change. There is a growing acceptance that the car as a means of commuting into town and city centres at peak periods is becoming non-viable and is increasingly seen by the public as a menace to safety and to the environment of built up areas. Until the Government give priority to public transport measures and other policies to deal with city centre congestion, the car will remain the favoured means of transport for journeys to work and shop.

We have heard what are the new tax burdens on car manufacturers. My noble friend pointed out that they amount to £20 billion this year and that has been confirmed by others. The manufacturers find those taxes more acceptable if the extra revenue was being used for better public transport provision. Extra money is being taken out of transportation generally just at a time when much more needs to be put into it, especially to assist the improvement and development of public transport.

The Government should encourage and help to speed up the change to more environmentally friendly cars. That means helping to enable people with older, environmentally unfriendly cars to buy newer cars sooner. That will not be achieved by heaping ever-increasing taxes on the motor industry and its products. Perhaps the noble Lord will comment on that aspect. Will he say what sort of discussions are being undertaken between the Government and the motor industry at present about the wide range of problems which exist? Can we be assured that the Chancellor will listen more closely to the representations of the motor industry before next year's Budget than he apparently did before this year's Budget o that he can avoid the serious mistakes which he made then?

Is the noble Lord satisfied that the British car industry is not being put at a disadvantage through hidden subsidies being made to European car makers especially in France and Italy? Are we investigating that? Are the Government making representations if such subsidies exist?

Those are problems in the motor industry. I believe that the industry sees those problems. The Government must have a policy towards the industry. I wish we could find out what it is. Perhaps the noble Lord will help us when he replies.

7.29 p.m.

Lord Strathcarron

My Lords, I am grateful to the noble Lord, Lord Dean of Beswick, for initiating this debate on an extremely interesting subject. I worked in the industry for 43 years and have obviously seen many changes in that time. I have seen ups and downs galore. After the war it was a very difficult time for the industry because it was allowed steel to make cars only if a percentage were exported. The industry was quite pleased to export the cars but it forgot about all the spare parts which should have gone with them. Also, the cars were not adjusted to local conditions. On the Belgian pavés they literally fell to pieces. The American cars that went into Belgium had stiffer suspensions and shock absorbers and managed to survive.

At that time in the Midlands the car industry had a very insular attitude. I do not believe many people had driven competitors' cars from the Continent. The Austin Motor Company was always known as "The Austin". At The Austin they said that if it was not made in Brum it could not be much good. It was an extraordinary attitude and I am pleased to say that it no longer exists.

The industry has made enormous progress. It experienced terrible problems due to weak and ineffectual management. However, it survived all that and in 1989 the motor industry was as prosperous as it had ever been. I shall not repeat the figures already mentioned in regard to employment and job losses. However, it is interesting that 13 per cent. of all tax revenue is provided by the motor industry and its customers, which is an amazing figure.

I should like to say something with regard to the 10 per cent. special car tax introduced in 1973 as a temporary measure. Like most temporary measures it is still with us. The Government appear to be reluctant to get rid of the car tax. It seems to be unjust because it applies only to the motor industry and to no other goods. By the time VAT of 17½ per cent. is added, it adds around 27 per cent. to the price of a car. That has resulted in a reduction in car sales of about 24 per cent. The fact that VAT is not reclaimable on business cars discriminates against the motor industry. It is reclaimable for other business purposes such as office equipment.

The 1991 Budget increased personal benefit taxes on business by a figure way above inflation. Furthermore, employers' national insurance contributions will be payable on private use of business cars, whereas other benefits in kind are not so affected.

Truck sales are in a sad state and are expected to be the lowest since 1954. That is due to the recession. Companies make the lorries last longer. In some cases, with lack of business, they have taken one or two lorries off the road and are unlikely to be able to buy new ones for some considerable time. It is interesting that in 1989 the British and German markets were around the same size, and the German markets in 1991 will be three times the size of ours. That is a sad reflection on the state of the industry.

