Honda’s decision to close its Swindon car plant by 2022 has been hijacked by the politics of Brexit. No surprise there, but the closure also blows a big hole in the government’s industrial strategy, which placed some big bets on the development and production of electric vehicles in the UK.
The government’s Automotive Sector Deal, one of eight ‘sector deals’ in the Industrial Strategy notes that R&D expenditure reached £3.4bn in 2016. UK Auto “provides over 390,000 high-quality, well-paid jobs, both directly in vehicle manufacturing and through the supply chain, and generates over £40bn of export revenue in 2016.” Ministers must be gutted by the sudden change in fortunes. UK car manufacturing faces a hihly uncertain future.
It’s not just Honda. Nissan and Jaguar Land Rover have announced deep cuts to production, and in January Sir James Dyson announced he was moving his electric car project out of the UK to Singapore. Ironically, new, low-emissions mobility is a centrepiece of the Automotive Deal. The government pledged £250m to the ‘Faraday Project,’ which aims to develop a battery to power the new generation of electric vehicles.
The new status of our auto sector is a tragedy for the UK economy, but especially for the thousands of employees and their families in Swindon, Sunderland and the West Midlands.
The government was right to target the auto sector as an investment priority, because the economic opportunity provided by electrification and ULEV (ultra-low emission vehicles) is huge. But the truth is ministers have been slow to react to rapid changes in the macro-economic environment.
Having written and published its industrial strategy, perhaps the government thought execution would look after itself. Recent events have shown the goalposts can move rapidly.
The government’s intentions are laudable. Nobody could disagree that the target sectors – life sciences, auto, creative industries, AI, construction, nuclear, aerospace and rail – have significant potential for job creation.
Our prosperity is predicated on these sectors being successful, so support is welcome, and vital. The government must learn from experience in the auto sector (and the nuclear sector too, which has suffered recent setbacks) and review its policy programme for the other key sectors too.
But overall, the Industrial Strategy lacks ambition. The UK ranks 11th among EU member states for R&D expenditure in 2017. Between 2007 and 2017, the UK’s spending on R&D as a percentage of GDP has barely moved, from 1.62% to 1.67%, well behind our major competitors.
The Industrial Strategy aims to rectify this under investment, but the target of investing 2.7% of GDP in innovation by 2027 is not nearly enough. The Eurostat figures show that Sweden, Austria, Denmark and Germany are already investing above 3.0% of GDP on R&D, and the UK is well below the EU average of 2.07%. Korea and Japan are top, at 4.22% and 3.28% respectively (2015).
We need to do more than aiming to get R&D spend in the UK to where Germany is today by 2027. The chancellor has a chance in the forthcoming Spring Statement, to acknowledge that HMG has ‘woken up and smelled the coffee.’
“Innovation” appears 149 times in the Industrial Strategy white paper. The Chancellor should give it the same prominence when he delivers his statement on 13 March, and announce new measures to incentivise innovation in the UK.
To be clear, I don’t advocate bungs or cash sums to persuade employers to stay in or come to the UK, but rather a series of smart, targeted tax incentives that reward innovative businesses and encourage them to plough back their tax reliefs into more innovation. These schemes need to be at least on a par with competitor economies.
Innovation must be protected. Changes to the government’s Patent Box scheme are urgently needed to encourage more businesses to protect their inventions, and also commercialise them.
Sir James Dyson moved his auto battery project to Singapore because the incentive regime is better than the UK. He received a huge amount of criticism, not least because of his views on Brexit views. But Sir James is one of our greatest inventors, a brilliant man who has been responsible for the creation of thousands of jobs. Attacking him is futile.
Instead, we need to understand exactly what prompted his decision to move to Singapore, and make sure that the UK introduces and encourages innovation policies and practices that keep the other Sir James Dysons in the UK, and bring James Dyson equivalents in Europe, America, the Far East and other parts of the global economy to this country too.