Industry body tells PM a deal is essential – or else firms will need substantial tax breaks
Investment in Britain’s car industry has effectively stopped amid fears over Brexit, with a “pitiful” £90m pledged for new developments in the first six months of this year, according to the industry body.
Before Brexit clouded the horizon, the automotive industry was investing between £2.5bn and £2.7bn a year in research and development.
The Society of Motor Manufacturers & Traders (SMMT) said a Brexit deal was imperative to help the embattled industry to bounce back, otherwise the government will face demands for the same type of tax breaks farmers need to stay afloat.
The SMMT also revealed that the industry has sunk £330m into contingency plans for a no-deal.
“That shows you the scale of expenditure having to be made potentially for no reason if we get a deal,” said Mike Hawes, SMMT’s chief executive.
“But the most worrying figure is investment. The fear of no deal is causing investors to sit on their hands. There is political uncertainty. There is economic uncertainty.
“The worst outcome would be no deal, that’s what they fear and that is why they are not investing. In terms of underlying trends, undoubtedly £90m is pitiful.”
He added: “Investment-wise, over the last seven years we’ve averaged about £2.5bn to £2.7bn per annum. That fall [to £90m] is precipitous.”
The £330m on contingencies has been spent on areas including new IT systems, regulatory work on chemical storage, warehousing, stockpiling of specialised pallets for parts and insurance for extra stock.
Hawes said the industry was preparing for no deal at the end of October but the shutdowns by several companies in April could “not be easily repeated”. It took BMW six to nine months to plan for that, said Hawes, and it would not be repeated in November.
The industry has been one of the most outspoken in the past year over Brexit, arguing a no-deal would kill the sector and more than 100,000 jobs in “a death by a thousand cuts”.
Hawes said: “We have a new prime minister. He said the chances of no deal were a million to one, more power to his elbow. We want an ambitious deal, we need that deal, we can’t have confidence in the future without confidence he can get a deal.”
If the UK does crash out of the EU, the car industry will look to the government for tax breaks and other support including reduced energy costs, reduced business rates, R&D tax credits and enhanced capital allowances.
Hawes said Jaguar Range Rover’s recent announcement that it is to build an electric version of the Jaguar XJ saloon at its Castle Bromwich factory, safeguarding 2,500 jobs, was “rare” good news, but it was an “outlier” and did not reflect the industry trend.
A series of blows have hit the sector in recent months, with Honda announcing that it will close its Swindon factory in 2021, and Ford saying its Bridgend engine plant in South Wales will close in September 2020 with the loss of 1,700 jobs.
On Monday, owner of Vauxhall, PSA, warned that the car giant will cease production at its Ellesmere Port factory if Brexit makes it unprofitable – putting 1,000 jobs in north-west England at risk.
In addition to Brexit, the industry is facing a softening in global markets. New figures show car production fell by more than a fifth in the first half of 2019 compared with the same period in 2018, with demand at home and abroad falling by double digits.
Manufacturing for domestic buyers has fallen by 16.4%, while overseas orders are down by 21%.
Hawes said he was “relatively confident” the industry could bounce back if a deal is struck with the EU, as “the fundamentals” – including high skilled labour force, strong brands, engineering excellence and high productivity – made the UK very competitive. If not, it would be looking for support from the government if it was to safeguard jobs.
The Department of Business, Energy and Industrial Strategy said: “The UK automotive industry remains one of our great success stories.
“We are at the forefront of designing and manufacturing cutting-edge vehicles, and we continue to talk to industry, including the automotive sector, in the run-up to exit day to ensure they are prepared and can maximise the opportunities of our exit from the EU.”