The motor cycle trade has been seriously affected, with sales only one-quarter of what they were a few years ago. It is true that few motor cycles are made in this country. But thousands of jobs are seriously at risk in the dealerships and service outlets. I thought it strange in the Budget—it was not mentioned at the time—that the annual tax on motor cycles was increased by around 20 per cent. yet nothing was added to the annual tax of cars. It is strange because a motor cycle uses less petrol than a car and takes up less road space. I believe their use should be encouraged.

I am surprised that the Government have done so little to encourage diesel cars. In some European countries such as France and Germany diesel fuel costs only two-thirds the price of petrol. As a result, in France almost 40 per cent. of new cars are diesel powered compared with around 9 per cent. here. In October this year diesel sales reached 10 per cent. for the first time. Diesel cars do not require expensive catalytic converters and use around one-third less fuel than their petrol equivalent. They are therefore favourable to the environment and should be encouraged.

The multinational companies, both Ford and General Motors, have been criticised in the past for importing cars made in their continental factories. For instance, all Ford Granadas and Sierras are now imported. Vauxhall imports all its Senators, Carltons and Calibras. In the whole of Europe the Vauxhall Nova is built only in Spain.

However, the motor industry is not all gloom. Ford now exports a large number of Fiestas from its plant in Dagenham; Vauxhall manufactures a great many Luton-built Vauxhall Cavaliers in left-hand drive form, and they are sold in export markets as Opel Vectras. Around 80 per cent. of Nissan production from Washington is exported, mostly to Germany, and the export figures for the successful Rover 200/400 series continue to rise. As a result, although sales are down by approximately 25 per cent., production is down by only around 10 per cent. That is encouraging. As long as the European market holds up car production will not fall too seriously.

It is a great pity that government policy towards the motor industry and its customers appears to be hostile. One must hope for a quick change of heart so that this great industry, which is so important to the prosperity of the country, will once again be able to thrive.

7.36 p.m.

Lord Braybrooke

My Lords, I too am most grateful to the noble Lord, Lord Dean, for allowing one to take part in the debate. This afternoon we are dealing with one of the major, if not the major, industries of the country and the problems therein. Motor manufacturers employ a large number of people and even more are employed in ancillary industries. Their security and livelihood is obviously of great importance and the destruction of this manufacturing base will be a tragedy which must be avoided at all costs.

Nevertheless, market forces play a major role in all businesses and alteration of product and diversification should be considered early before demand slumps to a dangerous level. One of the few businesses that has an ongoing clientele is the undertaking business. Even they experience competition from different firms and produce reproduction furniture in the summer when business is slack.

With your Lordships' forbearance I want to look beyond the downturn in the number of car buyers to prospects and possibilities for the future, star-gazing though that may be. I hope it will be of interest to your Lordships even though some may disagree.

The motor car is loved by many and deeply cherished. For most people it is their major purchase apart from their home. It gives the owner enjoyment, freedom, status and satisfaction. I am told that in some cases cars receive more attention than wives. Noble Lords may recall the story of a couple trapped in their new car in a traffic jam on Westminster Bridge. The wife said to the husband, "If you do not stop talking about this new car, Henry, I will throw myself off the bridge". He replied, "You always were a sport, Doris", quickly opening the passenger door.

I hasten to add that I have a great love affair with motor cars. I cannot imagine life without 12-cylinder Jaguars, although I doubt if I will ever buy another petrol-engine car—something about which I shall speak shortly. However, these privileges cost us dear. Perhaps I may draw an agricultural analogy, from what is another large business. Surely there is no inviolable right to produce cars beyond demand, any more than farmers can now demand agriculture as a way of life, with an assured market for all their lines of production. Farming is throttled. Many crops have quotas; production is limited and the rearing of animals for food production is in some cases totally uneconomic. It seems to be a crazy world when half mankind are alleged to be starving. But I understand that transport costs to far-flung lands cannot be borne.

