U.K. Auto Industry Cannot Count On State Aid, Says Business Secretary

U.K. business secretary Vince Cable has said that the automotive industry in the country cannot necessarily count on government support in future. The senior figure in the country's new Conservative-Liberal coalition made the statement during an interview with the Financial Times (FT) before the production launch of the Toyota Auris hybrid in Burnaston (United Kingdom), yesterday. He told the newspaper, "We don't want to go around the country waving a chequebook." Cable said that the previous government had been forced into such action due to the economic downturn, before adding, "We're moving away out of an emergency time, and support will come in more indirect ways… Not in direct support for companies – we don't have the funding to do that, and it isn't good policy anyway." Direct support to individual companies would come only in exception circumstances, with the government focusing instead on promoting a better business climate through lower taxes and training.

Cable denied that General Motors (GM) had approached the government about a grant to bring production of the Opel/Vauxhall Ampera to Ellesmere Port (see United Kingdom: 28 June 2010: Vauxhall Ampera Funding Talks with U.K. Government Imminent—Report), but said that such projects were attractive for the automaker and should not require government support. He added "Our natural view would be that this is a good, economic project… I am not closing the door to conversations, but we can't give money to every company that asks for it."

He also said that no decision had been taken to extend subsidies for electric and plug-in hybrid vehicles, but that the decision would lie with the Department for Transport. However, he said that he supported providing incentives for what he called an "infant industry," telling the newspaper, "There is a market failure… If we are going to overcome that failure, we need something to get it off the ground."

However, the opposition party voiced concerns over Cable's stance. Shadow business secretary Pat McFadden told The Guardian that the government could risk the future of manufacturing low-carbon emission technologies in the country. He said "Our view was that while of course you can't say yes to every grant application, there is a case for taxpayer support, particularly when it is a catalyst for significant additional private-sector investment, and particularly when as a country we are trying to make a success of low-carbon manufacturing." McFadden added, "There is obviously a risk that investment goes elsewhere… If you take the Leaf - it is going to be the first mass-produced electric car from Nissan, it is looking at tens of thousands of units and we were in competition with Portugal for that. If you have a blanket refusal then there is a danger that significant investment goes elsewhere. We secured several hundred millions of investment from Nissan and in addition, it then chose Sunderland to be the mother battery plant for the whole of Europe."

Outlook and Implications

As the incoming coalition government wrestles with a massive budget deficit racked up by the previous ruling party, it was always expected that it would take measures to raise additional funding and tighten the purse strings. The new government has already taken some measures through an emergency budget, as well as recently looking closely at grants and loan guarantees that were approved by former Business Secretary Lord Mandelson prior to the government's departure. However, in the end it approved a £20-million grant for Nissan's Leaf (see United Kingdom: 10 June 2010: U.K. Prime Minister Confirms Grant for Nissan EV Investment), as well as loan guarantees to Ford and GM (see United Kingdom: 17 June 2010: U.K. Government Approves Ford, GM Loan Guarantees), although GM subsequently withdrew its request following the German government's refusal to back the automaker.

Although it is understandable why the government would want to take this stance, there has been an overall lack of support for manufacturing industries in recent years, resulting in the country turning increasingly into a service economy. This has particularly hit the automotive industry. During the last decade, there has been the loss of the country's last independent volume vehicle manufacturer, MG Rover, along with light commercial vehicle (LCV) manufacturer LDV, as well as the closure of a PSA Peugeot-Citroën facility, with production shifted to Eastern Europe. There have also been countless closures made by automotive component suppliers in the country to areas that are considered more cost-effective, or as a knock-on effect of the OEM closures. While lower tax may maintain this diminished manufacturing base, it is unlikely to support its revival which will be a key motivator of future growth. It sounds as if it may well be difficult to gain investment for low-carbon manufacturing despite this being part of government policy, but it remains to be seen how long the government can maintain this stance given the competition from other countries. A case in point could well be seen with regards to the Ampera, where the efficiency and manufacturing credentials of Ellesmere Port could easily be outweighed in the mind of GM by financial support from elsewhere.