Britain faces subsidy war with Brussels as it relaxes tax credits for carmakers
Britain's electric car market risks being left behind as the EU ramps up a transatlantic subsidies war with the US, Chancellor Jeremy Hunt has been warned.
Brussels is preparing to unveil a package of measures on Wednesday aimed at supporting renewable energy, electric vehicles and other green technologies, in response to similar measures in Joe Biden’s $430bn Inflation Reduction Act.
The package is expected to loosen state aid rules, allowing individual member states to hand out more generous subsidies to prevent a stampede of businesses taking their investment to the US instead.
But experts fear Britain will be caught in the crossfire of a subsidy war and the proposals will leave it at a disadvantage as Germany, France and other wealthy EU countries pour cash into their domestic industries.
It has prompted calls for the Chancellor to unveil more measures aimed at ensuring the survival of the UK car industry in his upcoming Spring Statement.
Andy Palmer, the former boss of Aston Martin and chairman of battery company InoBat, warned that a subsidies war between the US, China and the EU was “already happening” and the package being drawn up by Brussels threatened to leave the UK trailing even further behind.
The industry veteran, who also previously worked at Nissan, said: “The EU already offers better incentives than the UK today, without adjusting anything for the Inflation Reduction Act.
“If each country is allowed to do its own thing, it will make it even easier for countries like Germany to attract investment.
“It is already tough out there for the UK and it is about to get a lot tougher.”
Mr Palmer’s company InoBat is currently deciding where to develop a battery “gigafactory”, with Spain and the UK among the top candidates.
It expects to make a decision in the first half of this year but he warned: “The UK has soft advantages like English law, the English language and talented people but there is no competition on the incentives front, unfortunately.”
The Faraday Institution, a publicly-funded body set up to monitor progress of the transition to electric cars, says the UK will need roughly five large battery factories to meet demand for the domestic car market. Only two are currently planned – including a project by Britishvolt, which recently collapsed.
A failure to secure the factories, around which future electric car supply chains will be based, could mean the death of Britain's car industry, the institution has warned.
But car industry expert David Bailey, a professor at Birmingham University, warned that a company choosing where to put a battery factory today would probably put one in the US, or in central or eastern Europe, rather than the UK because costs are lower.
He said Britain risks being “stuck in the middle, on its own” as the EU and the US hand out huge subsidies for electric car manufacturing.
The warnings come days after industry lobby group the Society of Motor Manufacturers and Traders (SMMT) warned that more action was needed to ensure the success of Britain's electric car industry in the face of large subsidies abroad.
The US Inflation Reduction Act (IRA), which offers tax incentives to green companies and electric car customers, threatens to “suck up” investment, the SMMT said.
Mike Hawes, boss of the lobby group, said: “You can't just accept this laissez faire approach to investment, it’s not a level playing field.”
It comes as Ford has followed Tesla in cutting the cost of electric cars. Ford is reducing the price of its high-end Mach E Mustang electric car by an average of $4,500 in the US, slipping it under the maximum price to receive the IRA tax cut.
But UK buyers will miss out on the deal, Ford has confirmed. The lowest priced Mach-E in the US now starts at $45,995, while in the UK, buyers will pay from £50,830.
A Treasury spokesperson said: “The Government is taking significant action to encourage investment in renewable generation including committing £30bn to support the domestic green industrial revolution from March 2021 to April 2028.
“Our Contracts for Difference scheme has been hugely successful in driving the deployment of renewable energy with our most recent auction delivering a record capacity of almost 11GW of clean energy. To date CfD generators have received almost £6bn net in price support through the scheme.”