We read that this month 101,000 units were produced in the motor industry in Great Britain and 58 per cent. of cars were imported in October. From that are we all to deduce that foreign cars are better? It is not the Government's task to interfere in design or endeavour to protect the home market. I suggest that exports must continue to be encouraged—and they have done remarkably well—with all speed. Only that will probably save the industry in its present state. Encouragement should also be given to buying British. I know that few cars are British these days though some of them carry British labels. For years we produced the best cars in the world and 50 years ago or more people who bought foreign cars were regarded as being a little unusual. It was mildly "non-U", almost like wearing co-respondent shoes. That is now no longer the case. I have been driving diesel Vauxhalls, and automatic ones too, for the past eight to 10 years. They are all made in Germany but my friends do not know because of the Vauxhall label.

I wish to mention one point about the cost of diesel fuel. Over that 10 years, buying fuel in bulk, it has always been between six shillings and eight shillings a gallon cheaper than petrol. I use the old money to give noble Lords an idea of how much cheaper it is if you buy and store the fuel yourself. Like farmers, motor manufacturers should start thinking about diversification and ever-increasing exports. We threw away our motorcycle industry, through no fault of the people building the machines. I cherish my Velocette. We threw away our light aircraft industry, and again the employees were largely, if not completely, blameless. Cessna and Piper in the United States of America no longer produce single engined aircraft due to excessive product liability laws. That market—and a very valuable one it is—has been largely taken over by the French. The French, my Lords! I ask: why not Great Britain?

Some motor manufacturers indulge in the aircraft industry—Saab, in particular, on the Continent. Motor manufacturers are also pretty well placed to produce pressed steel or prefabricated items which could be done for the home market. I refer to cabinets, washing machines and the like. They could also produce panels, parts or even perhaps complete railway carriages. Heavyweight firms such as Vickers, who own Rolls-Royce, could produce railway locomotives, as could many other firms in the defence sector. Many motor manufacturers are now highly skilled in plastic moulding. I suggest that we must strive not to let the motor industry follow motorcycles and light aircraft.

The company car offers great advantages to the employee. There is of course no first cost of purchase. The choice of the car may be at the behest of the employee. Noble Lords may disagree, but I suggest that company cars are probably driven less thoughtfully and carefully than self-owned cars. Few company cars are diesel for obvious reasons. Why should an employee bother about the cost of motoring when it is not borne by him?

Sometimes farmers provide their employees with milk and heating oil. If, as an alternative, the employer decides to pay the farm worker more to cover these items on his own account, I suggest that he might possibly drink marginally less milk, but he would husband his heating oil most assiduously in order to get the maximum benefit from it at the least cost. I suggest that owner drivers do likewise.

With the probable demise of the company car diesel becomes even more attractive. I agree totally with the figures given by my noble friend Lord Strathcarron: that is, that 40 per cent. of cars sold in France and nudging 10 per cent. sold in this country are diesel cars. However, the carriage trade do not really like them. They burn too little fuel. There is too little service work to be carried out on the engines at £40 per hour. They probably also last too long.

Looking to the future I ask whether the industry, like agriculture, will ever have it so good again. In my view there are some warning signs. Is it acceptable to go on covering our beautiful island with ever more concrete? There is indeed foreign competition, but do foreigners always play by the Queensberry rules? There are environmental considerations which the production of electric cars would satisfy. Aggravation and nuisance in towns is likely to increase. Great strides have been made in safety of late but unfortunately we still lose 5,000 lives a year and 35,000 petrol engined motorcars catch fire each year. Jack-knifing a 40-tonne articulated lorry is not uncommon. Should its speed be directly related to its braking capabilities? For example, can a 40-tonne lorry, travelling at 70 miles per hour, stop without jack-knifing and in the same distance as a family car travelling at the same speed? If not, why not?

