Brexit car crash has wrecked Britain’s automobile industry

Let’s just be clear. We are about to witness, in the coming few months and years, the slow death of the British volume car industry. Another victim of Brexit, the malign gift from Boris Johnson to the British people that just keeps on giving.

Another British industrial success story sacrificed on the altar of that elusive god, “Sovereignty”.

And it is a terrible tragedy because it has been inflicted on a people who were never ever told by the sultans of Brexit, the likes of Johnson and Nigel Farage, the truth about what was about to befall them. It was always the greatest of ironies that some of the places that voted for Brexit in 2016, such as Swindon and Sunderland, were so dependent on the car industry, which depended itself so heavily on easy access to European supply chains and the vast single market.

If they’d known in Swindon that Honda would soon close, if they’d been informed in Sunderland that Nissan would in a matter of a few years be reconsidering its commitment, would they have voted Leave so readily?

The warnings about imminent disaster could hardly be clearer now. The giant Stellantis group, which is essentially what we used to know as Peugeot, but which now owns vast swathes of the global car industry including Vauxhall’s electric vehicle production in the UK, is quite explicit.

They may as well be, because at this stage they’ve got nothing to gain by being diplomatic. In the approach to the referendum, big players such as BMW and Toyota were wary of intervening for fear of making matters worse. The trade body, the Society of Motor Manufacturers and Traders, confined itself deliberately to setting out facts and reasoned argument rather than lurid menace. The industry was quiescent, despite having so much at stake.

Not any more. In a leaked memo, Stellantis openly discusses the future of the plant at Ellesmere Port in Cheshire, which now makes electric vehicles, and the wider domestic industry: “If the cost of EV Manufacturing in the UK becomes uncompetitive… operations will close. Manufacturers will… relocate manufacturing operations outside of UK, as seen with previously established UK manufacturers such as Ford and Mini.”

Many thousands of well-paid skilled jobs will be lost, mostly in areas that desperately need investment, not just in the northwest but also, most of all, at the Nissan operation in Sunderland. A great export earner for Britain and, until Brexit, an outstanding British success story will disappear within the next few years as investment dries up and the business becomes unviable. If this is what the “sunlit uplands” of Brexit look like then perhaps being part of the European superstate wasn’t so bad after all.

It’s worth understanding just what went wrong here. As usual, it starts with Mr Brexit himself, Johnson. On 30 December 2020, Johnson, then prime minister, his Brexit deal sewn up and with a majority of 80 seats in his pocket, confidently told the Commons: “In less than 48 hours we will leave the EU single market and the customs union as we promised. British exporters will not face a sudden thicket of trade barriers, but rather, for the first time in the history of EU agreements, zero tariffs and zero quotas.”

As ever, that was misleading. What he might have added was “provided rules of origin are adhered to”, though admittedly that’s a bit of a mouthful. What it means is that the EU is happy to allow British-made vehicles into the single market provided they are genuinely British. It would be cheating if, say, a car was exported from China or India, landed at the docks in Southampton, had a sticker with a Union Jack and “Made in Great Britain” stuck on it and immediately sent over to France for onward sale across the continent. That is not really a British car by origin, because the value of the sticker and the labour involved in putting it on is tiny in relation to the car or van as a whole.

In fact, the EU-UK Trade and Cooperation Agreement recognises that globalisation means few products are nationally “pure”, and allows for a generous limit on the proportion of electric vehicle components that can be made outside of Europe for manufacturers in the UK to benefit from tariff-free trade. These limits will decline from 60 per cent to 45 per cent by 2027. Unless manufacturers comply with these limits, the EU will — contrary to Johnson’s bald promise — slap taxes and tariffs on UK exports. This will push their price up and make them unprofitable. The process starts on 1 January 2024 when most electric vehicles traded between the EU and the UK will have a 10 per cent tariff applied.

That danger was broadly foreseen when Stellantis extended the life of their UK business two years ago, with a British government subsidy of £30m thrown in (Stellantis drive a hard bargain). At that point Johnson smugly declared: “It’s a huge vote of confidence in our economy, in the people of Ellesmere Port and in our fantastic post-Brexit trading relationships. And it’s a great example of the kind of high-skilled, well-paid jobs that we’re securing as part of our green, industrial revolution. The Stellantis plant marks the new age of cheap and efficient mass-produced electric vehicles.”

“And I could not be more proud of the fact that, in just a couple of years from now, your packages will be gliding silently to your door in an electric van marked ‘Made in Great Britain’.”

What went wrong was that the UK never developed a viable domestic automotive battery business and has had to import too many from China. Given that most of the value of an electric vehicle is contained in the battery pack, and the recent inflation in battery costs has driven that value even higher, the UK-built vehicles will fall foul of the rules of origin clauses in the treaty. Importing batteries from Europe would help, but add to costs and Europe, though way ahead of the UK, doesn’t have that much capacity either. There are also limits in the EU “cumulation” rules to that particular tactic.

In the short run, the collapse of significant parts of the nascent British electric vehicle business could be delayed by an emergency revision to the Brexit treaty. This would require Rishi Sunak to leverage his rapport with Emanuel Macron and Ursula von der Leyen. However, it is only a short-term fix, and the uncertainties about UK battery production will linger, and such uncertainties kill investment and industries. Had Brexit never happened, there would have been no question of any tariffs ever being levied on British exports to the EU, under any circumstances. That is the Brexit difference, the one that makes the UK such a risky place to invest, and that goes for all kinds of new industries and service sectors far beyond car making. That is why Brexit makes us poorer than we otherwise would be. That is why Brexit is a flop.