Video: is it the right thing to do?

A £2.3 billion rescue for Britain’s carmakers was justified by Lord Mandelson last night as paving the way for the “reinvention” of a greener motor industry.

Jaguar Land Rover and Vauxhall were expected to be substantial beneficiaries as the Business Secretary announced £1.3 billion of guarantees to unlock funds from the European Investment Bank, and a further £1 billion of other lending.

But all the funds will be tied to investment in lowcarbon initiatives to produce lower-emission cars.

Lord Mandelson said that Britain had some of the world’s most productive car plants and denied that he was giving a “blank cheque” to the carmakers.

“This industry is not a lame duck and this is no bailout,” he said.

In a sideswipe at the banks he added: “For the future, Britain needs an economy with less financial engineering and more real engineering.”

His package received a mixed welcome, with general support from the car manufacturers but disappointment from the unions. Kenneth Clarke, the Shadow Business Secretary, called it “small beer”, although Labour MPs in carmaking constituencies voiced cautious support.

Banks are to be asked to run a scheme that would help buyers to get credit to buy cars. Mervyn Davies, the Trade Minister, has been asked to find institutions willing to participate in the plan, but there are concerns from the Treasury and the Bank of England that it should be aimed at boosting sales of cars made in Britain rather than imports.

Credit from finance companies linked to the industry has dried up, and there was disappointment that the plan, which would allow them to access the Bank’s multibillion pound liquidity scheme, was not started immediately.

Tony Woodley, the joint general secretary of the union Unite, said the package was a “huge disappointment” and would leave little or nothing for hundreds of component makers.

David Smith, the chief executive of Jaguar Land Rover, said: “The Government has recognised the strategic economic importance of the car industry in the UK as a major provider of high-skilled jobs and a significant contributor to our balance of trade.”

Lord Mandelson said a further £35 million could be available for retraining workers in the automotive sector and there would be a “step change” in research for greener vehicles.

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