I suggest that competition would come from a properly modernised railway system, which we have not got in this country. It would provide greater speed, greater haulage capacity for the horsepower used, less land take, greater safety and far less damage to the environment. A journey time of under four hours now between King's Cross and Edinburgh would be impossible to beat legally in a private car and is a likely threat to air travel.

I now turn to freight haulage. There are privately owned locomotives running on British Rail between Foster Yeoman quarries in Somerset and Acton in West London. On 26th May of this year one of these locomotives (of General Motors manufacture) hauled a train in excess of a mile in length weighing 11,982 tonnes. That is the equivalent of 315 lorries of 38 tonnes each, which would need 110,250 horsepower as against the 4,500 horsepower required by rail to haul the same load of granite or 24½ times as much. I hope noble Lords will forgive me for suggesting that Sir Winston Churchill might have said, "Some train— some engine".

Finally, are these pointers for the future? Can we manufacturers of food and cars ignore the market? Perhaps wise men cut their cloth accordingly and survive.

7.49 p.m.

Lord Astor of Hever

My Lords, the UK's economic volatility is a major problem for our motor manufacturers. They need a more stable environment in which they can forecast demand and therefore plan production schedules, order supplies and specify manpower requirements with greater accuracy. As we have heard over and over again tonight, the UK market is at its lowest level for many years. I shall not go into the figures, but they are appalling. It is vital that our motor manufacturers are helped, and quickly, before European barriers are lifted in 1993. The Japanese will then increase their penetration at the expense of European volume makers. That is projected to cost the UK's largest car manufacturer alone, Rover, over 20 per cent. of its total European export volume. Last year its export sales, which were 43 per cent. of the total output, were worth over £1,000 million.

It may be that the Government's hands are tied by EC regulations, but Rover is a company that directly or indirectly employs 180,000 people in this country. It would be a great pity if financial problems should cause it to abandon developing cars scheduled for 1994 and beyond, some of them among the most interesting cars that it has ever conceived. I have three proposals, one or two of which the Government might consider and none of which should fall foul of Brussels. Unfortunately, all have been mentioned already, so at this late hour I shall be brief.

The first is the removal of the 10 per cent. car tax which places us among the highest taxed countries in the EC as regards new car purchases. No wonder there is now a form of "nearly new" trading, with lower margins for manufacturers and dealers. The second is the introduction of generous financial incentives to encourage greater interest in cars with environmental benefit s. We have heard from other noble Lords about the price differential in France between petrol and diesel, while Germany encourages drivers to buy cars equipped with catalytic converters by exempting them from the road fund licence for the first three years.

As in Germany, VAT might be reclaimed where a company car is legitimately used for business purposes and not just for an executive to go back and forwards to work. On my farm I can reclaim VAT on a tractor and a van. To many firms a car is just as important as a business tool. The last Budget was not helpful to the motor industry; I hope that the Government may consider some of these proposals.

7.52 p.m.

Lord Clinton-Davis

My Lords, may I at the outset congratulate my noble friend Lord Dean on initiating a debate which has been of a very high standard and one in which a number of very interesting propositions have emerged. The debate ranged over a wide field and even included the daring revelation of the noble Lord, Lord Braybrooke, about his love affairs—albeit with motor cars.

I did not detect very much, if any, support for the policy of this Government in relation to the car industry. The Minister would do well to note that most of the speakers in the debate came from his own side. The clearest common denominator has been the significance for the United Kingdom's manufacturing position of the motor vehicle industry.

As my noble friend Lord Stoddart said in a very fine speech, the industry faces very tough times. Indeed, in briefing your Lordships' House, the motor car industry made explicit and serious charges against government policy. I quote: The Government's fiscal policy is putting the future at risk". Perhaps it is one of those US components of the Government's policy to which the noble Baroness, Lady Denton, referred. I think in this connection it is a different US from the one to which she was alluding. This is a charge which emanates from a very respectable source and it is incumbent upon the Minister to answer very clearly what has been said.

