Budget: Pressure Mounts on Government to ‘Get Behind’ Britain’s EV Sector

Following government confirmation Budget will back new carbon capture projects, the automotive industry warns tax incentives, workforce upskilling, and green energy investment is all needed to stop the UK falling behind in global electric vehicle race

Britain's electric vehicle (EV) sector is under severe threat from growing global competition, and the UK government must act rapidly to boost investment and skills in the sector and curb clean energy costs if it is to avoid losing out to international rivals, the UK car industry has today warned.

Ahead of this week's Spring Budget, the Society of Motor Manufacturers and Traders (SMMT) has called on the government to "get behind" the UK's £67bn automotive industry so that it can "pitch positively to the world to win green growth, jobs and prosperity" as the global race to electrify the transport sector continues to gather pace.

Published today, a new report by the trade body sets out a series of policy asks aimed at supporting domestic EV production, including calls for more generous incentives and subsidies, programmes to upskill the sector's workforce, and direct co-investment in green technology innovation and start-ups.

It also calls for measures to fast track planning approvals for battery factories, as well as reforms that can allow renewables projects to provide cheaper and more energy secure sources for automotive manufacturing firms in the UK. As such, it advises the government to work to rapidly decouple electricity prices from gas, in order to incentivise investment in green power and reduce the cost of electricity for UK manufacturers that have faced surging costs in the wake of Russia's invasion of Ukraine.

Mike Hawes, SMMT's chief executive, said the UK's £67bn automotive sector boasted a number of advantages the race to secure investment in EV factories and their supply chains, including in advanced car manufacturing, significant green energy supplies, and research and development (R&D) expertise. But he warned the UK risked squandering its leadership position in the face of growing global competition that has intensified further in recent months following the passage of the US Inflation Reduction Act (IRA) and the EU's plans to bolster support for its clean tech industries.

"Britain boasts a firm foundation of EV production, backed by low carbon energy, outstanding R&D and a highly skilled and productive workforce," Hawes said. "We must not squander these advantages. With other parts of the world turbocharging their support for the zero emission vehicle transition, we need to step up to compete in this global race. Every part of the country has a stake in the switch and with fast, decisive action we can deliver for Britain the growth, jobs and green prosperity this country deserves."

The UK's burgeoning EV sector has faced a storm of challenges to its competitiveness in recent years due to Brexit trade barriers, a Covid-driven downturn in sales, high domestic energy costs, and a policy environment that appears to be struggling to attract much-needed investment in domestic battery manufacturing capacity.

As it stands, no major EV battery plants - or 'gigafactories' - have reached advanced stages in the UK. BritishVolt, which had been planning a gigafactory in Northumberland, recently fell into bankruptcy before it was snapped up by Australian firm Recharge Industries which is reportedly planning to revive the project, while Nissan has warned the UK's only large-scale EV manufacturing plant is facing major challenges from weak domestic supply chains, soaring costs, and a lack of government support.

Moreover, this weekend Chinese EV giant BYD said it had no plans to build a factory in the UK as a result of the insecure investment environment caused by Brexit.

The SMMT's intervention echoes similar moves from across the green economy, which has seen numerous business groups raise the alarm over the mounting threat to UK competitiveness posed by growing global competition for green investment sparked by the IRA's promised $369bn in clean tech subsidies and tax incentives.

The European Commission is set to respond to the IRA tomorrow with its own set of regulatory reforms and incentives led by a new Net Zero Industry Act and Critical Raw Materials Act, while China continues to race forward with its huge state-backed clean tech and renewables investment drive.

As a result, huge pressure is mounting on the Treasury to come forward with a commensurate response in its Spring Budget on Wednesday. Over the weekend, Chancellor Jeremy Hunt touted plans for a major clean energy "reset" in the shape of £20bn funding pledge over the next two decades focused on the carbon capture and clean energy sectors.

The plans - details for which are expected be confirmed on Wednesday - were broadly welcomed by business groups. But the move has far from silenced calls from right across the business world and political spectrum for a bolder package of investment and policy and taxation reforms to bolster Britain's green economy and accelerate the transition to net zero emissions.

For example, Gareth Stace, director of trade association UK Steel, today called for more support to decarbonise the industry or risk the sector becoming uncompetitive as other countries worldwide shift towards net zero steelmaking.

"Other governments around the world are entering into partnerships with their steel industries and investing billions into new plants," he said in comments reported by The Mirror. "The UK government must follow suit or risk missing its net-zero target and the economic benefits of a decarbonised steel industry."

Meanwhile, the Conservative Environment Network (CEN) - a Parliamentary caucus that represents more than 100 Tory MPs - today called on the Treasury to offer more tax breaks to energy companies that invest their profits in renewables project in the UK, in order to help cut bills for struggling sectors such as EV and steel production while also supporting climate goals.

"Conservative policies have successfully scaled up renewables and driven down costs in the past 10 years," said Philp Dunne MP, CEN member and chair of Parliament's Environmental Audit Committee (EAC). "But there is now a real risk we could lose out on future green investment to the USA unless we offer capital allowances for new wind and solar projects from renewable companies."

Ahead of the Budget, Labour has sought to step up its attacks on the Conservative's economic record, with Party leader Sir Keir Starmer urging the Chancellor to get the UK "off this path of managed decline".

The move came as Labour yesterday reiterated its plans for a new national wealth fund backed by £8bn of state funding and further private investment, which it said would be given a specific remit to mobilise investment in green industry and innovation.

The policy is being touted as a direct response to the IRA, with Labour arguing that it views tackling the climate crisis as a major driver for economic growth in the UK.

Starmer and his Shadow Chancellor Rachel Reeves are set to visit a hydrogen fuel cell manufacturing plant in Surrey today to highlight the Party's green industrial revolution policies. "This week the government has a real opportunity to show they have the ambition and competence to govern," Starmer said in a statement. "Either they show some proper leadership and get our country off this path of managed decline or stand aside for an incoming Labour government."

The Treasury was considering a request for comment at the time of going to press, but in a statement on Friday, Hunt promised to get "spades in the ground" on crucial green infrastructure, such as carbon capture and storage and low carbon power projects, from next year.

"We don't want to see high bills like this again, it's time for a clean energy reset," the Chancellor said. "That is why we are fully committing to nuclear power in the UK, backing a new generation of small modular reactors, and investing tens of billions in clean energy through carbon capture. This plan will help drive energy bills down for households across the country and improve our energy security whilst delivering on one of our five promises to grow the economy."