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By Frank Prenesti and Adrian Croft
LONDON, Jan 27 (Reuters) - Britain pledged on Tuesday to guarantee up to 2.3 billion pounds ($3.25 billion) of loans to help its ailing car industry cope with a slump in demand that has cost thousands of jobs. The government also announced 35 million pounds of new funds for training in the British car industry, which suffered its sharpest fall in output in nearly 20 years last month.
The battered car industry cautiously welcomed the news, but the opposition Conservatives mocked the limited scale of measures to be funded by money already set aside by the government.
Prime Minister Gordon Brown has already announced tens of billions of aid for the crisis-hit banking sector and billions more to try to kickstart the recession-hit economy.
As the centrepiece of the car package, the government will guarantee up to 1.3 billion pounds of auto industry loans from the European Investment Bank.
It will guarantee a further billion pounds of loans to fund investments ineligible for support from the European lender, Business Secretary Peter Mandelson told parliament.
Mandelson said it was not a bailout, but the British car industry was in the "front line of the downturn" and the government had to act to prevent an irreversible loss of capacity, skills and technology.
"For the future, Britain needs an economy with less financial engineering and more real engineering," he said, referring to efforts to reduce Britain's reliance on the financial services industry.
The British motor industry is now largely foreign owned, but still employs more than 800,000 people in total. Britain is one of a number of European countries considering measures to help the auto industry after the credit crunch and a global downturn slashed demand.
The U.S. government is being pushed to provide more help to produce fuel-efficient cars. It gave $17 billion in December to bail out General Motors Corp and Chrysler.
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The government said trade minister Mervyn Davies would draw up a plan to improve access to credit for manufacturers' financing arms.
"The industry welcomes the fact that the government is taking the matter seriously, but the devil will be in the detail," said a spokesman for the Society of Motor Manufacturers and Traders.
David Smith, chief executive of luxury carmaker Jaguar Land Rover, owned by India's Tata Motors, said the government had recognised the car industry's strategic economic importance, but he also wanted to see the details.
Conservative business spokesman Kenneth Clarke said Mandelson's announcement was a letdown. "Someone has said to (the business ministry) we cannot afford anything but modest loan guarantees," he said.
The Conservatives, who lead Brown's Labour Party in opinion polls, have accused the government of embarking on an irresponsible borrowing spree to counter the downturn.
Mandelson will meet industry representatives on Wednesday to discuss the measures, which he said were aimed at helping Britain become a leader in developing low-carbon vehicles.
Groups such as Nissan Motor Co, Honda Motor Co and Ford Motor Co have major plants in Britain.
Nissan said this month it would cut 1,200 jobs at its Sunderland plant in northeast England, while Jaguar Land Rover has announced 450 job cuts. (Editing by David Holmes/Will Waterman)