What is the bleak scenario depicted by the industry—an industry at its lowest point for more than a decade? Over the past 12 months new car sales have plunged ominously and the slide continues. My noble friend Lord Stoddart and the noble Lord, Lord Strathcarron, referred to truck sales being at their lowest level since the war. Reputable car dealers are declining into receivership and liquidation as never before and component manufacturers too are deeply affected by the slump. The scourge of unemployment haunts the whole industry. It haunts dependent industries and businesses and indeed many industrial areas of the United Kingdom. One does have to ask whether, to quote the Chancellor, this is part of "the price worth paying" for the way in which they have waged the war against their self-induced inflation.

The industry resents the fact that the Budget, whose principal design—it is as well to remember this—was to extricate the Government from the poll tax debacle, has hit the industry for six. It is a situation of absolute nonsense, to quote the noble Lord, Lord Lucas. Higher VAT, but no relief in the discriminatory special car tax.

One has to ask too where else among our competitors in Europe is the car industry singled out in such a discriminatory fashion? Why should cars be penalised, but not, for example, washing machines? The difference is very easy to explain. It is that huge revenues are enjoyed by the Treasury by embarking upon this injurious policy.

Regrettably the Government chose to ignore the representations which were made by the industry, as, indeed, they ignored the omens of decline which preceded those representations. What the Government preferred were the signs of false dawns. Car output remained stable until August, despite a massive fall in car sales. Exports were kept buoyant by a temporary increase in demand in Europe, notably in Germany. The rueful warnings of the industry went unheeded, despite the calamitous fall in production—30 per cent. in August, 11 per cent. in September —as the growth in exports slowed and the pace of decline in the United Kingdom car sales accelerated.

The difficulty—the main underlying problem—is that this decline, coupled with the run-down in jobs, is not just that these jobs, particularly skilled jobs, will disappear, but so will production plants, rendering the industry far less capable of meeting increased demands when the economy finally picks up.

Another important fact, seemingly overlooked by the Chancellor, is that motor cars account for more than 5 per cent. of total consumer spending. What he has been looking for is higher consumer spending to lift the economy out of the recession. There seems to be something of a non sequitur as far as concerns policy.

Let it be underlined, too, that Britain's trade deficit in times of greater economic activity is compounded by car imports. That is bad for our industry here and it is bad for the country. What is saving the car industry in Britain is regrettably not the British motor car industry but the motor car industry in Britain—and the two are different. It is the wave of inward investment by Japanese car makers into the United Kingdom that is responsible for that. Of course that has its very strong plus side. It has certain disadvantages as well. But the fact is that we have to be grateful that that has happened, as the noble Baroness, Lady Denton, said in what I think the whole House will acknowledge was a very remarkable contribution to the debate.

The fact that the Government seem to have written off our own indigenous car industry has given cause for anxiety to noble Lords on both sides of the House. It has become rather fashionable for the Government to do that in the recent past. We have to ask if the judgment is right. Despite all its difficulties we do have the designers, the inventiveness, the technological skills and the work-force capable of promoting the industry; that has been made clear by a number of noble Lords tonight. What the industry needs is much more new investment to promote output, jobs, more environmentally friendly cars and the balance of trade.

Industry has major responsibilities in facing the industrial world of the future. There is a need to match the way in which the Japanese have mastered the art of producing many different models in a profitable way; the way in which they have concentrated on speeding up the time needed to change tools for different models, designing models that people want and selling them at a profit.

In the industry itself there needs to be less conflict, fewer restrictive practices, less "them and us", more flexibility, more devolution of responsibility and more information too for the workforce and for customers. Those are some of the ways in which we can work towards the radical overhaul in terms of human relationships at the workplace that is needed. There needs to be restructuring to meet the needs of modern manufacturing requirements. There is a need for more R&D to ensure that technology is kept at the leading edge in order to improve consumer choice and enhance environmental standards. The environment in the workplace must change, with democracy and the maximising of consensus wherever possible replacing division and autocracy. Happily, that situation is declining. Those are the ways to ensure commitment to the industry which is the key to industrial success.

