A leading think tank has warned Rishi Sunak against entering into a “subsidy war” with the US or EU to try and defend the British auto industry.
The UK and Spain are locked in a battle over subsidies as the Prime Minister tries to convince Indian conglomerate Tata that it should build a new megafactory in Britain in order to supply batteries for Jaguar Land Rover.
In a report released on Friday, Policy Exchange, an independent think tank founded by Michael Gove and other senior Conservatives, including the levelling-up minister, argued that the UK should focus more on improving the business climate rather than trying to protect the automobile industry through subsidies.
Sir Geoffrey Owen (author of the report, former editor) said: “The UK shouldn’t engage in a race for subsidies with the EU or the US.”
Owen said that strategic planning is crucial, along with addressing specific problems in the auto industry. “Where there are barriers which discourage investment such as high costs of energy, the government should try to remove or minimize them.”
Owen bemoaned the “erratic conduct” of UK industrial policy in the past two years, arguing that scrapping the former prime minister Theresa May’s industrial strategy by 2021 was confusing for businesses and bad for investments.
The report stated that a greater level of stability was required in government policy and that any support for the auto industry must be realistic and should be based on the best way the UK can compete in the global market.
The argument was that the size of the EU’s market gave the bloc an edge in attracting investment from Asian firms, now that Britain left the customs union and the single market.
Tata will choose between a new gigafactory for batteries in Spain and a site in Somerset near Bridgwater, as UK ministers are confident that the project will be built in Britain.
The government is expected to present a subsidy package worth at least £500mn, as well as a commitment to reduce the energy bills of the factory and any other energy-intensive user.
Separately the UK has expressed concerns over the Inflation Reduction Act of US President Joe Biden, a $369bn package intended to boost green projects in the US.
Kemi BADENTON, the business and trade minister, led the calls to Washington that ensured companies in Britain and western allies could benefit from subsidies without having to move their operations to the US.
Sunak will meet Biden next week in Washington but the British Prime Minister’s allies have said that they do not expect to see the operation of so-called IRA “high on their agenda”.
Biden and the Prime Minister will discuss these issues. The Prime Minister has been focusing on artificial intelligence recently, and its opportunities and risks.