The Government also have their responsibilities because the industry needs government. It needed government in causing the Japanese to invest in a major way in some of our regions. Those companies would not have established themselves here without substantial regional aid from the Government and from the European Community. There needs to be an increasing degree of partnership between the industry and government, each recognising the responsibilities of the other. The Government must be committed to an industrial strategy which provides stable and predictable exchange rates. That was said back in 1989 and has been said since by the CBI. I heard the noble Baroness, Lady Denton, speak at the CBI. I did not agree with as much of what she said there as I did with what she said today. There must also be an abandonment of the over-reliance on interest rates as an economic regulator which has clearly damaged this and many other industries.

My noble friend Lord Stoddart was right to say that policy in relation to the motor industry has to be related to an overall transport policy. What the Government do there is to indulge in ad hocery on a large scale. They do not have an integrated transport policy. Indeed, the Minister in this House, the noble Lord, Lord Brabazon of Tara, has denied that there is any such thing as an integrated transport policy. He is about the only transport Minister in Europe to make an assertion of that kind. There needs to be the promotion of links with higher education which has all too often been neglected by this and other industries.

We cannot afford to conclude the debate without referring to the consumer. The customer has been the subject of many anti-competitive devices. It is true that that is to be the subject of a report by the Monopolies and Mergers Commission. British consumers are required to pay more for their cars; consequently, they either do not pay those higher prices or, if they do, they have less to spend on other things, with corresponding damaging effects on the whole economy. Half the cars sold in the United Kingdom are imported. If we could cut a quarter of the cost of imports we could save nearly £2 billion a year on our balance of payments. It is important that sales of new cars are improved, not least because new, more environmentally friendly cars constitute one of the most effective safeguards against pollution of the environment.

There are new and massive challenges to be faced by the industry. There is the question of the recycling of cars and parts of cars. The German motor industry is demanding 100 per cent. recycling. That problem has to be faced up to. The noble Lord, Lord Brougham and Vaux, referred to electric cars. Possibilities are emerging in the United States of brand new technologies. All this will impact on an industry which requires to invest more and more in research and development to keep up the strenuous pace that is being dictated. The Government cannot divorce themselves from those factors and simply rely on the propositions of their ideology which are now vastly outdated, as they themselves concede day after day.

Once again I congratulate my noble friend Lord Dean on the excellent speech with which he introduced the debate and thank him for giving us an opportunity to range over so many issues widely in pursuit of a policy which we hope will be dictated by rather greater common sense than has been reflected by the Government's policy in the past year or more.

8.6 p.m.

Lord Reay

My Lords, I am grateful to the noble Lord, Lord Dean of Beswick, for raising this subject for debate. It has provoked an interesting, well informed, stimulating and enthusiastic discussion. The noble Lord must be gratified by the number of speakers from our Benches who have taken part in the debate, even though he may perhaps be disappointed by the number from his own.

I recognise that the recession has created severe difficulties for British car manufacturers, but I have been greatly encouraged by the way in which they have coped over recent months. I shall start by saying something about that commendable performance.

Despite the short-term slump in domestic demand, our major car manufacturers have managed to maintain their 1990 production levels and indeed Vauxhall, for one, is currently breaking production records at its Luton plant. Such achievements have been made possible by the manufacturers' tremendous export performance. In the first nine months of this year, British car production for export increased by a staggering 89 per cent. compared with the same period last year, helping to reduce the trade deficit in the automotive products sector by 79 per cent. in the first half of this year. The success of the export drive indicates that our car manufacturers are now more competitive than ever, indicating our policy of exposing companies to competitive pressures.

Some people have said that this tremendous export performance is purely a short-term phenomenon made possible by the German boom since reunification. However, that theory does not correspond to the facts. In the first half of this year British car manufacturers exported a total of 36,000 cars to Germany, representing only 12 per cent. of total British car exports to the EC. That compares with 82,000 cars exported to France and 91,000 to Italy in the same period—the latter being an increase of more than 500 per cent. on the same period last year. By increasing exports to countries such as those, where the overall level of demand is falling, British manufacturers have succeeded in substantially increasing their share of these markets; for example, from 1 per cent. to 7 per cent. of the Italian market, from 5.5 per cent. to more than 8 per cent. of the French market, and from under 2 per cent. to more than 5 per cent. of the Dutch market. Perhaps that, more than anything, is the clearest indication that British car manufacturers are once again able to compete with the best in the world.

However, noble Lords will be aware that government policy in general puts more emphasis on setting the climate for long-term competitiveness and growth rather than trying to cushion manufacturing industry from short-term fluctuations. I therefore propose to highlight how current government policy has played a major role in laying the foundations for what promises to be a tremendous period of change and expansion for the UK car industry over the next few years. I believe that three policies in particular look set to have a fundamental impact on the future of our car manufacturers, thus helping them to become leaner, fitter and more responsive to consumer requirements.

First, there is the success of the Government's step-by-step reform of industrial relations and trade union law over the past 12 years which is widely acknowledged to have had a profound effect on the car sector and will clearly continue to do so. It is no coincidence that the widespread reduction in strikes and th3 overall improvement in industrial relations has occurred since government legislation was introduced. For example, it has outlawed secondary picketing, required secret ballots before official strikes, protected union members from unjustifiable union discipline, protected businesses and jobs against unofficial strikes and made all closed-shop practices unlawful.

In turn, the curbing of union power has enabled manufacturers to introduce new and more effective working practices. Of particular note among such reforms currently being introduced in the automotive sector are the recent changes in working practices which Rover and Vauxhall have introduced. At its plant at Ellesmere Port, Vauxhall has abolished demarcation lines, introduced team working and scrapped the multi-union negotiations in favour of a "single voice" bargaining system. Rover's "New Deal" involves the introduction of similar working practices based on trust in the workforce; for example, the abolition of clocking on. These changes are clearly the way forward if British manufacturers are to attain world best practice levels of productivity, and would simply not have been possible without government legislation to reduce the excessive power previously held by the unions.

Secondly, the fact that the three largest Japanese car manufacturers chose to locate in this country is very much a result of our policy of encouraging inward investment. By the time all three are fully on stream in the mid-1990s they will have brought at least 500,000 units of new annual productive capacity and 8,000 new jobs to the United Kingdom. However, the benefits of such projects are not confined to new production capacity and employment. Honda and Toyota will soon be joining Nissan in bringing a whole new philosophy to car manufacturing in the UK, involving not only radically new production techniques but also totally new working practices which lay emphasis on teamwork and trust; practices which can develop in the new industrial relations climate we have created. Already, during its short history in the UK, Nissan has established itself as one of the most efficient car plants in the world and, with Toyota and Honda soon to come on stream, the UK is set to become the centre of European best practice in the motor industry, enjoying the fastest rate of growth in car production anywhere in Europe.

Our policy of encouraging inward investment by the car manufacturers is also having a tremendous revitalising effect on the UK automotive component industry, as my noble friend Lady Denton of Wakefield recognised. Many component suppliers have had to improve product quality and reliability in order to meet Nissan's exacting standards and, at the same time, have been helped by Nissan to achieve those standards. By the time Nissan's Sunderland plant is at full capacity in 1993, producing 220,000 units per annum, the company will have an annual expenditure on European sourced components of £600 million, of which £400 million will be with UK suppliers. By the time all three of the Japanese inward investors are at full capacity in the mid-1990s, their combined annual expenditure on European components will have almost reached the £2 billion mark. It is clear that the British component industry is facing a unique opportunity, which I trust it will grasp with both hands.

Thirdly, our policy of ensuring free and fair competition and working toward the single European market is of great importance to the success of the United Kingdom investments made by the Japanese car builders. That has been most apparent in our struggle to have so-called "transplant" production treated in the same way as cars produced by the European Community's more established manufacturers. We are therefore pleased that the recent agreement on Japanese car imports after 1992 secured our main objective of obtaining free circulation within the EC for such transplant production. I can assure my noble friend Lady Denton that we shall be maintaining close contact with the European Commission to ensure there is no breach of the free circulation principle in future.

However, progress has not been restricted to the Japanese manufacturers. We must not forget the remarkable turnaround which one of our more established manufacturers has experienced since the late 1980s. Since privatisation, Rover has experienced a phenomenal reversal of fortunes, with the consumer once again being able to have confidence in the quality of its products. In addition to quality improvement, Rover's productivity has soared from six cars per worker per annum in 1979, to 18 in 1989 and to no less than 35 cars per worker this year. That level of productivity is not far off Japanese levels, and, in fact, one of the main reasons for Rover's remarkable turnaround has been its ever increasing links with Honda. That alliance, which started when Rover was in the public sector, has proved invaluable, particularly in the field of product development.

Several noble Lords raised the question of the special car tax. Indeed, my noble friends Lord Lucas of Chilworth and Lord Strathcarron did so. Other noble Lords took up various aspects of taxation. I do not think that noble Lords would expect me to go into any detail on the subject. I am aware that tax is an issue of concern to the industry. I am sure that my right honourable friend the Chancellor of the Exchequer will seriously consider the various representations which will have been made to him when considering next year's Budget.

The noble Lord, Lord Dean of Beswick, raised the question of car prices. The matter was also raised by several other noble Lords, including the noble Lord, Lord Clinton-Davis. The MMC report on the supply of new cars was submitted to the Secretary of State for Trade and Industry on 31st October. He is carefully considering its recommendations. The report will be published as soon as is practicable.

The noble Lord, Lord Dean of Beswick, also referred to the current depressed state of the truck market, which was also mentioned by the noble Lord, Lord Stoddart of Swindon, and by my noble friend Lord Strathcarron. It is inevitable that there have been cutbacks in sales of trucks and commercial vehicles as companies have deferred purchases during the recession. That point was made by my noble friend Lord Strathcarron. Economic recovery will lead to an upturn in sales. British truck manufacturers are well placed to take advantage of the recovery in commercial vehicle sales and they will benefit from the strength inherent in the new international alliances which have been established such as Iveco/Ford and Leyland/Daf.

My noble friend Lord Brougham and Vaux mentioned the mounting concern on the issue of car security. The DTI and the Home Office have discussed the issue with British manufacturers with a view to improving the security features of new and current models.

My noble friend Lord Astor of Hever argued that Rover's sales to the European Community would be hit in the future by Japanese imports. All I can say is that we believe in the benefits of free trade and free competition as a stimulus to efficient manufacture, choice and low prices for the consumer. Rover is a company which has been reborn in the private sector, as I have argued, and seems more than capable of competing with the world's best.

In conclusion, the next few years promise to be an exciting period for car manufacturers throughout the world as they introduce fundamental changes in every aspect of their operations to meet the challenges of efficient car production in the 1990s. The fact that the British car industry has shown itself capable of responding positively to the current difficult conditions leads me to believe that its future is secure without special interference from government. Our policies of setting the framework for less adversarial industrial relations, encouraging inward investment and privatisation and promoting the single market will be seen to have an overwhelmingly positive and long lasting effect on our motor car industry as it prepares to meet those challenges. I therefore have every confidence that the UK car industry will continue to save itself by its own exertions.

House adjourned at nineteen minutes past eight o'clock.